Advice- proceeds of inherited UK house (split with other UK family members)
 

Hello all
My sibling and I inherited our parents' UK' house about 4 years ago. I am US based, my sibling UK, we inherited the home 50/50.
Sadly my sibling has recently passed away, their half of the house to be inherited by their 2 Uk based children. We ( my siblings' children and I) would like to sell the house as none of us now have any links to the town).
Can anyone give some guidance as to how on earth we handle this, and also what the tax implcations will be for me as a US Resident? Should we have the proceeds of the sale paid to one of us and then split it as needed? Or should we ask the solicitors to divide the funds 50% to me, 25%/25% to my siblings' children and pay us all directly? Any pitfalls that we should be aware of? Inheritance tax? We all own our own homes. We all have UK bank accounts.
Thank you so much for your help. As you can imagine it's beit's awful time for us all. Trying to deal with this without overwhelming my siblings' children is so difficult.

Re: Advice- proceeds of inherited UK house (split with other UK family members)
 

The short answer is that in both countries your half of the sale with be treated independently from your siblings children’s half of the sale. Think of it as two separate house sales. There is nothing you can do to prevent that unless you gift away your half of the house which would lead to all sorts of complications.

You will be subject to UK and US capital gains taxes on your half of the profits from the sale. The UK will have the first right to tax your half of the proceeds and the US will provide credit for any UK taxes paid by you such that you will only owe US tax if it is higher than the UK tax with only the difference payable to the US. Unless you have a substantial AGI the UK tax will likely be higher than the US tax resulting in no balance to pay, although you must still declare it on your US tax return and claim credit for the UK tax paid. The US has no tax on a foreign inheritance unless a trust is involved, and in any case that tax would have been payable when your parent passed, and is not relevant now.

In both countries you and your siblings children will benefit from the stepped up basis, meaning that the cost basis of the property will be the cost on the date the prior owner died and the property was inherited. Capital gains taxes will be due on the profits from the sale (proceeds minus the cost basis minus applicable expenses to sell). Your siblings children will have a higher cost basis on their half than you do, because they inherited their half some time after you inherited your half. They of course only have to deal with UK capital gains taxes, while you have to deal with both UK and US taxes.

Had you lived in the property for at least 2 out of the prior 5 years then you could future reduce US taxes, and UK tax could be reduced as well using a different time frame, but it sounds like that is not relevant here.

Your siblings estate may be subject to UK inheritance tax depending upon the value of the estate but that would impact only your siblings half of the property.

The best course of action is simply to sell the property and the proceeds will legally be distributed to each owner in proportion to their ownership. Then you each go your own way tax wise

Re: Advice- proceeds of inherited UK house (split with other UK family members)
 

Hi Glasgow Girl

Thank you so much for this-it is incredibly helpful.
I haven't lived in the property for any of the last five years, unfortunately-although i wish that I had for a multitude of reasons : )

We plan to sell the house and then deal with our declaration/tax obligations. It's a minefield for sure.

Also...apologies for the many misplaced apostrophes (sibling's) and various other typos in my original post. I was posting from my phone with tiny font and didn't notice. Ugh...is there an edit function?

Rose

Re: Advice- proceeds of inherited UK house (split with other UK family members)
 

Best to get yourselves a local (UK) solicitor to deal with it for you.
Contents and personal items will have to be dealt with by yourself and your nephews/nieces accordingly.
If there is a will then somebody will have been designated as executor.
You can also open an executors account if there are residual funds (insurances, bank accounts, cash) and use that for day to day expenses along the way.
Make sure the house itself is insured under the name of the executors for the period that it is up for sale!
Once the property has been cleared you can have a couple of local real estate agents come and give a valuation of the property and this will then be registered as the "Probate Value".
That will be submitted, along with the value of any other assets, in order to gain a grant of probate by the executor(s) whoever that may be. (this will be determined in any will, as well as trustees/beneficiaries). The property can then be marketed for sale.
Price the property to sell based on your agents recommendation. They will know the local market.
Depending on the value of the property and other assets of the estate, Inheritance tax may also need to be paid based on the value.
Capital gains tax is only payable on any profit made on the property, in other words the difference between the probate value and the actual selling price.
If the agent gives a generous valuation in the first place this should not be a big problem. The UK housing market is up and down at the moment anyway
The USA aspects you will have to research locally of course.

Good luck!