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Inheritance from UK

Inheritance from UK

Old Jul 17th 2023, 4:40 am
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Default Inheritance from UK

It's been many years since I last posted, but I am hoping someone can help with a question regarding reporting an inheritance received from the UK to the IRS. I've looked at previous posts about this and done some research and from my understanding, I need to file a 3520 form if the amount from the UK is the equivalent of $100,000+ and this form is submitted for the year the inheritance is received. I know I will not be taxed on this; it is for informational purposes only. However, two things concern me -- it seems that there is no room for error on this form or there is a risk of being highly penalized. Also, the funds in the estate account earned interest of about $300, so although the account didn't belong to me, I'm not sure how this is treated.

In short, I likely need professional help with this, perhaps from a CPA specializing in international tax law, but I wondered if anyone else has been in a similar situation. Did you complete the form 3520 yourself or consult with an expert?

Thanks for any suggestions.
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Old Jul 17th 2023, 4:53 am
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Default Re: Inheritance from UK

You would probably be ok doing it yourself if you have excellent attention to detail. However, although I am a very much a do it yourself person, for a one time complex form with stiff penalties for getting it wrong, I would go with a professional. if the professional gets it wrong and you can prove that you followed their advice (in writing) then you have a degree of protection from the IRS on the fines. Having the CPA submit the tax return for that year would be one form of proof, and for a variety of reasons the CPA would probably require that versus just dealing with that one form.

A good domestic CPA should be able to do this in their sleep so should not be too expensive. I would call around until you find someone with some experience and a decent price. You don’t need one of the very expensive international outfits.
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Old Jul 17th 2023, 4:56 am
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Default Re: Inheritance from UK

Originally Posted by SMSH
It's been many years since I last posted, but I am hoping someone can help with a question regarding reporting an inheritance received from the UK to the IRS. I've looked at previous posts about this and done some research and from my understanding, I need to file a 3520 form if the amount from the UK is the equivalent of $100,000+ and this form is submitted for the year the inheritance is received. I know I will not be taxed on this; it is for informational purposes only. However, two things concern me -- it seems that there is no room for error on this form or there is a risk of being highly penalized. Also, the funds in the estate account earned interest of about $300, so although the account didn't belong to me, I'm not sure how this is treated.

In short, I likely need professional help with this, perhaps from a CPA specializing in international tax law, but I wondered if anyone else has been in a similar situation. Did you complete the form 3520 yourself or consult with an expert?

Thanks for any suggestions.
Yes, if the bequest is over $100,000 you do file the 3520, and it is purely informational, no taxes will be levied. I received a UK Revenue form R185 from the Executor, and was advised by him (an accountant) that the form showed my percentage of the net income (interest) during the administration period and the tax already deducted therefrom. He told me the total gross figure that I needed to declare on my US tax return and the amount of UK tax that had already been paid thereon that I also needed to indicate. I was to convert both figures into USD and he suggested that I use the exchange rate on the date on which the legacy funds were transferred to me. Hope this helps.

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Old Jul 17th 2023, 6:53 am
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Default Re: Inheritance from UK

Glasgow Girl and Nutmegger, thank you both so much! Both responses were helpful.
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Old Jul 17th 2023, 8:40 am
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Default Re: Inheritance from UK

Originally Posted by SMSH
It's been many years since I last posted, but I am hoping someone can help with a question regarding reporting an inheritance received from the UK to the IRS. I've looked at previous posts about this and done some research and from my understanding, I need to file a 3520 form if the amount from the UK is the equivalent of $100,000+ and this form is submitted for the year the inheritance is received. I know I will not be taxed on this; it is for informational purposes only. However, two things concern me -- it seems that there is no room for error on this form or there is a risk of being highly penalized. Also, the funds in the estate account earned interest of about $300, so although the account didn't belong to me, I'm not sure how this is treated.

In short, I likely need professional help with this, perhaps from a CPA specializing in international tax law, but I wondered if anyone else has been in a similar situation. Did you complete the form 3520 yourself or consult with an expert?

