Inheriting from US citizen in UK.

My mother is a US citizen living in the UK. She owns property in the UK, while her children all live in the USA. I am wondering if anyone knows the tax consequences for US citizens living in the USA who inherit property from a US citizen who dies in the UK owning property in the UK?

Even is she is not domiciled or deemed domiciled within the UK, the real property will be subject to UK IHT. The beneficiaries may have FBAR and /or 8938 filing obligations.

There is a step up in basis on death for both US and UK tax purposes.

Guya, thanks for your response - If I understand you correctly you are saying the property will be subject to UK inheritance taxes, which I understand are at 40% of the value after a cutoff of about 350,000 pounds or so. 

Can you explain the "step up in basis" portion? I dont understand what that means. Thanks again for your input.

The property is not itself subject to tax, the estate is the taxable person.

The beneficiaries inherit at market value on the date of death.

I would like to add some additional comments on the tax position of Oakley622’s mother’s house.

The domicile status of his mother should be considered. Is she UK domiciled (or deemed domiciled)? In broad terms the consequences will be-
•   If she has a UK domicile or deemed domicile then her worldwide estate is liable to UK inheritance tax.
•   If she does not have a UK domicile or deemed domicile then only her UK situs assets such as the house will be liable to UK IHT.

The US position will follow their domestic rules, in the first instance.

There is an estate duty double tax treaty between the UK and the US which determines who has the first taxing rights and double tax relief.

Thanks Dunedin.

Any tax consequences fall on you mother's estate and have to be dealt with by the executors. The beneficiaries don't have to worry about tax other than maybe some reporting on from 3520 and for FBAR. If you are the executor of the estate you will have to deal with the tax issues.

My UK mum died a couple of years ago and as a US citizen living in the US I basically did nothing. My mum's solicitor was the executor and did everything a just deposited the inheritance into my US bank account. I filed FBAR and 3250 disclosures.

Thanks Nun.