PaulWy

Hello,

I'm likely to receive an eventual inheritance from my mother, resident in Ireland, amounting approximately to $500k USD.

I am resident in New York which I understand imposes an "estate tax" but not an "inheritance tax". Does that mean I would not be liable for any tax on that $500k?

(If I were resident in Ireland I would pay 33% Capital Acquisitions Tax on any amount inherited above the Irish tax free threshold - currently around 250K Euro.)

Out of interest, what would my liability be if I were living in UK?

Thanks in advance for any guidance.

Regards,
Paul

Steve_

The estate is taxed, so it is taxed under whatever the law is in Ireland: Inheritance Tax

So according to that on any amount over €280,000 you receive, you pay 33% tax. Presumably there is some sort of Irish equivalent to UK taper relief from IHT on gifts prior to death, you'll have to look it up.

In the US there is no tax, you simply have to report receiving it on Form 3520.

Where you are is irrelevant to this equation. Note there is a specific US-Ireland estate tax treaty. You might want to get some specialist advice on that but generally they're more about specifically pointing out what is and is not part of an estate in one country vs. the other and how residency is determined. I assume your mother has no assets in the US so it's not going to make any real difference.

However it might make a difference to your estate planning. Say you keep her house in Ireland.

The one point I would make that everyone misses is that residency for income tax purposes is totally different than residency for estate tax purposes. The IRS is much more keen on claiming that people are resident in the US when it comes to estate tax.

Estate tax treaties usually provide for a pro-rata unified tax credit, so say you lived in Ireland (as a non-resident alien for US tax purposes) and the US estate tax exempt limit is $5.5 million and you have assets in the US, the $5.5 million credit is reduced by €280,000 on what you leave to your children - which might sound bad until you realize the standard credit for non-resident aliens is only $60,000.

Which is why it's very important that you write your Will correctly if you have assets abroad and make note in your Will of any relevant tax treaty provisions.

PaulWy

Thanks Steve,

My takeaway is that residency is not a factor for inheritance tax. The Irish state will recoup its 33%, on any amount above that €280 threshold, no matter. There will be some tax treaty between US and Ireland which ensures there is no double-taxation. Let me know if I've summarised this wrong.

Again, thank you for a speedy and informative response. Very helpful. I will also be taking heed of your suggestion and get specialist advice.

Regards,
Paul

Wintersong

This is certainly how it was when I received an inheritance from an estate in the UK while living in the US. The estate is taxed according to where it is, not where the recipients live. I declared it (and, since it passed through my UK bank account, I completed FBAR) and was not taxed in the US.

mrken30

there is inheritance tax and there is estate tax. This topic was discussed a while back. Most states now only have estate tax, so no problem. However I think there may still be a few that have inheritance tax.

You may want to read this thread

http://britishexpats.com/forum/usa-5...-taxed-873385/

Steve_

IHT and estate tax are essentially the same thing in concept. They're taxing the person's estate, just different names. As explained in the relevant tax treaty for example.

In the US, State laws are badly written in many States (e.g. Arizona), there used to be a limit which a State could claim for estate tax as a pro-rata unified credit, so say the limit was $3 million, you either paid estate tax on the remainder of the estate federally, or it could be split between the State and the IRS, but either way the estate paid the same amount.

That State deduction from the Federal tax was abolished when Bush came in iirc, because it was obviously silly. Some States still haven't updated their laws, so effectively they were rendered inoperative. Some States have their own separate estate taxes. So when you see a list of States with estate tax, bear in mind a lot of those States can't collect it.

US estate tax for married couples has a limit of $11 million nearly so very few people get hit with it, it's more to do with State taxes and that weird thing for LPRs which was enacted so that a rich person couldn't marry someone at the last minute and transfer their estate, thereby avoiding the tax.

If you think you might get hit with estate tax, really important to become a US citizen not only because of that clause but also because of the tiebreaker rules in the tax treaties. I can't think of any jurisdiction with a higher estate tax limit than the US so say you live in the UK, Ireland wherever you can bugger off to the US and avoid the IHT for example, just make sure you sell all your real estate in that country.

Note for example in UK law there is a seven-year rule for taper relief for gifts, but in the treaty it's only three years, which is a huge benefit.

mrken30

In some states inheritance tax was applied to the individual inheriting the estate. Estate tax was applied to the estate. Occasionally it was possible for the estate to be taxed and the individual to be taxed. Also some wording of legislation was ambiguous.

This article also explains some of the differences.

Estate vs. inheritance tax

Steve_

There's a difference in definition in the US, but UK and Irish IHT are essentially the same concept as the estate tax in the US. The tax is based on the value of the estate, it's not based on who inherits it.