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Inheriting Property Abroad - Tax implications

Inheriting Property Abroad - Tax implications

Old Jan 8th 2024, 6:17 pm
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Default Inheriting Property Abroad - Tax implications

Green card holder and UK citizen here.

I am thinking about getting a US passport and moving back to the UK or Germany for a few years.

The question is, at some point in the future, I will inherit property and money in the UK, likely totaling about $300k-$500k. Will I need to pay any US taxes on inheritance, in addition to whatever UK taxes?

Thank You.
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Old Jan 8th 2024, 6:59 pm
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Default Re: Inheriting Property Abroad - Tax implications

No IRS taxes on an inheritance provided the deceased’s funds are not held within a trust. You will have to complete Form 3520 if the inheritance exceeds $100K but that is for reporting purposes only. With that size of an inheritance you will of course be subject to FBAR reporting and Form 8938 if you receive the proceeds into a foreign account. And, of course as a USC you will want to steer clear of investing the proceeds into any kind of foreign mutual account, and will have to report all interest, dividends, etc from any type of foreign account and pay tax on them. Who you pay tax to will depend upon the type of income and where your tax residence is. Becoming a USC has its advantages but will complicate your tax situation considerably,
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Old Jan 8th 2024, 10:39 pm
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Default Re: Inheriting Property Abroad - Tax implications

Originally Posted by Glasgow Girl
No IRS taxes on an inheritance provided the deceased’s funds are not held within a trust. You will have to complete Form 3520 if the inheritance exceeds $100K but that is for reporting purposes only. With that size of an inheritance you will of course be subject to FBAR reporting and Form 8938 if you receive the proceeds into a foreign account. And, of course as a USC you will want to steer clear of investing the proceeds into any kind of foreign mutual account, and will have to report all interest, dividends, etc from any type of foreign account and pay tax on them. Who you pay tax to will depend upon the type of income and where your tax residence is. Becoming a USC has its advantages but will complicate your tax situation considerably,
Thank you so much for the information. Assuming I moved back to the UK, if I sold the house, do you know if I would have to pay capital gains tax in both the UK and the US?
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Old Jan 9th 2024, 12:05 am
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Default Re: Inheriting Property Abroad - Tax implications

As a USC you would have to report to the IRS all capital gains (and all income) received no matter where in the world it originates. The UK will also require that capital gains be paid on UK property sales no matter where in the world you are living (if it was not always your own home while you owned it). The UK would get first dibs on the capital gains tax on the property and you would get credit from the IRS for any tax paid to the UK, therefore the net result will be that you owe the highest amount of tax due in either country such that if the UK bill is higher than the IRS bill then there will be nothing additional to pay, but if the IRS bill is higher than the UK bill then you will have to pay the IRS the difference. The US will allow a stepped up basis on the inherited property meaning that the cost value to you will be the value on the date you inherited it, and I think the UK allows that as well, so either way the capital gains upon sale may not be significant. These links may help you further research the UK rules.

https://www.gov.uk/capital-gains-tax...ut-need-to-pay
https://www.gov.uk/report-and-pay-yo...ital-gains-tax
https://www.gov.uk/tax-sell-property

Last edited by Glasgow Girl; Jan 9th 2024 at 12:07 am.
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Old Jan 9th 2024, 2:43 am
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Default Re: Inheriting Property Abroad - Tax implications

Originally Posted by Glasgow Girl
As a USC you would have to report to the IRS all capital gains (and all income) received no matter where in the world it originates. The UK will also require that capital gains be paid on UK property sales no matter where in the world you are living (if it was not always your own home while you owned it). The UK would get first dibs on the capital gains tax on the property and you would get credit from the IRS for any tax paid to the UK, therefore the net result will be that you owe the highest amount of tax due in either country such that if the UK bill is higher than the IRS bill then there will be nothing additional to pay, but if the IRS bill is higher than the UK bill then you will have to pay the IRS the difference. The US will allow a stepped up basis on the inherited property meaning that the cost value to you will be the value on the date you inherited it, and I think the UK allows that as well, so either way the capital gains upon sale may not be significant. These links may help you further research the UK rules.

https://www.gov.uk/capital-gains-tax...ut-need-to-pay
https://www.gov.uk/report-and-pay-yo...ital-gains-tax
https://www.gov.uk/tax-sell-property
Wow, thank you again. This information is incredibly useful in helping me make the right decisions for the next 10-15 years of my life.
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Old Jan 9th 2024, 4:40 pm
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Default Re: Inheriting Property Abroad - Tax implications

Originally Posted by Glasgow Girl
No IRS taxes on an inheritance provided the deceased’s funds are not held within a trust. You will have to complete Form 3520 if the inheritance exceeds $100K but that is for reporting purposes only. With that size of an inheritance you will of course be subject to FBAR reporting and Form 8938 if you receive the proceeds into a foreign account. And, of course as a USC you will want to steer clear of investing the proceeds into any kind of foreign mutual account, and will have to report all interest, dividends, etc from any type of foreign account and pay tax on them. Who you pay tax to will depend upon the type of income and where your tax residence is. Becoming a USC has its advantages but will complicate your tax situation considerably,
This is bang on I would say
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