At the end of a long life, all your hard work and success will hopefully have left you with a sizeable estate to leave behind for your loved ones. However, passing on your wealth and assets is unlikely to be straightforward.

In many countries, the wealth and property you leave behind could be liable for Estate Tax, known as “Inheritance Tax (IHT)” in the UK, and might mean your loved ones face a hefty bill.

IHT rules work differently across the world. So, if you’re thinking of leaving Hong Kong in the future and retiring abroad, it’s important you understand how different tax systems might affect your beneficiary’s inheritance.

Read on to learn about the different IHT systems in other countries and how these taxes could affect your estate.

In the UK there is a campaign to abolish IHT, but it’s unlikely to succeed with a potential Labour government on the horizon

The Guardian reports that 50 Conservative MPs, as well as the Telegraph newspaper, are pushing to abolish IHT in the UK. It also cites that Brits feel that IHT is the second most unreasonably high tax – after Council Tax.

However, an end to IHT in the UK is unlikely to become reality due to the changing tide on the political scene. As mentioned in our previous blog, the Labour Party is on track to win the next UK general election and will likely either retain current IHT rules or potentially even increase taxes.

Currently in the UK, you are likely to be exempt from IHT if:

• The value of your estate is below the £325,000 threshold known as “the nil-rate band”
• You leave everything above the threshold to your spouse or civil partner
• You donate everything above the threshold to an exempt beneficiary, such as a charity.

If you additionally opt to give away your home to your children, or grandchildren, your threshold can increase to £500,000. This is due to the residence nil rate band (RNRB) which allows you to pass the family home on to direct descendants. It does not apply to buy-to-let property you may have.

Any part of your estate that exceeds the “the nil-rate band” threshold might be liable for IHT at the rate of 40%.

Charitable gifts could also help to reduce the amount of IHT due on the rest of your estate. If you give at least 10% of your taxable estate to charity, the IHT for the rest of your estate reduces from 40% to 36%.

There are plenty of ways to navigate IHT in the UK — such as gifting your wealth before you die or a Potentially Exempt Transfer (PET) — so it’s important to seek out expert advice to make sure your estate is dealt with as tax-efficiently as possible.

The US has no federal IHT, but does have an Estate Tax and some individual states have their own IHT rules

Estate Tax, also known as “The Gift Tax”, is applicable in the US when the total value of a US citizen’s estate exceeds the lifetime exclusion amount.

As of 2023, the Inland Revenue Service (IRS) allows a person to give away $12.92 million ($25.84 million for married couples) in assets or property over the course of their lifetime, or as part of their estate.  The US “nil-rate band”.

This also applies to individual’s residing in the US who might not be US citizens.

Individuals are subject to tax on all transfers of assets or property from one person to another, either while they are alive (Gift Tax) or upon death (Estate Tax). The current rate of US Estate Tax is effectively 40% due on amounts above the US “nil-rate band”.

Spouses can benefit from an exemption from Estate Tax when transferring to one another, and the leftover lifetime exclusion amount can be passed on from a spouse upon their death to their living partner. However, these rules don’t apply between a married couple, in which one partner is a non-US citizen.

The majority of US states don’t have IHT and only have the federal Estate Tax. However, residents of these six US states may have additional IHT for their loved ones to consider:

• Iowa
• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Rules can differ from state to state, so it’s vital that you seek out advice to ensure you’re fully aware of not only how Estate Tax might affect your plans, but also how local IHT rules could affect your beneficiaries.

Australian estate rules are relatively straight forward

In Australia, there is no inheritance or Estate Tax, which may come as a welcome relief. However, your loved ones may have tax obligations on the assets they inherit.

Australian estate laws dictate that you may be liable for:

• Capital Gains Tax if your loved ones dispose of an asset inherited from a deceased estate
• Income Tax on any dividends or rental income from shares or property they inherit.

Until the process of resolving a deceased person’s estate is finalised, it may continue to earn income. For example, the estate may draw income from rental properties or other investments.

If your loved ones inherit this income, they may need to include it on their tax returns.

In this situation, the legal personal representative (LPR) of the estate will likely provide your loved ones with the necessary information to complete their returns.

If you have a superannuation scheme, the super fund’s trustee will work out who will receive your benefits upon your death. The super paid after a person’s death is known as a “super death benefit”.

The tax on a super death benefit depends on whether:

• Your loved one was a dependant
• It is paid as a lump sum or as an income stream.

Other factors such as your age upon death, your beneficiary’s age, and taxes already paid can all effect the final outcome.

To gain a better understanding of the finer details involved you should consider consulting with an adviser on how your estate may be affected and what steps you could take to secure the wealth you hope to leave.

French IHT rules can be extremely complicated and rigid

French IHT, known as the “droits de succession”, works differently to most other Western nations.

Where IHT rules in the UK or US have measures in place to benefit spouses, the French system reviews people on an individual basis, and puts the interest of children at the forefront.

In France, the need for a written will has even greater importance than other countries, especially if you wish for your estate to go to specific individuals and avoid being passed down through French succession laws.

French IHT is paid individually by each beneficiary, dependent on the amount they receive. Personal allowances and exemptions differ according to the beneficiary’s relationship with the deceased.

For example, between parents and children, the tax-free allowance is set at €100,000 and anything above that threshold is taxed at the following rates:

Source: Notaires

Meanwhile, inheritance between brothers and sisters allows a tax-free allowance of €15,932 for each beneficiary with earnings above the threshold taxed at:

• 35% if less than €24,430
• 45% if more than €24,430.

The allowances and rates can differ further for nieces and nephews or unrelated beneficiaries. It is essential that you consider seeking out expert advice to help you avoid falling foul of these incredibly complicated tax laws.

Hong Kong Estate Duty was abolished on 11 February 2006

Estate Duty has been abolished since 11 February 2006 in Hong Kong. So, the dependents of a person who died on or after 11 February 2006 are not subject to tax.

This makes Hong Kong an incredibly attractive location from an estate perspective. In fact, in terms of taxes, Hong Kong remains one of the most attractive jurisdictions world-wide.

However, it is important to note that many Western nations will have rules around where they consider you to be domiciled, which may leave you subject to their IHT regulations.

Deciding on the best approach for your estate can be a complicated process. Timing matters, and it is important that you take the right steps now to prevent issues arising for your loved ones after you’re gone.

Working with BMP Wealth can help you navigate these tricky waters and ensure your estate is managed efficiently. This could mean helping you to prepare it for an eventual move abroad or assisting you with taking advantage of the incredibly beneficial system here in Hong Kong.

The first step is to get in touch

If you have any ongoing concerns about your estate and want to gain a greater understanding of the issues you might face when considering a potential move abroad, we can help. Email us at info@bmpwealth.com or call +852 3975 2878.