Wintersong

Hi all

My grandfather (in the UK) recently died. I am the joint beneficiary of the estate with my brother. I have a few questions about dealing with the tax side of things which hopefully someone out there who has been through this will be able to help with.

General info:

The estate falls below the inheritance tax threshold in the UK (it is around 300K pounds and the threshold is 325K). I will receive half.

There is no will. The estate is going through probate and my brother is the administrator.

I live in California (in case state taxes are taken into account).

Questions:

Is it correct that a US/UK tax treaty will avoid double taxation, even though the estate actually falls below the inheritance tax threshold in the UK? Does this mean that I will definitely not need to pay tax in the US or is there something I'm overlooking?

I have read that I need to hand in form R185 (http://www.hmrc.gov.uk/pdfs/r185.pdf) with my next income tax return (i.e. in 2012). However, like all the best Inland Revenue forms, it appears to be written in gobbledygook. Is the receivable income classed as basic rate and just entered in box 7.13 with 0 tax in 7.14 and then 7.15 showing the same amount as 7.13? Ack!

Do I need to declare the money to customs on receipt, or do I just put it in my bank account and declare it on next year's taxes? If I need to declare it, how would I go about doing that?

What's the best way to go about transferring the money? I have an HSBC bank account in the UK but it has been frozen for lack of activity. I could re-open it and put a cheque in when I'm in the UK in May, then withdraw the money from an HSBC branch in the US. Or I could just have my brother write me a cheque and deposit that into my BoA account. Or there may be a better way that I'm not aware of - any thoughts? Afaik there are no fees associated with the deposit of a cheque into my BoA account and I simply get the current bank exchange rate - seems as if this may be my best bet but would be grateful for input from those who have been there, done that.

Thanks so much for reading my essay And thanks in advance for any assistance

meauxna

Using 'search this forum' I found the following threads; keep digging and you might find more info that will answer the basic parts of your Q; you may need to get some professional advice too.

http://britishexpats.com/forum/showthread.php?t=663294
http://britishexpats.com/forum/showthread.php?t=663577
http://britishexpats.com/forum/showthread.php?t=683665
http://britishexpats.com/forum/showthread.php?t=691745
http://britishexpats.com/forum/showthread.php?t=691057
http://britishexpats.com/forum/showthread.php?t=700673

Nutmegger

This is what I posted in one of those threads that Meauxna pointed you to:

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.

Michael

Currently the US has an exclusion of $5 million in estate taxes and California doesn't tax estates.

Therefore you don't have any concerns with US inheritance taxes.

Bob

condolences about your grandfather

For transferring the money, xe.com would be the way to go for that kind of sum of money, either by getting your account going, or your brother transferring the money for you.

md95065

... but in any case, the estate is in the UK and the OP is the recipient so US estate tax is irrelevant ...

The money that the OP gets from the estate is not income and is therefore not subject to income tax.

Just make sure that you comply with the FBAR reporting requirements if, for example, receiving your share of the estate in the UK pushes you over the "having a foreign bank account with more than $10,000 in it" threshold.

Wintersong

Thanks, everyone - I've read all the linked threads already, which is approximately the sum total of my knowledge

@Nutmegger - it was your previous response which pointed me towards that form in the first place - thanks! Do you know which box(es) the inheritance needs to be entered in?

@Bob - thanks Is there a particular reason I can't or shouldn't simply get a cheque from my brother and deposit it into my US bank account? My Mum has given me smaller amounts of money in this way before and I've never had a problem.

I'm also assuming I'm going to have to declare this to customs - as per the CBP website - http://www.cbp.gov/xp/cgov/travel/va...kbyg/money.xml. Or at least that's the way I'm reading it. If my brother mails me a cheque, that presumably comes under a negotiable monetary instrument in bearer form?

ian-mstm

No cheques. Have the money deposited directly into your bank account in the US. The bank will be responsible for reporting the amount to the US Treasury, and you can enjoy your inheritance without worrying about what forms to file!

Ian

Nutmegger

My tax returns for that year are all filed away and boxed up, but from what I recall from looking at the form online, it was section IV, line 54.

And apologies, I was rushing yesterday and forgot to extend condolences on your loss.

Wintersong

Thanks so much for your ongoing help and I am really sorry to keep asking questions, but we appear to be looking at different forms. Would you mind linking the one that you are referring to? Thanks!

Wintersong

Thanks for the info, Ian. That's helpful!

ian-mstm

Just so you now, I've done what you're doing. I was the executor of my uncle's estate in London. The attorney transfered my share of his legacy directly to my bank account. Since the estate isn't settled until all the money has been distributed, there's no actual foreign account that you need to be concerned about for IRS reporting purposes.

Ian

Wintersong

My problem really is that there's no attorney. I want to make things as easy as possible for my brother, who's administrating, so I'm considering putting the money into my HSBC account and then going through XE.com myself rather than having him do it. If there were an attorney dealing with it, it would be a whole lot simpler!

md95065

That's OK - you can certainly do it that way and there shouldn't be any problem.

Just remember that if you currently aren't reporting your HSBC account because it has less then $10,000 in it and this pushes it over the $10,000 threshold then you need to disclose the account when you file your US taxes. The fact that you have to disclose the account doesn't mean that you will have to pay any taxes - you won't - but the penalties for failing to disclose the account are severe.

S Folinsky

It should be noted that "estate taxes" and "inheritance taxes" are not the same thing. California has never had an estate tax. However, it did have an inheritance tax -- which was abolished by initiative in the 70's. There is still a "pick-up" tax in place. The pickup tax does not increase tax liability -- rather it is a device to ensure that the state gets the maximum amount that would otherwise go to the feds.