Inheritance tax in New Zealand: A complete guide

If you’re a UK expat who’s moved permanently to New Zealand, you’ll need to get to grips with the tax system there.

It’s not just income tax and tax on business activities you need to know about, however. If you’re set to inherit assets from a NZ relative who has passed away, or you’ve retired and are organising your own affairs, you might also need to know about inheritance tax.

But how does it work overseas, and does New Zealand even have inheritance tax? Read on to find out everything you know about inheriting property, money and assets in the country.

We’ll also show you how to send large amounts of money securely between countries using the Wise Account. This can be extremely useful if you have inheritance tax to pay, or want to send money from an inheritance back to the UK.

What is inheritance tax?

Inheritance tax, known as IHT in the UK, is a tax paid to the government on the estate of someone who has died. The ‘estate’ usually encompasses all property and possessions, as well as savings, investments and pensions.

Many countries have inheritance tax systems. Depending where in the world you are, the tax may be known as estate tax, inheritance tax or succession tax.

However, not all countries have this kind of tax in place. Australia, Singapore, Sweden and Norway are among a handful of countries which don’t charge inheritance tax at all.¹

Inheritance tax in New Zealand

New Zealand doesn’t have a system for charging inheritance tax on the transfer of estates from a deceased person to their heirs.

The country’s Inland Revenue service also doesn’t levy anything similar to inheritance tax, such as estate duties, gift duties, stamp duty or death duties.²

This makes it unlike the UK, where inheritance tax is due on estates valued over a certain sum.

Who pays inheritance tax in New Zealand?

In countries which do have an inheritance tax system, it is either the estate that is liable for the tax, or each individual beneficiary.

In the UK, for example, the tax is paid as a lump sum by the estate before inheritances are distributed to the beneficiaries. But in European countries like France and Spain, each beneficiary needs to pay inheritance tax if they inherit more than a designated personal tax-free allowance.

It’s completely different in New Zealand, as neither the beneficiary or the estate have any inheritance tax or stamp duty to pay.

However, it may still be a good idea to double check that no inheritance tax is due in another country. For example, you might have inherited property held in the UK from a relative who was a New Zealand citizen. No tax is due in NZ, but the UK may charge tax of some kind on the transfer of property based in the UK.

It’s important to get professional tax advice to double check which country’s tax laws apply to you, especially if you live between countries or have property in multiple countries.

Inheritance tax rates in New Zealand

As New Zealand doesn’t have inheritance tax, there aren’t any rates, allowances or thresholds to worry about.

There are some situations though where some form of tax may be due.

One of these relates to selling real estate property in New Zealand that you’ve inherited from the deceased person.

New Zealand has something called the ‘bright-line test’. This is where a property tax will need to be paid if a property is bought and sold within a set period of time, known as the ‘bright-line period’.

You’re normally exempt from this test and the related tax if you sell property you’ve inherited, or if the property is your main home.

But there’s a crucial condition - you might still have to pay tax if the person you inherited it from was planning to sell it and make a profit. If you follow through on the owner’s intentions and make a profit yourself, you may have to pay the tax.³

An example given on the NZ Inland Revenue website is if someone inherits a plot of land (known as a section) where the original owner was going to subdivide it and build houses to sell. If they carry on with the same plan, subdividing, building and selling houses for profit, the tax is likely to be due.³

In this circumstance, any profits are taxed at your highest marginal tax rate for your annual income, and you’ll need to declare it on your annual tax return.⁴

Taxable assets and exemptions

As New Zealand doesn’t have any inheritance tax laws, it means that all assets within an inherited estate are free from tax.

Crucially though, this may only mean assets held in New Zealand. If you inherit assets from another country, you may be liable for inheritance tax under that country’s rules.

To avoid an unexpected tax bill, it could be a good idea to seek professional tax advice.

How to calculate inheritance tax in New Zealand

In New Zealand, there’s no calculation required for inheritance tax, which can make the probate process a little more straightforward.

