For Australian expatriates residing in the United States, inheriting property, shares, or cash from Australia involves several important tax considerations. 

While Australia does not have an inheritance tax – the U.S. has an estate tax that could potentially apply under certain circumstances. 

Additionally, the tax treatment of inherited assets differs between the two countries, particularly concerning capital gains tax (CGT) in Australia and income tax obligations in the U.S.

This article provides a detailed, accurate guide to understanding:

• How the U.S. and Australia treat inheritances
• The correct cost base rules for inherited assets in Australia
• What taxes you need to consider when selling or earning income from inherited assets
• Key reporting requirements for expats receiving an inheritance from Australia

Let’s dive in.

Understanding U.S. Estate Tax And The 1953 U.S.-Australia Estate Tax Treaty

Unlike Australia, the United States has an estate tax, which applies to the total value of a deceased person’s U.S.-situated estate. 

However, the “Convention Between the Government of the United States of America and the Government of the Commonwealth of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates of Deceased Persons” (1953 U.S.-Australia Estate Tax Treaty) provides certain protections for Australian expats.

How U.S. Estate Tax Applies To Australian Expats

 If You Inherit Assets From Australia

• No U.S. estate tax applies when you inherit property, shares, or cash from an Australian estate.
• However, once you own the asset, any future income, dividends, or capital gains from selling the asset will be taxable in the U.S.

If You Own U.S. Assets When You Die

• U.S. estate tax applies to U.S.-situs assets (e.g., real estate, U.S. stocks, U.S. businesses).
• The 1953 U.S.-Australia Estate Tax Treaty allows Australians to claim the same U.S. estate tax exemption as U.S. citizens.
• In 2024, the U.S. estate tax exemption is $13.61 million—meaning no U.S. estate tax applies if your worldwide estate is below this amount.

If your worldwide estate exceeds this threshold, U.S. estate tax could apply at rates of up to 40%.

Key Takeaways

1. If you inherit assets from an Australian estate, the U.S. does not impose estate tax on you.
2. If you own U.S. assets when you die, your estate could be taxed—but only if your worldwide estate exceeds $13.61 million.
3. The 1953 treaty protects Australians from double taxation on estate matters.

Inheriting Property In Australia While Living In The U.S.

Australian Tax Implications: Capital Gains Tax (CGT) On Sale

While inheriting property itself is tax-free, Australia imposes capital gains tax (CGT) when you sell the inherited property. 

The rules for calculating the cost base (original value for tax purposes) depend on when the deceased acquired the property.

Correct Cost Base Rules For Inherited Property In Australia

When the Deceased Acquired the Property	Your Cost Base
Before 20 September 1985 (pre-CGT asset)	The market value of the property on the date of the deceased’s death.
Before 20 September 1985, but a major improvement was made on/after that date	The market value of the original asset + the cost base of the improvement at the date of death.
On or after 20 September 1985 (post-CGT asset)	The deceased’s cost base at the date of death, unless:  The property was the deceased’s main residence and not used to generate income before death, in which case the cost base is reset to market value at the date of death.

When The Deceased Acquired The Property	Your Cost Base
Special disability trust property	The cost base is the market value at the date of death.

Selling Inherited Property & Australian CGT

If you sell the property within two years, you may qualify for a CGT exemption (if the deceased’s main residence was not used for rental income).

If the property was an investment property, CGT applies based on the correct cost base.

U.S. Tax Implications

No U.S. tax applies when you inherit the property.

However if you sell the property, the IRS will tax the capital gain, but you can claim a foreign tax credit for Australian CGT to avoid double taxation.

If you rent out the property, you must report rental income in the U.S. and may owe tax.

Inheriting Shares In Australia While Living In The U.S.

Australian Tax Implications

• No tax is due at the time of inheritance.
• If the deceased acquired the shares before 20 September 1985, the cost base is  the market value at the date of death.
• If the deceased acquired the shares on or after 20 September 1985, your cost base is the deceased’s cost base at the date of death.

U.S. Tax Implications

• No U.S. tax applies to the inheritance itself.
• Any dividends from Australian shares are taxable in the U.S. as foreign income.
• When you sell the shares, you must report the capital gain to the IRS.
• If you pay Australian CGT, you can claim a foreign tax credit in the U.S.

Inheriting Cash In Australia While Living In The U.S.

Australian Tax Implications

No tax applies to inherited cash in Australia.

U.S. Tax Implications

• No U.S. tax applies to the inheritance itself.
• If you receive over USD $100,000 from a foreign inheritance, you must file IRS Form 3520.
• Failing to file Form 3520 can result in penalties of $10,000 or more.

U.S. Reporting Requirements For Australian Inheritances

Form	Who Needs to File?	What It Reports
FBAR (FinCEN Form 114)	If foreign financial accounts exceed $10,000	Foreign bank accounts, superannuation, shareholdings
Form 8938	If foreign assets exceed $50,000 (single) or $100,000 (joint)	Foreign financial assets, including shares
Form 3520	If you inherit $100,000+ in a single year	Reporting large foreign inheritances to the IRS

Final Takeaways: What You Need To Know About Inheritance As An Australian Expat In The U.S.

• No U.S. estate tax applies to inheritances from Australia due to the 1953 U.S.-Australia Estate Tax Treaty.
• Australia has no inheritance tax, but CGT applies when selling inherited property or shares.
• The correct cost base for inherited Australian assets depends on when the deceased acquired them.
• Rental income and dividends from Australian assets must be reported in the U.S.
• If you receive more than $100,000, you must file IRS Form 3520 to report it.
• Foreign tax credits can help prevent double taxation on asset sales.

