The Importance of
Expert Advice

Article published in New Zealand, May 2011

With New Zealand increasingly referred to as “the Switzerland of the Southern Hemisphere” more and more overseas families are making New Zealand their permanent home.

Happily for the New Zealand residential property market, along with this decision comes the acquisition of what is usually a not insubstantial family home.

Not so happily, the response to that acquisition decision is usually the implementation of a conventional New Zealand estate plan, consisting of a discretionary trust, to acquire and hold the property. It is an understandable and not uncommon trap to pay little, if any, attention to the long arm of the tax man back home. The most expensive tax issues face those from the United Kingdom and the United States, so we have focused on those two categories within this article.

United Kingdom

Those from the United Kingdom will find themselves subject to inheritance tax at 40% on worldwide assets for as long as they remain domiciled in the United Kingdom.

For tax planning purposes, a transfer of wealth over and above the current threshold of £325,000 will, without proper structuring, trigger an immediate 20% charge to UK inheritance tax, followed by a further tax charge every ten years, and tax charges when assets are distributed from the trust.

The ongoing management of domicile status, and the proper structuring and funding of the trust, are accordingly critical for UK families.

United States

Families from the United States face ongoing reporting and tax filing obligations. Relief under the Double Tax Agreement is limited and, with the exception of some foreign earned income exclusions, worldwide income continues to be taxed in the United States, even when tax residence has shifted to New Zealand.

The conventional New Zealand trust approach can be fraught with difficulty, often resulting in United States gift tax exposure.

United States citizens need to ensure that their family trust is structured in a manner that ensures the trust is “looked through” for United States tax purposes.

Foreign Currency Gains

With the New Zealand dollar quipped as one of the most over valued currencies in the world, it is understandable for overseas families to want to hold on to their foreign currency holdings, hoping for an improvement in the conversion rate either before purchasing a home, or as collateral to support increased Kiwi dollar borrowings from an onshore bank. Unfortunately, even though these families are usually transitional residents for tax purposes (and accordingly enjoy a four year tax holiday on foreign sourced income) where the Kiwi dollar gain is realised onshore, this is not an exempt gain and is subject to New Zealand tax. This is a common and expensive trap for the unwary.

Expert Planning and Advice

It is vital to consider the global picture when embarking on any asset structuring for overseas families. It is also important to review current structures to ensure that no risks have been accidentally triggered and, if so, to consider the remedial steps available to mitigate those risks.

What works well for a New Zealand domiciled family often causes significant tax costs to those with overseas origins.

Jones Law is a boutique law firm based in Takapuna. Our partners are internationally qualified and practice in the areas of cross-border tax planning, estate planning and acquisition structuring.

The above article is provided for general information purposes and does not constitute legal advice. We invite you to contact us to discuss your specific circumstances. We can assist you with your global estate plan, in conjunction with our overseas network of qualified experts.

We invite you to contact us at to discuss your specific circumstances. We can assist you with your global estate plan, in conjunction with our overseas network of qualified experts.

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