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Q: Inheritance taxes between US and UK ( Answered 5 out of 5 stars,   2 Comments )
Question  
Subject: Inheritance taxes between US and UK
Category: Business and Money > Finance
Asked by: cat914-ga
List Price: $20.00
Posted: 06 Feb 2005 21:01 PST
Expires: 08 Mar 2005 21:01 PST
Question ID: 470152
My husband is a resident alien from the UK. His father, who was a UK
citizen, recently passed away, leaving an estate in the 300,000 pound
range. My question is this...will we be responsible for both UK and US
inheritance taxes? If so, is there a way to avoid this?
Answer  
Subject: Re: Inheritance taxes between US and UK
Answered By: hummer-ga on 07 Feb 2005 07:43 PST
Rated:5 out of 5 stars
 
Hi cat914,

I have some good news for you! If the inheritance (legacy) is a lump
sum of money (say from a bank account), then your husband will not be
taxed in either the US or the UK.  However, you have to be careful to
understand the difference between a lump sum of money versus income
(interest or dividends) derived from an estate. Estate taxes are
normally paid by the executor and are taken out of the estate before
being distributed to the beneficiaries and are not taxed again by the
heir.

>>> US

IRS TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART III >  102
Gifts and inheritances:
(a)  General rule:
"Gross income does not include the value of property acquired by gift,
bequest, devise, or inheritance."
http://assembler.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000102----000-.html

Check your state regulations to see if it collects inheritance tax.
For example, here is Georgia:

"A. Georgia has an estate tax which is based on federal estate tax
law. We have no inheritance tax, but some people refer to estate tax
as inheritance tax. The tax is paid by the estate before any assets
are distributed to heirs. It is not paid by the person inheriting the
assets."
http://www2.state.ga.us/departments/dor/inctax/webfaq/faq-est.shtml#1

>>> UK

LEGACY
What is the difference between a 'legacy' and the 'residue' of an estate?
"A legacy is a specific asset or sum of money that was left to you
under the terms of the deceased person's Will.
The residue of an estate is what is left after the payment of debts
and legacies..."
I am to receive a legacy. How will it affect my income tax liability?
"Usually you will not have any income tax liability when you receive a
legacy, except if it
    * consists of an asset that produces income, for instance, a bank
account, a shareholding or a rented property. The income it produces
is your income, just as if, for example, you bought the shares out of
your own money
    * is paid late and the personal representative pays you interest
on it. The interest is part of your income for tax purposes for the
year in which it is paid. It will generally be paid to you without tax
deducted, so you must report it to us even if you are not sent a tax
return."
http://www.inlandrevenue.gov.uk/pdfs/ir45.htm#legacy

PECUNIARY LEGACIES;
Where a legacy takes the form of a sum of money (for example a legacy
of 2,000) it is called a pecuniary legacy.
"When someone gets a legacy of this sort, they normally only get the
amount stated in the will (for example if the person was entitled to a
legacy of 2,000 they would get that amount and no more). The
beneficiary would not therefore have received any income and has no
tax liability in respect of the legacy."
http://www.inlandrevenue.gov.uk/manuals/apmanual/html/AP4025/14_0072_AP4443.htm

Additional Link of Interest:

Inland Revenue:
Welcome To The Centre For Non Residents
http://www.inlandrevenue.gov.uk/cnr/

International - the office responsible for international tax issues
http://www.inlandrevenue.gov.uk/international/index.htm

What do I need to do about tax when someone dies?
Our leaflet IR45 ?What to do about tax when someone dies? which will
help you understand the tax liabilities that may arise when someone
dies. It gives information about income tax, capital gains tax and
inheritance tax. There are sections about the responsibilities of
personal representatives and trustees, and about the tax treatment of
beneficiaries. You can get this leaflet from Inland Revenue Enquiry
Centres and Tax Offices.
Will any inheritance tax be payable on my death?
It depends on your circumstances. Only around 3 in 100 of all estates
pay any inheritance tax. There is a threshold, 255,000 for deaths
after 5 April 2003, below which you do not have to pay inheritance
tax. Generally, anything above the threshold is taxable at 40%,
although there are a number of specific reliefs and exemptions which
may apply.
We produce a series of leaflets which provide more information on
inheritance tax. Our leaflet IHT3 ?Inheritance tax. An introduction?
is a good place to start.
http://www.inlandrevenue.gov.uk/pdfs/ir121.htm#33

Inheritance Tax:
*Inheritance Tax is the tax that is paid on your estate when you die,
as well as on some assets that you may have given away during your
lifetime."
http://www.direct.gov.uk/Topics/Money/TaxBasics/TaxBasicsArticle/fs/en?CONTENT_ID=4016736&chk=VLKdwp

I hope this helps. If you have any questions, please post a
clarification request *before* closing/rating my answer and I'll be
happy to reply. I'm sorry there was a delay in posting this answer. I
had it all ready to go when my computer decided it was time for a
major crash.

