Inheritance

Old Sep 1st 2010, 2:28 pm
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Default Inheritance

Earlier this year my final surviving parent died, and as a result my siblings and I have inherited the house which will go on the market. So at some point will have to deal with the proceeds.

Anyone have any experience or pointers about handling any tax issues on inheritance from abroad ? It won't be a big sum, but probably large enough to be on the radar, so want to make sure we do it "correctly".
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Old Sep 1st 2010, 2:32 pm
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Default Re: Inheritance

Originally Posted by dinosaur View Post
Earlier this year my final surviving parent died, and as a result my siblings and I have inherited the house which will go on the market. So at some point will have to deal with the proceeds.

Anyone have any experience or pointers about handling any tax issues on inheritance from abroad ? It won't be a big sum, but probably large enough to be on the radar, so want to make sure we do it "correctly".
Was there a will? Inheritance tax will take 40% over £300,000
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Old Sep 1st 2010, 2:45 pm
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Default Re: Inheritance

Originally Posted by dinosaur View Post

Anyone have any experience or pointers about handling any tax issues on inheritance from abroad ? It won't be a big sum, but probably large enough to be on the radar, so want to make sure we do it "correctly".
All the appropriate taxes will be paid in the UK. You can bring in your money to the US with no major tax consequences. When I was in this exact situation the executor arranged for a transfer in dollars directly into my US account. He provided me with the UK Revenue Form R185 which showed the net income during the administration period and that tax had already been deducted from it. He indicated what I needed to declare on my US tax return.

Beyond that, all I had to do was report that I had received the money on Form 3520 when I filed my taxes. The purpose of this form is described as being to report the "receipt of certain large gifts or bequests from foreign persons." I'm not sure if the bequest has to be over $100,000 to use the form. I'm sure that whoever does your taxes would be able to help -- or you can just read up on it from the IRS forms site. But the form is purely a report, there's no tax calculated on it.

Last edited by Nutmegger; Sep 1st 2010 at 3:12 pm. Reason: Addendum
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Old Sep 1st 2010, 2:56 pm
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Default Re: Inheritance

Originally Posted by Nutmegger View Post
All the appropriate taxes will be paid in the UK. You can bring in your money to the US with no major tax consequences. When I was in this exact situation the executor arranged for a transfer in dollars directly into my US account. He provided me with the UK Revenue Form R185 which showed the net income during the administration period and that tax had already been deducted from it. He indicated what I needed to declare on my US tax return. But the form is purely a report, there's no tax calculated on it. But the form is purely a report, no taxes are calculated on it.

Beyond that, all I had to do was report that I had received the money on Form 3520 when I filed my taxes. The purpose of this form is described as being to report the "receipt of certain large gifts or bequests from foreign persons." I'm not sure if the bequest has to be over $100,000 to use the form. I'm sure that whoever does your taxes would be able to help -- or you can just read up on it from the IRS forms site.
Yes, this was my experience too - quite straightforward. Just to add - in addition to the Form 3520 which may be required, if you choose to keep large sums in the UK or offshore in the future (rather than immediately bring the proceeds to the US) you will have to file the FBAR form annually with the US Dept of the Treasury.
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Old Sep 1st 2010, 3:06 pm
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Default Re: Inheritance

Originally Posted by Thydney View Post
Was there a will? Inheritance tax will take 40% over £300,000
Yes there was a will, and the amount is below the UK limit. Note that the surviving spouse (of a married couple) "inherits" the allowance of their predeceased partner on death, so gets a "double" exemption. Although that wasn't an issue in my case, we needed to do some research.
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Old Sep 1st 2010, 4:36 pm
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Default Re: Inheritance

Thanks Nutmegger - much appreciate the information. One issue I may have is if the property sells next year, in which case I'll have a minor cash inheritance this tax year, and the proceeds of the house next. But guess I'll have to work that one through if/when it happens.

