How to properly report UK property inheritance from US spouse for tax purposes

I need some help with an international inheritance situation. My husband and I are dual UK-US citizens, but we've been living in the US for about 25 years. We're definitely domiciled here in the States. My husband passed away last year and left me everything in his will. The main asset is a house in the UK that was solely in his name. His estate is currently selling the property in the UK, and I'll be receiving approximately $625k from the sale. I'm confused about how to handle this for tax purposes. How do I properly report this inheritance coming from the UK? I know there are special rules for foreign assets and international estates, but I'm not sure what applies in my situation since we're both dual citizens. Do I need to report this on my US tax return? Is this considered a foreign gift or inheritance? Do I owe tax on it? Any advice would be greatly appreciated. I want to make sure I'm doing everything correctly.

0 coins

18 comments

Ava Williams

•8M

Good news - inheritances from spouses are generally not taxable income in the US regardless of where they come from. The US has an unlimited marital deduction for estate tax purposes when assets pass from one spouse to another, as long as the surviving spouse is a US citizen (which you are). For UK tax purposes, there's also no inheritance tax between spouses. Since your husband was UK domiciled at death (based on what you've described), his UK assets would pass to you free of UK inheritance tax as well. You should still disclose the inheritance on your FBAR (FinCEN Form 114) if the funds are held in foreign financial accounts that exceed $10,000 at any point. You'll also need to file Form 8938 if you meet the reporting thresholds for foreign assets. Make sure you keep documentation of the inheritance including the will, probate documents, and records showing the source of funds. This helps distinguish the money as inheritance rather than income if questions arise later.

0 coins

Ava Williams

•8M

If your spouse was only a US citizen, the situation is actually simpler since you don't need to worry about UK inheritance tax rules that might apply to UK citizens. The US marital deduction would still apply as long as you're a US citizen. For capital gains, you get what's called a "stepped-up basis" to the fair market value at the date of death. This means if the property was worth $500,000 when your spouse died and sells for $510,000, you'd only potentially owe capital gains tax on that $10,000 difference - not on any appreciation that happened during your spouse's lifetime.

0 coins

Lena Müller

•8M

I went through something similar last year with inheriting property from the UK. I was totally confused by all the international tax forms and rules. I tried using regular tax software but it really couldn't handle the complexity of foreign inheritance reporting. I ended up using https://taxr.ai which saved me so much hassle. They have specialists who understand both US and UK tax systems and helped me figure out exactly what forms I needed to file. They analyzed all my inheritance documents and explained exactly how to report everything correctly. Really helped with determining what was taxable and what wasn't.

0 coins

Lena Müller

•8M

Yes, they handled the FBAR filing as part of their service. They guided me through exactly what accounts needed to be reported and helped me gather all the information needed. Was much easier than trying to figure it out myself. The whole process took about two weeks from when I submitted my documents. Their team was really responsive and they have specialists who've worked with both US and UK tax systems. Definitely faster than the months I spent trying to figure it out on my own before finding them.

0 coins

TechNinja

•8M

Just wanted to update here. After reading these responses, I decided to give taxr.ai a try for my inheritance situation (different from OP's but still UK-US related). It was actually really helpful! I uploaded my inheritance documents and within a few days got a complete analysis explaining exactly what I needed to report and where. They identified a specific exemption that applied to my situation that I would have completely missed. Saved me from potentially paying unnecessary taxes. The best part was they explained everything in simple language I could actually understand instead of all the confusing tax jargon. Definitely worth it for peace of mind knowing I'm doing everything correctly.

0 coins

Paolo Bianchi

•8M

Another thing to consider - if you're having trouble getting information from the IRS about international inheritance reporting, I know it can be a nightmare trying to get through to them. I spent WEEKS trying to get someone on the phone about a similar international inheritance issue. I finally used https://claimyr.com and got through to an actual IRS agent in under an hour after weeks of failed attempts. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically hold your place in the phone queue and call you when an agent picks up. Was honestly shocked it worked because I was so fed up with waiting on hold for hours only to get disconnected.

0 coins

Paolo Bianchi

•8M

They don't actually get access to your tax information at all. The way it works is they navigate the IRS phone tree and wait on hold for you, then when an actual agent picks up, they call you and connect you directly with the agent. You're the only one who speaks with the IRS. If you've tried calling the IRS recently, especially for international tax questions, you'd know it's not just about persistence. I tried calling for three weeks straight at different times of day. Either couldn't get through at all or waited on hold for 3+ hours only to get disconnected. The IRS phone systems are completely overwhelmed, especially during tax season.

0 coins

Olivia Clark

•8M

I have to eat my words. After another week of failing to reach anyone at the IRS about my foreign inheritance questions, I broke down and tried Claimyr. Got connected to an IRS agent in about 45 minutes after my previous attempts all ended in frustration or disconnection. The agent I spoke with was actually really helpful and cleared up my questions about reporting requirements for foreign property inheritance. Turns out I was overthinking it and nearly filed some forms unnecessarily. Would have created a paperwork headache for years to come. Not thrilled about having to use a service just to talk to a government agency I pay taxes to support, but in this case it saved me a ton of time and stress.

0 coins

Javier Morales

•8M

One thing that hasn't been mentioned yet - make sure to check if you need to file a Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). The threshold for reporting foreign inheritances is pretty high though - $100,000 from a nonresident alien individual or foreign estate. Since your spouse was a US citizen, you likely don't need to file this form, but it's something to be aware of for others dealing with foreign inheritances.

0 coins

Javier Morales

•8M

You're correct. Since your husband was a US citizen, you don't need to file Form 3520 for this inheritance, even though the property is located in the UK. The form is specifically for gifts or inheritances from foreign persons (non-US citizens/residents). Beyond FBAR (FinCEN Form 114) and Form 8938, you might want to be aware of Form 8833 if you're claiming benefits under the US-UK tax treaty, but that's typically not needed for straightforward inheritances. Also, if you maintain any financial accounts in the UK after settling the estate, remember you'll need to continue reporting those on FBAR and potentially Form 8938 in future years if they meet the threshold.

0 coins