Thank you,
hummer

Google Search Terms Used:

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irs "inheritance tax
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state "income tax" inheritance

Clarification of Answer by hummer-ga on 07 Feb 2005 09:27 PST
Hi cat914,

When I answered your question, I assumed that your husband is not the
executor of the will and that the executor has performed his/her
duties according to all rules, regulations, and laws.

Regards,
hummer

Request for Answer Clarification by cat914-ga on 07 Feb 2005 14:50 PST
Hi, and thanks so much for getting back to me. To clarify, my husband
is the only beneficiary, as stated in his father's will. There will be
approximatly 50,000 pounds in cash and stocks, while the sale of my
father-in-laws house will net somewhere around 250,000 pounds. We do
have a soliciter who is handling everything about the estate, from the
funeral to the sale of the house and car. It seems to be such a tricky
issue, and with the exchange rates, we are looking at rather a large
sum of money. We are thinking it will be to our benefit to obtain a
lawyer/estate handler on this side of the big pond. Any thoughts?
Thanks so much!

Request for Answer Clarification by cat914-ga on 07 Feb 2005 14:57 PST
duh...forgot to add that said husband executor of the will as well as
the sole beneficiary...

Clarification of Answer by hummer-ga on 07 Feb 2005 16:44 PST
Hi  cat914,

Well, the estate, and your husband's responsibilities as executor, are
in the U.K.. In other words, he won't have to act as executor all over
again in the U.S., so a good accountant would be more appropriate for
dealing with his U.S.  income tax. However, there are special issues
to consider concerning your husband's estate planning, given that he
isn't a U.S. citizen. It would be best to consult a qualified estate
planning attorney when it comes time to update your husband's will.

This is a good pamphlet for your husband to read concerning the UK:
Inheritance Tax: The Personal Representatives' Responsibilities:
http://www.inlandrevenue.gov.uk/leaflets/iht14.pdf

I wish you and your husband well - these times are never easy but they
do pass. I hope I've been able to help to ease your minds at least a
little bit.

Sincerely,
hummer
cat914-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00
Great research and fast answers...this is a wonderful set-up for
people like me that need answers simplified and fast...thanks so much!

Comments  
Subject: Re: Inheritance taxes between US and UK
From: answerfinder-ga on 07 Feb 2005 08:13 PST
 
Can I add to Hummer?s research for the UK aspect.

You have not stated whether you are the executor of the will or the
administrator (if there was no will), or solely the beneficiary. Even
if you are only the beneficiary you may be responsible for inheritance
tax payments if the personal representative does not deal with the
estate properly. You may wish to consult a UK solicitor for advice on
this as law is quite complex. At least the estate is only just above
the threshold i.e. 40% of 45,000.

If you are you are the executor of the will or the administrator, a
grant of probate must be applied for and the Inland Revenue notified
of the monetary value of the estate. There are financial penalties
for:

" fail to deliver an account or late delivery of an account
   submit incorrect accounts fraudulently or negligently
   submit supporting information or documents fraudulently or negligently
unreasonably delay notifying us of further assets or correct values,
which come to light after you have delivered an account"

The liability for the executor and or beneficiaries on Inheritance Tax briefly is:

"As a personal representative, you are liable for inheritance tax on

    assets that were not held in trust, and
    land in the UK, held in trust which comes into your possession."

"Who else is liable?
If, for some reason, you or the trustees do not or cannot pay the tax,
you should tell the following that they have a secondary liability to
inheritance tax

    the beneficiaries, or anyone, who later receives assets in the estate
    anyone benefiting from assets already in trust at the time of
death or who  receives income from such assets."


These Inland Revenue pages should help.
http://www.inlandrevenue.gov.uk/leaflets/iht3.htm
http://www.inlandrevenue.gov.uk/leaflets/iht14.htm

answerfinder-ga
Subject: Re: Inheritance taxes between US and UK
From: hummer-ga on 07 Feb 2005 18:46 PST
 
Dear cat914,

Thanks so much for you nice note, rating, and tip - they are all
appreciated. Welcome to GA!  Sincerely, hummer

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