Thanks for any suggestions.
Your interest in the UK Estate is considered a "specified foreign financial asset" by the IRS and reported as such on Form 8938. Distribution(s) from the Estate over US$100,000 in a calendar year are reported on Form 3520. If you receive assets other than cash, there can be US tax complications.
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Old Jul 17th 2023, 9:14 am
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Default Re: Inheritance from UK

Originally Posted by Cook_County
Your interest in the UK Estate is considered a "specified foreign financial asset" by the IRS and reported as such on Form 8938. .

But if the estate comes into being and is settled -- with the distribution to the legatee -- inside a year, isn't this moot? It is only a prospective asset of the heir, not an actual asset, until the estate is settled. Estates I have had an interest in have been distributed immediately upon probate being settled (within the same year, I stress), and I have never filed the 8938, with no repercussions. If the money sits around overseas after probate, then I can see your point; but in that case the 3520 wouldn't be needed until the money was sent to the US.
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Old Jul 17th 2023, 8:20 pm
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Default Re: Inheritance from UK

Originally Posted by Nutmegger
But if the estate comes into being and is settled -- with the distribution to the legatee -- inside a year, isn't this moot? It is only a prospective asset of the heir, not an actual asset, until the estate is settled. Estates I have had an interest in have been distributed immediately upon probate being settled (within the same year, I stress), and I have never filed the 8938, with no repercussions. If the money sits around overseas after probate, then I can see your point; but in that case the 3520 wouldn't be needed until the money was sent to the US.
It is not my point, it is the view of the IRS. It is always prudent to file Form 8938. Many experts argue that several items in both the instructions for Form 8938 and in Form 8938 go beyond what Congress intended when Section 6038D was enacted. I have never gone down that road, as it is always easiest to do what the IRS suggest.
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Old Aug 20th 2023, 11:23 pm
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Default Re: Inheritance from UK

I (US LPR) have some UK inheritance due shortly - the executors want to know whether they should use my UK address or my US address. Any ideas? Would it make a difference? (I'm assuming, by default, that I'll still need to submit the 3520). Thanks in advance.

Last edited by ckusa; Aug 20th 2023 at 11:29 pm.
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Old Aug 21st 2023, 12:05 am
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Default Re: Inheritance from UK

You might also wish to be aware of changes that have been made to the UK Tax system. Any gains made on a property or sums held in UK is subject to it. Capital Gains Tax in UK used to be only payable on an amount above around £12300 but it has been halved for 2023 and is now £6000 and reduces to £3000 in 2024. This is called the personal allowance. It's another factor to consider with any inheritance process.
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Old Aug 21st 2023, 2:00 am
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Default Re: Inheritance from UK

Originally Posted by ckusa
I (US LPR) have some UK inheritance due shortly - the executors want to know whether they should use my UK address or my US address. Any ideas? Would it make a difference? (I'm assuming, by default, that I'll still need to submit the 3520). Thanks in advance.
When my wife or I received inheritance distributions from the executor of our parent’s estate we gave our US address.

We did not have to file form 3250 because we were not executors of the estate, nor was the distribution we received greater than $100,000

https://www.irs.gov/instructions/i3520

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Old Aug 21st 2023, 2:08 am
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Default Re: Inheritance from UK

Originally Posted by calman014
You might also wish to be aware of changes that have been made to the UK Tax system. Any gains made on a property or sums held in UK is subject to it. Capital Gains Tax in UK used to be only payable on an amount above around £12300 but it has been halved for 2023 and is now £6000 and reduces to £3000 in 2024. This is called the personal allowance. It's another factor to consider with any inheritance process.
Good point, but the OP won’t have to worry about that if the house is liquidated prior to distribution of the funds to the beneficiaries. If there are taxes due on the sale of the house then they would be handled by the executor(s).

More info on selling property after a person dies:

https://www.moneyhelper.org.uk/en/fa...r-someone-dies

The good news is that the estate doesn’t have to pay any Capital Gains Tax on the property or assets that weren’t sold (also known as ‘unrealised gains’) before the person died.

But, if the property or asset is sold during probate and its value rose since the person died, there is usually Capital Gains Tax to pay.

This tax is calculated on how much the increase is since the person’s death.

Beneficiaries inherit the assets at their probate value.

This means that when they sell or give the asset away, they will pay Capital Gains Tax on the increase in value from when the person died to when it was sold or given away.


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