UK resident, US citizen - inheritance tax

Hello.

I'm sure this may have been discussed previously, but as usual, I can't seem to find it. I am a US Citizen (ILR visa), UK resident. I will be getting a large inheritance sometime this year and am very nervous about the UK tax implications. I will probably need to find a UK accountant that is well versed in both US & UK tax laws (don't know how to do that for one thing) - but does anyone have any basic information that can help me to calm my nerves for a bit. 

I'm not sure when the estate will go through, I just think it will be sometime this year. Does the whole 'only taxed in one country' thing apply to inheritance tax??

Any information would be appreciated.

thanks

I've looked into this from the perspective of a dual citizen living in the US and the critical factor is that it's the estate that pays the taxes, not the person who gets the inheritance. As long as the person who died was not UK domiciled I don't think HMRC will consider any of the inheritance taxable.

That would be excellent if true. Thanks.

But...it is very common in many States (especially California) to use trusts. The taxation of money received from foreign trusts can be highly complex from a UK tax perspective.

But...it is very common in many States (especially California) to use trusts. The taxation of money received from foreign trusts can be highly complex from a UK tax perspective.

Yes I was talking about the simpler situation of the estate being settled, taxes paid, and the money paid out to the heirs without anything being held in trust. If the money is held in trust and the OP get's payments from it then it will be an ongoing UK/US tax issue.

So, OP, how is your inheritance structured?

Relax, you will not owe UK tax on the inheritance. The only tax you would owe would be if there is income from the inheritance after it is legally yours, as per normal (you pay tax on your income, nothing unusual.)

It does not matter if some of the inheritance was in a foreign trust set up for the deceased.  I inherited last year from my father (my mother died several years earlier) and believe me it was complicated.  The majority of my father's assets were in a trust set up in his name ages ago as part of the inheritance planning my parents' did with an accountant/lawyer.   

A word of advice - put ALL of the inheritance in new accounts so the assets are clearly separate from anything you've owned previously.  That way it will straightforward if you ever want to bring the funds into the UK, especially if you pay UK tax on the arising basis.  Also, for US and UK tax purposes remember that it is the date of death that will be used to determine your cost basis (for shares, funds, whatever) and not the date that the transfer to your name actually occurs.

So you mean the interest off of the inheritance would be the income?

Also, would it be best to take inheritance in one lump?

Good advice for placing it in a separate account!

If the inheritance does not involve things like trusts, the person that inherits the money will not have to pay any tax on the money they receive. Any inheritance tax will be paid out of the estate by the executors. You will obviously have to pay tax on any gains or income that money then generates in the future.

If you get some of the inheritance paid out and some is kept in trust you will have to deal with the taxation of any income that the trust generates.

Please don't get confused about trusts in this thread, if the deceased had a trust in his or her name the ESTATE is the beneficiary of the trust, not you.  If there is anything more complicated involved, the executor will be able to tell you.

The inheritence is not income, so you will not be taxed on it.  Once it becomes yours and it begins to generate income (assuming you don't spend it all at once immediately!) you are taxed exactly as you are on any other asset.

You are not likely to have a choice about whether or not to take the inheritence as a lump sum or in pieces.  It may depend on the timing of disposal of assets (like a house, boat, whatever) and how obstructive whatever institution(s) are that currently hold financial assets (funds, stocks, cash) in releasing the assets out of the estate account.  Plus, even after everything is clear the executor is normally instructed to hold back a small portion of the estate until the next tax year.  That's just in case straggler bills or whatever need to be paid out of the estate funds.

You should have a chat with the executor who will be able to explain how and when the assets are likely to be distributed. 

If you receive over $100,000 inheritance, don't forget to complete part 4 of 3520. assuming this will be a none U.S inheritance

Relax, you will not owe UK tax on the inheritance. The only tax you would owe would be if there is income from the inheritance after it is legally yours, as per normal (you pay tax on your income, nothing unusual.)

It does not matter if some of the inheritance was in a foreign trust set up for the deceased.  I inherited last year from my father (my mother died several years earlier) and believe me it was complicated.  The majority of my father's assets were in a trust set up in his name ages ago as part of the inheritance planning my parents' did with an accountant/lawyer.   

A word of advice - put ALL of the inheritance in new accounts so the assets are clearly separate from anything you've owned previously.  That way it will straightforward if you ever want to bring the funds into the UK, especially if you pay UK tax on the arising basis.  Also, for US and UK tax purposes remember that it is the date of death that will be used to determine your cost basis (for shares, funds, whatever) and not the date that the transfer to your name actually occurs.

Thanks. That is exactly the info I needed. There are no trusts in my mother's estate. And I appreciate the need to set up new accounts for that money. I will want to bring it into the UK at some point, as I'd like to buy a house. I was told to make sure that the money can be 'traced' so both the UK & US gov't don't think it's dodgy money.

Thanks again!

Lisa