Receiving an inheritance while living abroad

galwayguy85

Hi Guys.

My uncle passed away a while ago. Only very recently did the probate process finally come to an end. I have received a sum of money into my Irish bank account, this, I must stress has already had the relevant taxes etc deducted from it by the Irish solicitor/account handling the matter.

I am living in Germany now for two years. I work and pay through the nose already in tax. Nearly 30% of my gross income each month, as a matter of fact.

Does the boardsies know (in general) that if receiving an inheritance while living/working in another country are you expected to declare that as well, and in effect have to pay tax twice on an inheritance to two different governments.

Thanks.

Mrs OBumble

You need advice from a German accountant, not from boardsies.

And if you think that 30% is paying thru the nose ... don't ever come home.

galwayguy85

That's something I'll likely be doing in the new year.

I would just like to know if those Irish who have gone to UK, USA or Australia (etc) have had to do something similar.

redcup342

galwayguy85 wrote: »

Hi Guys.

My uncle passed away a while ago. Only very recently did the probate process finally come to an end. I have received a sum of money into my Irish bank account, this, I must stress has already had the relevant taxes etc deducted from it by the Irish solicitor/account handling the matter.

I am living in Germany now for two years. I work and pay through the nose already in tax. Nearly 30% of my gross income each month, as a matter of fact.

Does the boardsies know (in general) that if receiving an inheritance while living/working in another country are you expected to declare that as well, and in effect have to pay tax twice on an inheritance to two different governments.

Thanks.

Yes you are required to declare your worldwide income.

Your inheritance is subject to German Taxes as you are tax resident in Germany.

You won't pay Irish Inheritance tax as Germany has a Tax treaty with Ireland (why would you, you don't live or work there)

And effective tax rate of 30% is not a lot, plus your cost of living in Germany is way lower than what it would be in Ireland.

murphaph

redcup342 wrote: »

Yes you are required to declare your worldwide income.

Your inheritance is subject to German Taxes as you are tax resident in Germany.

You won't pay Irish Inheritance tax as Germany has a Tax treaty with Ireland (why would you, you don't live or work there)

And effective tax rate of 30% is not a lot, plus your cost of living in Germany is way lower than what it would be in Ireland.

Just because there's a tax treaty doesn't mean that all tax is levied in Germany and none in Ireland.

For example, I'm tax resident in Germany but my Irish rental income is taxed first and foremost in Ireland. I suspect inheritance tax on real property derived in Ireland works the same way.

Wesser

30% is not a high tax rate

redcup342

murphaph wrote: »

redcup342 wrote: »

Yes you are required to declare your worldwide income.

Your inheritance is subject to German Taxes as you are tax resident in Germany.

You won't pay Irish Inheritance tax as Germany has a Tax treaty with Ireland (why would you, you don't live or work there)

And effective tax rate of 30% is not a lot, plus your cost of living in Germany is way lower than what it would be in Ireland.

Just because there's a tax treaty doesn't mean that all tax is levied in Germany and none in Ireland.

For example, I'm tax resident in Germany but my Irish rental income is taxed first and foremost in Ireland. I suspect inheritance tax on real property derived in Ireland works the same way.

Same here,

Inheritance and other taxes like BIK are taxed wherever you are normally resident.

murphaph

redcup342 wrote: »

Same here,

Inheritance and other taxes like BIK are taxed wherever you are normally resident.

This is incorrect insofar as inheritance of real property located in Ireland is taxable first and foremost in Ireland, no matter where the beneficiary or indeed the disponer is tax resident:

[CAT] applies to all property that is located in Ireland. It also applies where the property is not located in Ireland but either the person giving the benefit or the person receiving it are resident or ordinarily resident in Ireland for tax purposes.

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html

Revenue gets first dibs. If a double taxation treaty exists between Ireland and the country of tax residence it will probably allow a credit to be claimed in the country of tax residence for tax paid in Ireland so you don't pay tax twice on the same thing. If no treaty exists you're SOL and will be taxed twice.

I looked at this a while back because I have property in Ireland and the tax thresholds for parent to child gifts (or inheritances, same thing) are much more generous in Germany (up to 400k per parent per child EVERY ten years last time I looked) and I was wondering could I gift my children my Irish property in advance of my death to relieve them of inheritance tax but it will be unavoidable because the property is worth more than than the relatively low thresholds in Ireland.

gar32

I have something going on like this where I am selling a property in Ireland and live in Germany. As I will be selling for less then I paid for it there should be no capital gains tax due in Ireland. As I have not gained anything is it considered income or just investment / saving and there for does not effect my German income tax?

