K.R. Wymark

I'm a U.S citizen who was raised in the U.K and had an English father. I've lived here in the U.S for 35 years now. My mother who recently died was a U.S citizen who lived in the U.K for 63 years and was considered a Resident Alien.
Her apartment has been sold and my brother (who lives here in the U.S also) are trying to figure what exactly we need to do in order to receive our share of the proceeds. The apartment was sold by my other brother and my sister who live in U.K. The monies needed for the estate tax will come to about 58,000 pounds.
What we are confused about is that our mother not having been a U.K citizen may mean that inheriting from the sale may be a bit more complex. Additionally we are not sure as to whether or not she filed U.S taxes every year and whether that will impact the monies as a whole.

Any advice would gratefully received.

Jerseygirl

Welcome to BE.

JAJ

The U.S. federal estate tax threshold is over $5m, so unless her assets were at that level or close to it, it shouldn't be a concern.

In 90%+ of cases, even if she had filed U.S. federal taxes she would not owe any U.S. tax (if she was U.K. resident), due to the foreign earned income exclusion and/or foreign tax credits.

Who is the executor of the will? The estate is responsible for paying any U.K. Inheritance Tax that may be due, but that only applies if the value of the estate is above the nil-rate band (currently GBP325,000). Even if she didn't become British she would be deemed domiciled after so many years in Britain, so the worldwide estate is liable. But only an issue if valued over the nil rate band.

Check to see if you have a federal reporting requirement for the inheritance (form 3520), and also if there is a state tax on receipt of inheritances.

Pulaski

As JAJ asked, who is the executor? They should take care of all the admin, or retain a solicitor (lawyer) to do so, but it sounds quite straight forward from here given that the house has already been sold: pay the taxes, then divvy up the cash, and any non-cash assets per the will, or per law in the absence of a will.

Cook_County

As a resident alien your mother should have filed income tax returns and FBARs. If she has not the executor could use the offshore streamlined program to minimise penalties, but will not be able to get written confirmation from the IRS that there are no outstanding income tax liabilities.

Some executors will therefore not close the estate until the statute of limitations has expired because otherwise under English law they could be personally liable for any unpaid income tax or FBAR penalties of the estate.

JAJ

Some executors? Really?
And the chances of the IRS seeking to audit, for income tax purposes, the estate of a deceased U.S. citizen overseas, are exactly what? Something close to 0%? And even if they did, for most people the amount of tax/penalties would be precisely $0.

In fact, out of the thousands of U.S. citizens who die overseas every year without being fully U.S. tax compliant, has what you talked about ever happened? In other words, is this scaremongering?

Cook_County

Anyone accepting the duty of executor in the UK has legal and fiduciary obligations to be met. These include settling tax liabilities and obligations of the decedent.

JAJ

Of course.

But the executor may well take a view that any outstanding U.S. income tax due is $0 due to foreign earned income exclusion and/or foreign tax credits. And the IRS do not normally assess FBAR penalties against a deceased estate.

If the deceased person had substantial assets, then more due diligence would probably be needed and it may be necessary for the estate to file outstanding U.S. tax returns and/or delay distribution until the statute of limitations on these returns. But in 95+% of cases, is there really a need? Do domestic U.S. executors always keep the estate open until the statute of limitations closes on all open tax returns. Really?

Steve_

What is the actual amount of the estate, you said 58,000 for tax, are you talking about IHT in the UK?

There's no reporting requirement in the US from the sounds of it because it sounds as though the estate is way under the estate tax limit in the US and she's not a "foreign person" so that eliminates the need to file a 3520.

She should have filed US tax returns - so the IRS could go after the estate for that, theoretically. Say investment income she may have generated that she never paid US taxes on, or filing penalties. For example an ISA is not considered exempt from US taxes.

Residency in the US for estate tax purposes is also very different from income tax purposes, but from the sounds of it, not an issue anyway.

Also the wording of her will could be important, say you and your brother at the time of her death were direct beneficiaries, so if your other siblings sold her house, you would be liable to reporting requirements on schedule D as real estate events are always reportable, even if there's no tax (as you had it for a short period of time, I doubt there would be any capital gains).

Really you need to talk to an accountant in the US who specializes in situations where the decedent hasn't filed a return for ages, the reason there's no reporting requirement is because the IRS would typically have the information from the deceased person's own tax returns. There might be an awkward conversation with the IRS ahead. On the UK end though it sounds straightforward.