Receiving an Inheritance in Australia While Living Overseas: What should Australian Expats consider?
Key points
Receiving an inheritance in Australia while living overseas can involve different tax, legal and currency considerations depending on where you live, where the estate is administered and what assets you inherit.
An inheritance can provide an opportunity to strengthen your financial position through investing, superannuation contributions, debt reduction or building financial reserves.
The most appropriate strategy for what to do with the inheritance depends on your Australian tax residency, overseas tax obligations, financial goals and plans for the future.
Receiving an Inheritance in Australia While Living Overseas: What should Australian Expats consider?
Receiving an inheritance can be a significant financial event. For Australians living overseas, it can also create an opportunity to reassess their financial position and make decisions that support their long-term wealth and retirement goals.
Managing an inheritance as an Australian Expat can be more complex than simply receiving the funds into a bank account. Your country of residence, Australian tax residency, the location of the inherited assets and your future plans can all influence how the inheritance should be managed.
Understanding these considerations before making significant financial decisions can help you make informed choices about how to use your inheritance.
1. Understand the tax implications of receiving an inheritance in Australia while living overseas
One of the first considerations is understanding how the inheritance will be treated for tax purposes.
Australia does not generally impose an inheritance tax on beneficiaries receiving an inheritance. However, this does not mean an inheritance is automatically tax-free in every circumstance.
The tax implications can depend on several factors, including where the deceased person lived, where the estate is administered, the type of assets inherited and your tax residency.
For example, if you inherit money from an Australian estate while living overseas, the inheritance itself will generally not be assessable income in Australia. However, any income subsequently generated by the inherited assets may have tax implications.
If you inherit shares, managed investments or property, future income and capital gains may be subject to tax depending on the asset, your residency status and the applicable rules.
Your country of residence may also have its own inheritance, estate or beneficiary taxation rules. Some jurisdictions impose taxes on the estate, while others may tax the beneficiary or apply specific rules to inherited assets.
For Australians living overseas, it is therefore important to consider both Australian tax implications and the rules in your country of residence before deciding what to do with an inheritance.
2. Consider your Australian tax residency
Your Australian tax residency can influence how your financial affairs are treated following an inheritance. If you are a non-resident for Australian tax purposes, the treatment of Australian investments, property and other assets may differ from that of an Australian tax resident.
For example, inheriting Australian property may create future considerations around rental income, capital gains tax and the main residence exemption. Inheriting Australian shares or other investments may also require a review of their tax treatment and suitability for your circumstances.
It is important to distinguish between receiving an inheritance and the ongoing ownership of inherited assets. Even where the inheritance itself is not taxable, the assets you receive may create future tax obligations.
If you expect to return to Australia, this should also form part of your decision-making process. Re-establishing Australian tax residency can change how your worldwide income and investments are treated.
Our article on what happens to your overseas assets when returning to Australia from a tax perspective explores some of these considerations in more detail.
3. Decide what to do with your inheritance
Once you understand the potential tax and legal implications, the next step is determining how the inheritance can best support your financial goals.
There is no single approach that is suitable for every Australian Expat. Your age, existing assets, financial commitments, investment timeframe and plans for retirement should all influence your decision.
Invest for long-term wealth creation
If you have sufficient cash reserves and no immediate need for the funds, investing some or all of your inheritance may help you build long-term wealth.
A diversified investment portfolio can provide exposure to different asset classes, markets and investment opportunities, reducing reliance on any single investment.
However, Australians living overseas should consider more than investment performance alone. The tax treatment of investments in your country of residence, the availability of suitable investment platforms, currency exposure and the implications of eventually returning to Australia can all influence which investments are appropriate.
You should also consider whether the inherited assets already form a significant part of your portfolio. Inheriting a concentrated shareholding or property, for example, may create an opportunity to review your overall investment diversification.
Consider contributing to your Australian superannuation
For Australians who intend to retire in Australia, making additional contributions to Australian superannuation may be worth considering.
Superannuation can provide a tax-effective environment for long-term retirement savings. Depending on your circumstances, you may be able to make concessional or non-concessional contributions using some of your inheritance.
However, contribution caps, eligibility requirements, your total superannuation balance and your age should be considered before making a contribution. If you are a non-resident, you should also consider whether a contribution provides any Australian tax benefit, particularly if you have limited or no Australian taxable income.
It is equally important to consider how your country of residence treats Australian superannuation. The tax treatment of contributions, investment earnings and withdrawals may differ between jurisdictions.
Before contributing a substantial inheritance to superannuation, ensure the strategy aligns with your retirement objectives and cross-border tax position.
For further information, read our article on making a tax-deductible contribution to super while living overseas.
Reduce debt or strengthen your cash reserves
Investing is not the only way to use an inheritance effectively.
Paying down high-interest debt can reduce interest costs and improve your financial position. Alternatively, retaining some of the inheritance as cash may provide greater financial flexibility, particularly if you are planning to relocate, purchase property or return to Australia.
For Australians living overseas, maintaining appropriate cash reserves can be particularly valuable when income and expenses are spread across different currencies.
Consider how much you may need for upcoming expenses before committing the inheritance to investments or superannuation, where access to the funds may be restricted or subject to market fluctuations.
Review your property and other financial goals
An inheritance may also provide an opportunity to purchase a property, reduce an existing mortgage or build a deposit for a future home.
If you are considering Australian property, take into account your current tax residency, borrowing capacity, ongoing ownership costs and the tax implications of rental income and future capital gains.
The decision should also reflect your broader financial position. Purchasing property may increase your exposure to a single asset class, particularly if you already own Australian real estate.
4. Consider currency and cross-border estate administration
If you receive an inheritance while living overseas, the funds may need to be transferred between countries or converted into another currency.
Exchange rates can materially affect the amount you ultimately receive in your preferred currency. Transfer fees, bank charges and poor exchange rates can also reduce the value of the inheritance.
Rather than converting the entire amount immediately, consider when you will need the funds, which currency you expect to spend them in and whether you intend to return to Australia.
There may also be administrative requirements associated with receiving the inheritance, including probate, estate documentation, verification of identity and international bank transfers.
If the inheritance includes overseas property, shares or other non-cash assets, additional legal and tax considerations may apply before the assets can be transferred, sold or reinvested.
Where multiple jurisdictions are involved, obtaining appropriate tax or legal advice can help clarify your obligations before taking action.
5. Incorporate the inheritance into your broader financial plan
Receiving an inheritance can change your financial position considerably. It is therefore worth reviewing your existing strategy rather than treating the inheritance as an isolated decision.
Consider how the additional wealth affects your investment portfolio, superannuation, debt, retirement objectives and future plans.
For example, an Australian Expat who expects to return home within several years may approach the inheritance differently from someone planning to remain overseas indefinitely. Similarly, someone approaching retirement may prioritise capital preservation and retirement income, while a younger investor may have a longer investment timeframe.
Your inheritance should be considered alongside your existing Australian and overseas assets to ensure your financial decisions remain coordinated.
Our article on wealth strategies for Australians overseas explores how investments, superannuation, property, currency and long-term planning can work together.
Receiving an Inheritance in Australia While Living Overseas: A financial planning opportunity
Receiving an inheritance in Australia while living overseas can provide an opportunity to strengthen your financial position and make meaningful progress towards your long-term goals.
However, the right approach involves more than deciding where to invest the money. Australian tax residency, overseas tax obligations, currency considerations, superannuation rules and future plans can all influence how the inheritance should be managed.
Taking the time to understand these factors before making significant decisions can help ensure the inheritance supports your broader financial objectives.
Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.
If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the link below:
General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.
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