The above is a general overview of inheritance considerations for Australians living in the US. There may be nuances in your personal circumstances that may need specific tax advice. It is important you obtain individual advice specific to your situation.

With the United Kingdom preparing to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025, many Australians are considering the tax impact of returning home. See our article Australians Living In The UK: How The New “Non-Dom Tax” Changes May Affect You.

Whether you make the decision to return home before the tax changes take place, or you remain in the UK until after the new laws impact you, when you return home it is important to manage your UK tax exit obligations.

Simple Checklist For Australians Returning From The UK

1. Confirm UK tax residency status and apply for split-year treatment (if eligible).

2. File a final UK tax return and settle any outstanding liabilities.

3. Plan capital gains tax-efficiently (consider selling non-UK assets after leaving to avoid UK CGT).

4. Transfer UK savings and close unnecessary UK bank accounts.

5. If keeping UK property, register with HMRC’s Non-Resident Landlord Scheme and  ensure that you continue to file UK tax returns as a non-resident.

6. Seek advice on Australian taxes and ensure your Australian tax return is prepared in accordance with Australian tax residence rules, including declaring worldwide income.

7. Review foreign asset disclosures and pension tax treatment with the ATO.

8. Be mindful of the 10-year UK IHT rule for former UK residents9- Use the UK-Australia Double Tax Agreement to mitigate double taxation.

The Key Differences For Australians Returning To Australia Before vs After The UK’s New Non-Dom Rules (April 6, 2025)

The timing of departure from the UK will significantly impact an Australian’s tax obligations in both the UK and Australia. The key differences arise in capital gains tax (CGT), inheritance tax (IHT), and foreign income treatment.

1. UK Capital Gains Tax (CGT) Implications On Worldwide Assets

The Key Difference for CGT purposes is that leaving before April 2025 allows Australians to sell non-UK assets CGT-free under the remittance basis. Individuals leaving after April 2025 may still owe UK CGT on global assets if they were UK residents for more than 4 years.

2. UK Inheritance Tax (IHT) Exposure

The key difference for IHT exposure is that before April 2025 a non-domiciled resident does not have their worldwide assets caught in UK IHT rules when they leave the UK. Leaving after April 2025 can expose them to UK IHT for up to 10 years if they were a UK tax resident for a decade or more.

3. UK Tax On Foreign Income And Remittances

Non-domiciled individuals who leave before April 2025 avoid retrospective taxation on foreign income and remittances. Leaving after April 2025 could mean more UK tax on past foreign income, depending on transition arrangements.

4. Remittance Of Foreign Income Into The UK

Prior to 2025 a non-domiciled resident would avoid UK taxes on foreign income if they did not bring this income into the UK.

Under the new UK tax rules all foreign income is taxable in the UK after the first four years, regardless of whether the income is brought into the UK or not. It is important to ensure that your Australian income isn’t brought into the UK prior to 6 April 2025 if you want to avoid UK taxes on that income.

After 6 April 2025 you may be exempt from paying UK taxes under the four-year exemption rule. If you are not exempt under this rule you may be able to bring previously untaxed foreign income into the UK under a reduced tax rate if a decision to designate this income for remittance into the UK is made before the end of the 2028 financial year. Foreign income earned from 6 April 2025 (other than income earned under the 4 year exemption rule) will be taxable, regardless of whether it is remitted into the UK or not.

5. UK Property And Rental Income

The rules remain similar in that UK rental income will continue to be taxable in the UK as the country of source, as well as being taxable in Australia as the country of residence. However, the CGT rules may be stricter for UK purposes for former UK residents, meaning that the key difference is that an individual returning to Australia may see better CGT outcomes if they sell their UK property before they leave. As this will depend on specific factors, it is important to obtain correct tax advice for your specific situation prior to making your move back to Australia.

 6. Australian Tax Treatment Upon Returning

Regardless of when an individual returns, Australians:

a) Will immediately become Australian tax residents and be taxed on their worldwide income for Australian tax purposes.

b) Must declare UK rental income, pension withdrawals, and foreign bank accounts.

c) May claim foreign tax credits for UK tax paid on income still sourced in the UK.

Leaving before April 2025 gives returning Australians more flexibility to clear UK tax obligations before Australian tax residency resumes.

Overview Of Tax Impact Of Australian Leaving Before Or After April 2025

Factor	Before April 6, 2025 (Old Rules)	After April 6, 2025 (New Rules)
UK CGT On Worldwide Assets	No CGT on non-UK assets	Worldwide assets taxable if UK resident 4+ years
UK Inheritance Tax (IHT)	Only applies to UK assets	Worldwide estate taxed if UK resident 10+ years
UK Tax On Foreign Income	Foreign income not taxed if remitted after leaving	Worldwide income taxable if UK resident 4+ years
Bringing Foreign Income Money Into The UK	UK tax only applies when remitted to the UK	UK tax applies on worldwide income (after the first four years) and possible UK tax on past foreign income if repatriated
Australian Tax Impact On Moving Back To Australia	Becomes tax resident immediately, but avoids UK transition issues	Still becomes tax resident of Australia, but may owe UK taxes on past foreign income

Summary

Australians who leave the UK before April 6, 2025 will avoid new UK tax burdens on foreign assets, income, and IHT. Anyone staying past April 2025 or moving to the UK after this date, may face unexpected UK tax liabilities which may continue even after leaving.

These changes mark a significant departure from the UK’s previous tax regime. Understanding these changes is important when assessing a decision around how long you plan to live in the UK, and how this may impact your current tax obligations, as well as the tax impact on your estate.

Whether you are still making your decision on living in the UK, or need to understand the tax consequences of your decision, it is important to engage an international tax specialist who can provide up to date and accurate information tailored to your specific situation.