Also if you do transfer money to Germany anything over €12500 has to be reported by the bank to the tax man here. Also if there are lots of lower amount transferred in a short space of time the bank may also report it but it is up to them.

I will ask my accountant here when I see her next but it is nice to be informed about these things so tax avoidance can be done legally.

gar32

Any update OP ?

murphaph

gar32 wrote: »

I have something going on like this where I am selling a property in Ireland and live in Germany. As I will be selling for less then I paid for it there should be no capital gains tax due in Ireland. As I have not gained anything is it considered income or just investment / saving and there for does not effect my German income tax?

Also if you do transfer money to Germany anything over €12500 has to be reported by the bank to the tax man here. Also if there are lots of lower amount transferred in a short space of time the bank may also report it but it is up to them.

I will ask my accountant here when I see her next but it is nice to be informed about these things so tax avoidance can be done legally.

If you are selling a property for less than you paid for it there is no capital gain to be taxed in either Ireland or Germany but you may be entitled to carry the loss forward and/or offset against other taxes so you should still seek tax advice IMO.

Bubbaclaus

redcup342 wrote: »

Yes you are required to declare your worldwide income.

Your inheritance is subject to German Taxes as you are tax resident in Germany.

You won't pay Irish Inheritance tax as Germany has a Tax treaty with Ireland (why would you, you don't live or work there)

And effective tax rate of 30% is not a lot, plus your cost of living in Germany is way lower than what it would be in Ireland.

This is completely incorrect. CAT is not covered in standard tax treaties. And just because you're resident somewhere absolutely does not mean you are only taxable there and not anywhere else.

Peregrinus

There is a tax treaty between Ireland and Germany but it doesn't cover inheritance tax or gift tax - just income tax, corporation tax and capital gains tax. So it isn't relevant here.

As far as inheritance tax goes, an inheritance attracts tax in Ireland if either the disponer (the deceased) or the recipient is resident or ordinarily resident in Ireland. Assuming the OP's uncle was resident in Ireland, the inheritance was liable to Irish inheritance tax, so the deduction of that was correct. (I'm assuming, of course, that the calculation of the amount of Irish inheritance tax deducted was correct.)

Whether it's also subject to German inheritance tax or similar is a matter of German law. The OP asks in post #3 about the situation of people in the US, the UK and Australia but, with respect, that's completely irrelevant. All that matters here is what German tax law has to say about this.

The advice in post #2 to take local advice is sound. For what it's worth, my understanding is that, yes, Germany does tax its residents on their inheritances, including their inheritances from abroad. As in Ireland, the amount you can inherit free of tax depends on your relationship to the deceased. For an inheritance from an uncle, the tax-free threshold is EUR 20,000. Everything above that is taxed on a sliding scale which starts at 15% on the first EUR 75k and rises to 43% on everything over EUR 26 million. Generally, a credit will be available for any foreign inheritance tax paid, so if the Irish inheritance tax exceeds the German inheritance tax, no German inheritance tax will be payable.

murphaph

The rates for class A like parent to child are far far higher in Germany (400k per parent every 10 years) so it's extremely unlikely the German taxman would want more than revenue IMO but obviously the exact figures would need checking.

Peregrinus

murphaph wrote: »

The rates for class A like parent to child are far far higher in Germany (400k per parent every 10 years) so it's extremely unlikely the German taxman would want more than revenue IMO but obviously the exact figures would need checking.

The OP doesn’t ask about an inheritance from a parent but from an uncle, for which the German threshold, 20k, is much lower than the Irish threshold of
32.5k. Depending on the amount of the inheritance (which the OP doesn’t give) the German tax bill could well be larger than the Irish bill.

The OP als needs local advice to confirm that he gets a full credit in Germany for Irish tax paid, and not just a deduction.

murphaph

Peregrinus wrote: »

The OP doesn’t ask about an inheritance from a parent but from an uncle, for which the German threshold, 20k, is much lower than the Irish threshold of
32.5k. Depending on the amount of the inheritance (which the OP doesn’t give) the German tax bill could well be larger than the Irish bill.

