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If you are planning to move from the UK to Israel, you may wonder if this will affect your inheritance.
Understanding how inheritance laws and taxes differ between the two countries is important, as these factors can change depending on where you live or where the estate is located.
While both the UK and Israel have laws governing inheritance, they handle issues like taxation, wills, and property ownership differently.
Inheritance Laws in the UK
In the UK, inheritance is subject to certain taxes, with inheritance tax (IHT) being the most notable. The tax rate is 40% on estates valued above £325,000, though this threshold can increase if the estate includes a home left to children or grandchildren.
Importantly, inheritance tax applies based on the residency and domicile of the deceased, not the beneficiary. If the deceased was a UK resident or domiciled there, their worldwide assets may be subject to UK inheritance tax, regardless of where the beneficiary lives.
With probate typically taking 9 to 12 months before funds are released, there are ways for beneficiaries to accelerate this. There are specialist products such as inheritance advance loans which can give you a large percentage of your inheritance upfront, often used by beneficiaries to pay for IHT, pending costs, and special or essential expenses.
If you move to Israel, receiving an inheritance from a UK-based estate will not change how the UK calculates tax. However, it is worth noting that if you inherit property or assets located in the UK, you may need to comply with UK probate laws to gain access to those assets. Probate can involve additional paperwork, especially if the executor and beneficiary live abroad.
Inheritance Laws in Israel
In Israel, inheritance law operates under the Inheritance Law of 1965. There is no inheritance tax in Israel, which is a significant difference compared to the UK. This means that if you inherit assets from someone who lived in Israel, you will not be taxed on those assets. However, Israeli law applies its own rules when dealing with estates.
If the deceased left a will, the estate is distributed according to their wishes. If there is no will, assets are distributed according to Israeli law, which divides the estate among the spouse and children.
If you move to Israel and inherit assets from a UK estate, you are unlikely to face additional taxes in Israel. However, you may need to report the inheritance to Israeli tax authorities if it generates income, such as rent from a property.
Impact of Residency on Tax Obligations
Residency plays an important role in how your inheritance is taxed. In the UK, domicile is more significant than residency for inheritance tax purposes. Even if you leave the UK, you may still be considered domiciled there, meaning your worldwide assets could be subject to UK inheritance tax when you pass away. This is important if you plan to leave an estate to your heirs.
In Israel, tax obligations are generally tied to residency. If you become an Israeli resident, you may be taxed on worldwide income generated from your inheritance, such as dividends from inherited shares. However, Israel offers certain tax benefits for new immigrants (olim), including a 10-year exemption on foreign income.
Conclusion
Moving from the UK to Israel can impact your inheritance in terms of taxes and legal procedures. While Israel does not impose inheritance tax, the UK’s inheritance tax rules may still apply to estates located there. Understanding the laws of both countries and seeking advice from legal or tax professionals can help you manage your inheritance effectively and avoid unexpected complications.