Selling U.K (deceased parents) Home as an Executor

This will be a common situation, but I did want to ask how others have handled this. I was one of the Executors of my late mothers estate situated in the U.K, (I'm a U.S. Person, UK resident). I was also one of the beneficiaries too.

We as Executors sold her home. I understand that this qualifies for the stepped up basis, so you only pay capital gains on the difference in the increase in price between date of death and the time the property is sold. Once the property was sold, I then distributed the net proceeds of sale to myself, (as beneficiary) and any other beneficiary too.

The properties date of death value and the date of sale value were the same, so HMRC weren't interested. The issue I have is that the exchange rate gain between date of death and sale increased the value, so there's going to be some U.S. Capital Gains. I note that this would be classed as a long term gain and my taxable income maybe too low to pay the CGT anyway. So who reports/pays the CGT and how is this paid? Do I as the Executor report/pay this CGT, or do I as the beneficiary report/pay it?  Also, I would assume that as I am the only U.S. Person executor or beneficiary, I would prorate the CGT based on the proportion of the amount of inheritance I received? Thank you

I don’t think the capital gain of the house has anything to do with the beneficiaries since their names never appeared on the title deeds of the house. The beneficiaries received only their portion of money after the estate had been liquidated.  Neither my wife or I were executors of our parents estate when they died. Our siblings in the UK handled all that, we were living in the USA at the time.

In each case a house was sold and the proceeds went into the parents estate and the monies from the estate was distributed to the beneficiaries including my wife when her Dad died and myself when my Dad died.

I may have this wrong, or perhaps I am mis-reading the question, but if the mother was UK & the estate was UK, why would the US heir be responsible for taxes on the UK person's UK estate to the US IRS? 

If this is entirely in the UK sphere, the IRS has no claim to the property or income from it. Inheritances are generally not considered taxable income by the IRS, so you typically do not have to report them on your tax return.

If the mother was a USC, then it would (I assume) be the estate that owes any capital gains to the IRS on the UK property. So the executor of the estate would be responsible for filling out her taxes for the year in which she died, and paying them, prior to disbursing the proceeds.

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I may have this wrong, or perhaps I am mis-reading the question, but if the mother was UK & the estate was UK, why would the US heir be responsible for taxes on the UK person's UK estate to the US IRS? 

If this is entirely in the UK sphere, the IRS has no claim to the property or income from it. Inheritances are generally not considered taxable income by the IRS, so you typically do not have to report them on your tax return.

If the mother was a USC, then it would (I assume) be the estate that owes any capital gains to the IRS on the UK property. So the executor of the estate would be responsible for filling out her taxes for the year in which she died, and paying them, prior to disbursing the proceeds.

As a U.S Person, you'll need to report an inheritance to the IRS of over $100,000 on form 3520. If there is a CGT on the property, as there was in my circumstance, purely because of the FX rate, then this needs to be reported to as its post Step-up basis. Ultimately if the executors are not U.S. persons, they would have no idea that the CGT would need to be reported, but this would then somehow fall to the beneficiaries, post sale. It's a complex area and have hired a specialist CPA on this one.

s aAs a U.S Person, you'll need to report an inheritance to the IRS of over $100,000 on form 3520. If there is a CGT on the property, as there was in my circumstance, purely because of the FX rate, then this needs to be reported to as its post Step-up basis. Ultimately if the executors are not U.S. persons, they would have no idea that the CGT would need to be reported, but this would then somehow fall to the beneficiaries, post sale. It's a complex area and have hired a specialist CPA on this one.

I still am unsure on this. If your name was never on the deeds of the house how come you are liable for cgt?  This is why it is better for an elderly person never to transfer their house prior to their death. When a person dies all their goods including house can be sold with the proceeds going into their estate and the beneficiaries never have cgt to be concerned about.

I still am unsure on this. If your name was never on the deeds of the house how come you are liable for cgt?  This is why it is better for an elderly person never to transfer their house prior to their death. When a person dies all their goods including house can be sold with the proceeds going into their estate and the beneficiaries never have cgt to be concerned about.

It would be the Executors of the estate that would pay the CGT, but if they don't as why should they, as they wouldn't know IRS laws. Then only be the beneficiaries can, as under IRS rules the beneficiaries are responsible, (someone has to pay it). To clarify, I'm on about where the property is sold by the executors and the proceeds of sale are then distributed to the U.S. beneficiaries.

It would be the Executors of the estate that would pay the CGT, but if they don't as why should they, as they wouldn't know IRS laws. Then only be the beneficiaries can, as under IRS rules the beneficiaries are responsible, (someone has to pay it). To clarify, I'm on about where the property is sold by the executors and the proceeds of sale are then distributed to the U.S. beneficiaries.

I would be sure to take legal advice as I believe it is your mother’s estate that pays any taxes due, not the executors personally. I’m assuming your mother is not a USC so I don’t see why the IRS would have any call on her assets at all.