Here’s how it works if you’re inheriting an estate in New Zealand:

1. The executor appointed in the will applies to the court to get approval for dealing with the property (a probate). If there’s no will the court will appoint a close relative as the administrator of the property, which means they have the right to manage the estate.
2. The executor or administrator prepares the property to be distributed - they identify all assets, deal with any claims against the estate, like a relative left out of the will, as well as pay any outstanding debts.
3. Distribute the property to the people entitled to it as set out in the will or according to the rules of intestacy.

How to pay inheritance tax in New Zealand

If you have to pay property or any other taxes in New Zealand, the usual process is to submit an annual tax return.

But it’s a relief to know that in most cases, there won’t be any tax to pay.

You’ll just need to make sure you have a bank or other account available to receive any money you inherit. If you’re not living in New Zealand, there’s also the issue of currency conversion to think about. If you’ll be receiving the money in New Zealand dollars (NZD), you’ll need to avoid high currency conversion fees and get the best exchange rate possible.

Opening a Wise account could be the ideal solution. You can even get local account details to receive NZD for free, converting it to whatever currency you like for low fees* and mid-market exchange rates.

You can also send money worldwide with Wise, for low fees* and mid-market exchange rates. There’s even a dedicated service for securely sending large amounts.

Wise - For big money transfers at life’s big moments

After reading this, you should have a better idea of how the New Zealand inheritance system works. It’s great news that in most cases, you won’t have to pay any inheritance tax.

But if you do need a way to pay bills in New Zealand, send inherited money back to the UK or generally manage your finances between countries - Wise is the perfect solution.

With Wise, you can hold and convert between 40+ currencies in your online account. And you can send money worldwide for low, transparent fees* and mid-market exchange rates.

If you’re sending a large sum between countries, read our quick guide on what documents you’ll need. Whether you’re paying foreign bills or trying to get the best exchange rates when repatriating funds from overseas back to the UK, your Wise account can do it all.

FAQs about inheritance tax in New Zealand

Below are some of the most frequently asked questions:

Do I need to declare inheritance from overseas in New Zealand?

No, as a New Zealand resident, you shouldn’t need to declare inheritance from overseas or pay any tax on it within New Zealand (although you might have to pay tax on it in another country).

However, you may be taxed on other sources of income (such as work or business) derived from overseas.

How does inheritance work in New Zealand?

Unlike some other countries, New Zealand succession laws don’t have any rules about forced heirship. This is where close relatives such as spouses and children are automatically entitled to a share of the deceased person’s estate, regardless of what it says in the person’s will.

Instead, New Zealand operates in a similar way to the UK, on the basis of testamentary freedom.⁵ This means that whatever the person stipulates in the will as to the distribution of the estate will be carried out, with a few exceptions and provided the will is valid.

If there is no will, the country’s laws of intestacy will be applied. This law divides estates in priority order, where close relatives such as spouses and children get a larger proportion. Other relatives such as parents, siblings, grandparents, uncles and aunts may also be entitled to an inheritance under NZ intestacy laws.⁶

Which other countries have no inheritance tax?

Many countries worldwide have no inheritance tax system, although other systems such as stamp duty or transfer tax may be used instead.

Here are just a few of the countries which don’t have inheritance tax, aside from New Zealand:⁷

• India
• Singapore
• Mexico
• Estonia
• Malta
• Sweden
• Austria
• Norway
• Canada
• Slovakia
• Liechtenstein
• UAE
• Hong Kong
• Saudi Arabia.

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Sources used:

1. The Telegraph - The countries that abolished inheritance tax – and are now booming
2. Grant Thornton - Expatriate tax - New Zealand
3. Inland Revenue NZ - Inheriting property
4. MoneyHub - The Definitive New Zealand Guide to The Bright-Line Rule for Property Sales
5. International Bar Association - New Zealand International Estate Planning Guide
6. Community Law - Dealing with the deceased’s property: Wills, intestacy, and small estates
7. Lorenz Partners - List of countries with no inheritance tax

Sources last checked on date: 22-Aug-2024