Form 3520: the report that follows a gift from home

It is the annual return for reporting transactions with foreign trusts and large gifts from foreign people. For most families only the gift part matters. It records what you received, from whom, and when.

Crucially, it is a disclosure. The IRS guidance on foreign gifts explains what must be reported. Nothing on the form charges tax on an ordinary gift from a relative abroad.

The form files separately from your tax return, though it follows the same deadline and extensions. In our practice we see people assume their preparer covered it. Ask the question directly, because the form is easy to miss.

Trusts are the other half of the form, and they are a different world. Where a foreign trust distributes to you, or you transfer into one, Form 3520 asks far more detailed questions. Most families never touch that part, though anyone who does should take advice early.

Once the total crosses $100,000. The IRS states that you report gifts or bequests only if the aggregate received from a nonresident alien or foreign estate exceeds $100,000 during the taxable year. Related givers get counted together, so several smaller transfers can pass the line jointly.

Above that threshold, detail matters. If the gifts exceed $100,000, you must separately identify each gift over $5,000. So a lump sum and a series of transfers get treated differently on the page, even where the totals match.

Gifts from foreign companies or partnerships follow a much lower threshold, adjusted for inflation each year. Check the current figure on the IRS page rather than assuming. A transfer from a family company is not the same as one from a family member.

Timing matters as much as size. The test runs on a tax year, so gifts spread across a December and a January can fall either side of the line. Families planning a large transfer sometimes have real flexibility about which year it lands in.

Generally not. A gift is not income to the person receiving it under US rules, so an inheritance from a British grandparent does not land on your return as earnings. That is the part people most often get wrong in the anxious direction.

What the money does next can be taxable, though. Interest, dividends and gains earned after the gift arrives are ordinary income, reportable as usual. The gift is a starting point rather than a shield.

The account holding it also matters. A large transfer into a UK account can push you over the FBAR line, and possibly the FATCA thresholds too. Our guide to Form 8938 and the FBAR covers where those two reports bite.

Nothing on Form 3520 computes tax on the gift itself. That single fact reassures most people who arrive worried. The anxiety usually comes from hearing about the penalty and assuming a tax charge sits behind it.

It runs as a percentage of the gift, not a flat fee. The IRS states a penalty equal to five percent of the value of the gift for each month it goes unreported, capped at 25 percent, unless you have reasonable cause.

That structure is why the form deserves respect. A quarter of a large inheritance is a serious number, and it attaches to a transfer that was never taxable in the first place. The penalty punishes silence rather than the money.

Reasonable cause is the built-in defense, and it turns on facts you can evidence. So keep the letters, the bank records and any advice you took at the time. Documentation gathered later is always weaker than documentation kept.

Note what the penalty attaches to. It is a percentage of the gift, not of any tax, because no tax exists to measure. That is unusual in the American system, and it explains why Form 3520 carries a reputation out of proportion to its length.

House deposits lead the list. A parent helps with a London flat, the money moves quietly between family accounts, and nobody thinks of it as a reportable event. The threshold does not care about the reason for the transfer.

Inheritances come second, usually because probate feels like a British process with no American side. Yet a bequest from a foreign estate counts toward the same aggregate test as a lifetime gift.

School fees, wedding contributions and loans that were never repaid also surface. In our practice we see the total assembled only after the fact, when someone adds up a year of family generosity for the first time.

Property transfers deserve a mention as well. A parent adding a child to a title, or transferring a flat outright, is making a gift even where no money moves. Value it properly at the date of transfer, because the threshold works on value rather than cash.

The work is mostly record-keeping. Do it in this order and the form itself takes minutes.

Start while the details are fresh. Reconstructing dates and sources a year later is the slow part.

Ask the giver for a short letter confirming the gift, its date and its value. It costs them five minutes. It answers most questions anyone might raise years later, and it costs nothing to obtain while everyone remembers the details.

Take an illustrative example: an American in Bristol whose parents help with a house purchase. They send £45,000 in March and £40,000 in June. Neither transfer feels remarkable, and neither is taxable to her.

Together they approach the reporting threshold once converted to dollars, and her parents are related to each other, so the amounts aggregate. Whether she crosses the line turns on the exchange rates at each date. That arithmetic decides the filing.

Her cousin inherits from a British aunt in the same year. His bequest comfortably tops the threshold on its own. Neither of them owes tax on the money, yet both need the disclosure question answered properly.

Address it deliberately rather than quietly. Late filings happen often, and reasonable cause exists precisely for people who did not know the duty applied. A well-documented late submission is a different animal from a discovered omission.

Where other years or other forms are also missing, treat it as one project. Non-willful gaps across several years are what the catch-up routes were built for, and our guide to the delinquent FBAR procedures covers how those routes work.

Take advice before filing anything reactive. The narrative attached to a late form matters as much as the numbers on it, and it is written once.

It rarely arrives alone. A large gift usually raises the balance of a foreign account, which pulls in the FBAR rules and sometimes the FATCA reporting on Form 8938 as well.

Each report has its own threshold and its own agency. Filing one never covers another, which is the recurring theme of American disclosure rules. The saving grace is that one set of records feeds them all.

The gift may also change your UK position if it generates income here. That side belongs on Self Assessment, and the two returns should agree about what arrived and when.

One record set serves all of them. Build it once each year and the separate filings stop feeling like separate projects.

US citizens, green card holders and others treated as US persons for tax purposes. The duty follows the recipient rather than the giver, so your British parent has no American filing to make. The obligation lands entirely on your side of the family.

Each recipient reports separately, too. Where a gift is split between two siblings, each tests their own share against the threshold. A transfer that crosses the line as a family total may not cross it for either person individually.

Joint recipients and married couples need care here. Filing status and who actually received the money both shape the answer, so establish the facts before assuming a single filing covers the household.

We handle the disclosure alongside the return through our US federal returns service, so the gift, the accounts and the income all get reported consistently. Where a year has already passed, we scope the catch-up before quoting, and the reasonable cause narrative gets drafted properly.

If family money has moved and you are unsure what it triggered, send us the outline and we will map it at a fixed fee agreed first. Also see the official IRS page for the form. This article is general information, not personal tax advice; take advice on your own facts from a qualified US-UK adviser.