I’ll leave it there, I am not knowledgeable in these situations, but have been through the process twice. If we did all wrong then so be it, it was 15 years ago and water under the bridge.

I would be sure to take legal advice as I believe it is your mother’s estate that pays any taxes due, not the executors personally. I’m assuming your mother is not a USC so I don’t see why the IRS would have any call on her assets at all.

I’ll leave it there, I am not knowledgeable in these situations, but have been through the process twice. If we did all wrong then so be it, it was 15 years ago and water under the bridge.

The IRS doesn't have any interest in her assets, (not a USC). They are only interested in 'me', the U.S. Person. Most people know that you have to file a 3520, finCEN114 and 8938 if thresholds dictate. Its the LT CGT that I'm trying to figure out.
I'm actually communicating with a extremely knowledge EA specialist. I'll update this topic when I know the answers...

The IRS doesn't have any interest in her assets, (not a USC). They are only interested in 'me', the U.S. Person. Most people know that you have to file a 3520, finCEN114 and 8938 if thresholds dictate. Its the LT CGT that I'm trying to figure out.
I'm actually communicating with a extremely knowledge EA specialist. I'll update this topic when I know the answers...

Please do keep us updated. I’m aware of the 3520 reporting. It’s the bit about the capital gains in your mother’s house that surprises me since that will presumably have passed to her estate, been sold and then the proceeds distributed. Unless you and the other executors became owners of that house before it was sold how can you be liable to capital gains taxes?

I’ll watch with interest and be ready to accept that I’m quite wrong on this.

If you are a beneficiary of the estate you'll have to declare anything above $100k to the IRS, but there's no US tax due from you personally. The wrinkle here is that as a US citizen executor of a UK estate I think the IRS will see you as a trustee of a foreign trust and so you'll have to deal with the foreign trust reporting.

The wrinkle here is that as a US citizen executor of a UK estate I think the IRS will see you as a trustee of a foreign trust and so you'll have to deal with the foreign trust reporting.

Good point.  Once we'd moved to the USA I got my Dad to remove me as named executor of his will and name my 2 sisters instead. I didn't know the details at the time, I just knew it would be much more complicated, and that was before I became a US Citizen. I expect a Green Card holder living in the USA would run into similar issues being the executor of a foreign trust?

Good point.  Once we'd moved to the USA I got my Dad to remove me as named executor of his will and name my 2 sisters instead. I didn't know the details at the time, I just knew it would be much more complicated, and that was before I became a US Citizen. I expect a Green Card holder living in the USA would run into similar issues being the executor of a foreign trust?

Exactly. For my Mum we had her solicitor as the only executor which made things very simple. In the OP's situation there won't be any US tax due, but it's a reporting burden.

I'm still in process with working out the inheritance with my accountant, but yes there is a LT CGT element. I'll update once I have all the information and actually have the tax return ready. The home was transferred to the Executors, of which I was one. I can see that if you were not an U.S. Executor, just a beneficiary, how would you ultimately know the difference in date of death value and the date the property was sold, I don't think it would be something I would have known. For example, if the DOD value and date sold value was £100,000, but the exchange rate meant the value had increased, (only in USD). I don't know how you'd know. It's only that I was an Executor, that I did. The IRS still want the LT CGT from the beneficiary in that case, (as far as understand).

Fortunately no trust in my case. You'll get these set up in Will for husband wife, IPP, children and the avoidance of care home fees. Arguably, Home Revision contacts could be included, (Equity Release type). Keep things as JT, so you don't need a Declaration of Trust. All these things come into play otherwise when a U.S. Person dies. Of course, a NRA may have already included a U.S. Person as a beneficiary of a foreign trust while alive and simply not conveyed this. (how would they know anyway). Also, you maybe a beneficiary of the trust on their, (U.S. Persons) death. If you're not an Executor, just beneficiary, again, how would you know of that beneficial interest. You'd just hold out your hand for the cash, via the U.K. Solicitor.  A real minefield for sure...

Your Mum's estate is only liable to US tax if it has US assets. As a US beneficiary you just have to report any inheritance if it's over $100k. Any change in the value of the dollar after your Mum's death and the sale of the house is irrelevant when it comes to the estate paying tax. As you are a US executor of a foreign estate there might be some reporting requirements.

Your Mum's estate is only liable to US tax if it has US assets. As a US beneficiary you just have to report any inheritance if it's over $100k. Any change in the value of the dollar after your Mum's death and the sale of the house is irrelevant when it comes to the estate paying tax. As you are a US executor of a foreign estate there might be some reporting requirements.

Once I have all the facts I will update this post. What is for certain though, long term CGT has been assessed, (due to change in $ value between date of death and sold date). This has already been confirmed to me by my U.S. accountant (who has vast experience and specialized knowledge with international matters like this).