Originally Posted by Nutmegger View Post
I'm sure that whoever does your taxes would be able to help
That'll be me and TaxCut :-)
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Old Sep 1st 2010, 4:39 pm
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Default Re: Inheritance

Originally Posted by dinosaur View Post
Yes there was a will, and the amount is below the UK limit. Note that the surviving spouse (of a married couple) "inherits" the allowance of their predeceased partner on death, so gets a "double" exemption. Although that wasn't an issue in my case, we needed to do some research.
Thats incorrect there is no tax between married couples they don't get double exemption to pass onto their family
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Old Sep 1st 2010, 4:42 pm
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Default Re: Inheritance

Originally Posted by dinosaur View Post
Thanks Nutmegger - much appreciate the information. One issue I may have is if the property sells next year, in which case I'll have a minor cash inheritance this tax year, and the proceeds of the house next. But guess I'll have to work that one through if/when it happens.



That'll be me and TaxCut :-)
My pleasure. Make sure you get that form from the UK executor to show that you paid what was necessary there. It seemed that the only part that the heirs had to pay taxes on was the interest that had been generated while the money was sitting in the estate account while the whole thing was being probated. Even if it happens over two years, you shouldn't be adversely affected. Good luck to you and TaxCut!
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Old Sep 1st 2010, 5:12 pm
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Default Re: Inheritance

Originally Posted by Thydney View Post
Thats incorrect there is no tax between married couples they don't get double exemption to pass onto their family
Dangerous to quote Wikipedia, but this description aligns with the rules as explained by our family UK lawyer:
The Chancellor of the Exchequer's Autumn Statement on 9 October 2007 [7] announced that with immediate effect inheritance tax allowances (often referred to as the nil-rate band) were to be transferrable between married couples and between civil partners. Thus, for the 2007/8 tax year, a married couple will in effect have an allowance of £600,000 against inheritance tax, whilst a single person's allowance remains at £300,000. The mechanism for this enhanced allowance is that on the death of the second spouse to die, the nil rate band for the second spouse is increased by the percentage of the nil-rate band which was not used on the death of the first spouse to die.

For example, if in 2007/08 the first married spouse (or civil partner) to die were to leave £120,000 to their children and the rest of their estate to their spouse, there would be no inheritance tax due at that time and £180,000 or 60% of the nil-rate band would be unused. Later, upon the second death the nil-rate band would be 160% of the allowance for a single person, so that if the surviving spouse also died in 2007/08 the first £480,000 (160% of £300,000) of the surviving spouse's estate would be exempt from inheritance tax. If the surviving spouse died in a later year when the nil-rate band had reached £350,000, the first £560,000 (160% of £350,000) of the estate would be tax exempt.
My parents case fell into this category.
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Old Sep 1st 2010, 5:17 pm
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Default Re: Inheritance

Originally Posted by dinosaur View Post
Dangerous to quote Wikipedia, but this description aligns with the rules as explained by our family UK lawyer:
The Chancellor of the Exchequer's Autumn Statement on 9 October 2007 [7] announced that with immediate effect inheritance tax allowances (often referred to as the nil-rate band) were to be transferrable between married couples and between civil partners. Thus, for the 2007/8 tax year, a married couple will in effect have an allowance of £600,000 against inheritance tax, whilst a single person's allowance remains at £300,000. The mechanism for this enhanced allowance is that on the death of the second spouse to die, the nil rate band for the second spouse is increased by the percentage of the nil-rate band which was not used on the death of the first spouse to die.

For example, if in 2007/08 the first married spouse (or civil partner) to die were to leave £120,000 to their children and the rest of their estate to their spouse, there would be no inheritance tax due at that time and £180,000 or 60% of the nil-rate band would be unused. Later, upon the second death the nil-rate band would be 160% of the allowance for a single person, so that if the surviving spouse also died in 2007/08 the first £480,000 (160% of £300,000) of the surviving spouse's estate would be exempt from inheritance tax. If the surviving spouse died in a later year when the nil-rate band had reached £350,000, the first £560,000 (160% of £350,000) of the estate would be tax exempt.
My parents case fell into this category.
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