The OP als needs local advice to confirm that he gets a full credit in Germany for Irish tax paid, and not just a deduction.

Yes you're right but if it's a house or something of that order the German tax bill will still be way lower.

The tax free allowance is indeed 20k in Germany for class 2 (eg uncle->nephew) and 32.5k in Ireland but the tax rate in Ireland is a flat and pretty eye watering 33% on the remainder.

In Germany the tax rate is progressive, depending on the amount (see https://www.steuerklassen.com/erbschaftssteuer/erbschaftsteuertabelle/). An example might be a 300k house. In Ireland you pay tax @ 33% on 267,5k = 88,275. In Germany it's 20% on 280k = 56k....~32k less.

On inheritances up to 75k it's only 15% tax in Germany. I'll leave it as an exercise for the reader to calculate the point at which German tax would no longer be higher than the Irish tax.

Bubbaclaus

Why are people assuming you'd get a credit in Germany for the Irish tax? There doesn't seem to be any basis for that, unless German tax law is unusual.

Most likely would be a deduction (e.g. 300k inheritance, 50k tax paid in Ireland = 250k considered as the inheritance for tax in Germany.

Peregrinus

Bubbaclaus wrote: »

Why are people assuming you'd get a credit in Germany for the Irish tax? There doesn't seem to be any basis for that, unless German tax law is unusual.

Most likely would be a deduction (e.g. 300k inheritance, 50k tax paid in Ireland = 250k considered as the inheritance for tax in Germany.

Well, you may think it's generous, but in the reverse situation - an Irish resident receiving a foreign inheritance, subject to foreign inheritance tax - Ireland gives a full credit against CAT for the foreign inheritance tax paid; Capital Acquisitions Tax Consolidation Act 2003 s. 107. So if Ireland does this, it's not impossible that other countries do also. And I have read commentary that suggests that Germany does.

But commentary on the internet is not authoritative, which is why this is definitely a point that needs to be checked locally with a competent tax adviser. If nothing else, the availability of the tax credit may depend on the nature/location of the property inherited, which the OP doesn't specify.

murphaph

Bubbaclaus wrote: »

Why are people assuming you'd get a credit in Germany for the Irish tax? There doesn't seem to be any basis for that, unless German tax law is unusual.

Most likely would be a deduction (e.g. 300k inheritance, 50k tax paid in Ireland = 250k considered as the inheritance for tax in Germany.

I agree with this. The German tax code is not at all unusual in this regard when it comes to inheritance tax. It will probably be taxed twice in some shape or form. It's something the EU needs to work on but many member states (including Ireland) fiercely defend the national competence of taxation in the EU.

Peregrinus

murphaph wrote: »

. . . on inheritances up to 75k it's only 15% tax in Germany. I'll leave it as an exercise for the reader to calculate the point at which German tax would no longer be higher than the Irish tax.

By my calculation the crossover point is somewhere around EUR 42,920. For uncle-nephew/niece inheritances below that amount, the German tax is higher; above that amount, the Irish tax is higher.

Up to a point, of course. Because once the inheritance exceeds EUR 75,000 German tax rates start to climb, and there will come a point where the German tax will again exceed the Irish tax. But that would be on an inheritance of somewhere north of 13 million euros.

jester77

Was there not an EU rule introduced where you the recipient could decide to pay inheritance tax in the country where the inheritance originated or in the country where they are currently residing, provided both are in the EU of course.

Peregrinus

jester77 wrote: »

Was there not an EU rule introduced where you the recipient could decide to pay inheritance tax in the country where the inheritance originated or in the country where they are currently residing, provided both are in the EU of course.

There is an EU regulation under which if you are a resident of one member state but a citizen of another, you can opt to have your estate dealt with under the laws of your home country rather than under the laws of your country of residence. But:

(a) I think this allows (say) a Spanish person living in Germany to choose to have his estate administered under Spanish law, not to choose what law will apply to someone else's estate under which he receives an inheritance; and

(b) I could be wrong but I think this has more to do with succession law (who is entitled to a share in your estate; who will inherit if you leave no will, etc) rather than tax law; and

(c) in any event, Ireland has an opt-out from this particular regulation, which I think means that Irish citizens living in other member states can't avail of it.