International property inheritance issues for those buying abroad
It may not be your first concern when buying abroad but in whose name you choose to purchase overseas properties is a huge decision to make. Inheritance legislation can cause considerable problems, and financial pain, for those inheriting overseas properties.
Inheritance tax issues relating to overseas properties
Inheritance tax can be as high as 80% in some countries. Not taking the correct preventative action can also mean severe complications for future inheritors, and even international property passing on to someone other than your intended heirs.
For these reasons, it is vital to minimise the risks passed by inheritance tax relating to overseas properties. There are options that allow you to do this when buying abroad.
The following is a guide to how inheritance tax can be avoided when buying abroad. This does not apply in every case and expert legal advice will help you plan for the particular country you are buying in.
Buying international property in Spain leaves you most exposed to inheritance tax.Inheritance tax can be as high as 80% there and the legislation surrounding inheritance tax is complicated. Overseas properties in France also attract inheritance tax and, although the system was recently overhauled, unmarried partners must still pay 60% with no tax-free allowance.
Life insurance to cover inheritance tax when buying abroad
This option does not circumvent inheritance tax on overseas properties. It does, however, mean arranging a policy which will release a large enough lump sum upon death to cover any inheritance tax due on international property.
Taking a mortgage on properties overseas
Taking a mortgage when you are buying abroad means the value of overseas properties would be reduced for tax purposes. However, for this to work the equity released would have to be invested in a manner which avoids paying tax. The proportion of a mortgage unpaid is exempted from inheritance tax in some countries.
Buying overseas properties with future inheritors
Buying abroad with future heirs reduces inheritance tax on overseas properties in proportion to ownership share. In some countries this might mean inheritors become liable to gift tax if they are unable to prove their ability to buy the international property.
Issues of ownership and control of overseas properties may arise and to prevent this happening a business-like approach must be adopted regardless of who your heirs are.
Future inheritors buying international property
If properties overseas are bought from you by future inheritors then inheritance tax on international property can be either reduced or avoided completely.
This option shares the potential disadvantages concerning gift tax as the previous one. Transferring properties overseas into the names of future inheritors will incur transfer tax and capital gains tax although inheritance tax will be avoided.
Buying abroad through a company
Establishing a company in the country you are buying overseas properties in means shares can be transferred with no transfer tax. The cost of establishing a company to do this through varies but is likely to save you a great deal compared to inheritance tax on international property.
The advantages of this option may be diminished because of inheritance tax legislation in that particular country. It is always advisable to seek out professional advice on ways to minimise exposure to inheritance tax when buying abroad. Overseas properties should be protected from inheritance tax so your family can benefit from the international property as much as possible.
