Form 3520, a stepped basis, and a house measured in the wrong currency

A receipt from a non-US person or estate that crosses the reporting threshold. Form 3520 records it. The form does not tax the receipt, because an inheritance is not income under US law.

If it came from abroad and it was large, yes. The instructions to Form 3520 require a US person to report receipts of more than $100,000 from a nonresident alien individual or a foreign estate that were treated as gifts or bequests.

Reporting is not taxing. The form records the receipt and nothing more.

The penalty for missing it is proportional to the amount, which makes a house-sized bequest an expensive form to forget.

Usually that same date-of-death figure. Publication 559 states that the basis used to figure gain or loss for property received from a decedent is usually its fair market value at the date of death.

Ask the executors for the probate valuation, the surveyor's name and the date of inspection. Those three details make the figure defensible.

Then convert it to dollars at the rate for that date and file the calculation with the valuation itself.

Keep both permanently, in the same folder as the grant of probate. You may need them in twenty years.

No, and this is a genuine advantage. Publication 559 confirms that property received from a decedent is treated as held for more than one year, however long the estate or the decedent actually held it.

So selling three months after probate still attracts long-term rates rather than short-term ones.

Combined with the basis rule, that makes an early sale far less painful than people expect.

Because your basis is fixed in dollars at the date of death, and your proceeds are converted at the date of sale. A property that gained nothing in pounds can still produce a dollar gain.

The reverse also happens, and a dollar loss on a pound profit is equally possible.

Convert the date-of-death value at the rate for that date and keep the source. That figure will matter for as long as you own the house.

Our guide to exchange rate rules explains which rate applies and why consistency matters.

The house itself does not, because real estate held directly is not a financial account. Inherited cash and investments are another matter entirely, and they push your totals up from the day they transfer, which often brings a first FBAR or Form 8938.

So the year of an inheritance often brings a first FBAR or a first Form 8938, even where no tax is due.

Check the highest balance of every inherited account, including executor accounts you can sign on. Signature authority counts even without ownership.

Start with the executors, then the solicitor handling probate. Between them they hold the probate valuation, the schedule of assets and the grant itself, and they will hand all three over readily while the file is still open.

Ask for four documents: the probate valuation, the schedule of the estate, the grant of probate and a note of the date each asset transferred to you.

Solicitors provide these routinely when asked before the file closes. Afterwards, retrieval becomes a paid exercise with no guarantee of success.

GOV.UK's guide to applying for probate explains the process the executors are working through, which helps you time the request.

The market value on the date of death, in writing. Executors need it for probate, and it becomes your American cost basis. Ask for a copy while the file is still open rather than reconstructing it later.

The estate, not you. GOV.UK's guidance on Inheritance Tax explains that the charge arises on the estate of the person who died, and executors settle it before anything reaches the beneficiaries. So a large IHT bill produces no credit on your own American return.

That matters for your American return in an unwelcome way. Tax paid by the estate is not tax paid by you, so it generates no credit on your return.

Our article on UK inheritance tax for Americans covers the estate side in detail.

Where you are also an executor, the position is different again, because then you are administering the charge rather than merely receiving what is left.

Both countries look at the same sale and measure it differently. Britain charges capital gains tax on the rise since death, and it taxes UK land in the hands of non-residents too.

America measures the gain from your stepped-up basis, in dollars, while Britain applies its own capital gains rules to UK land.

Those two gains are rarely the same number, because the pound moved between the date of death and the sale.

Our article on selling a UK home as a US person works through the calculation and the reporting deadlines.

Then it becomes a rental business in both systems, with different rules about what you can deduct. Britain taxes the UK rental profit and restricts finance costs in a way America does not.

Depreciation is the biggest divergence. America requires it on residential property; Britain has nothing equivalent.

That means two sets of figures for the same house, every year. Our article on US tax on UK rental income sets out how to keep both straight.

It can, in a way that surprises people. A debt in pounds moves in dollar terms, so repaying or refinancing an inherited mortgage may produce a currency gain of its own.

That result has nothing to do with the property's value. It follows purely from holding a foreign currency obligation.

Our article on foreign currency mortgage gains explains when the charge arises.

Cash and investments follow their own rules, and the reporting thresholds look at totals rather than at individual assets. So a modest house alongside a modest cash legacy can cross the reporting line together.

Inherited funds and shares also arrive with the same basis advantage.

British funds bring a separate problem, because they are passive foreign investment companies for American purposes. A de minimis exception exists where holdings stay small and nothing is sold or distributed.

Our article on ISAs and the PFIC problem explains the regime you are inheriting into.

Not urgently, though two things are genuinely time-sensitive. A date-of-death valuation is far easier to obtain in the first months than in the third year, and any inherited UK bank account starts counting towards your own reporting thresholds immediately.

Account balances matter too, because an inherited UK bank account counts towards your own reporting thresholds from the day it becomes yours.

So the early admin is evidence-gathering rather than filing. The filings come later and are easier when the evidence exists.

Shared ownership is the norm and it complicates the arithmetic rather than the principle. Each owner has their own basis in their own share, converted at their own rate.

Where one sibling is American and others are not, only one of them has any of this to do.

Agree early how the property will be held and who will handle sale proceeds. A sale routed through one sibling's account can look like a gift to the others.

In our practice that routing question causes more reporting problems than the inheritance itself.

Holding costs continue while American tax largely pauses. Council tax applies, often at a premium on a long-term empty home, and insurance becomes harder to arrange. Nothing reaches your US return until you sell or let it, because an empty house produces no income at all.

Nothing reaches your US return until you sell or let it, since an empty house produces no income.

Still, the clock on the valuation keeps running. An empty year is a good year to get the paperwork right rather than to postpone it.

The analysis changes in one respect. A UK resident is taxed here on worldwide income and gains anyway, so the property is inside the British net from the start.

Your American position is unchanged: the same basis rule, the same reporting threshold, the same currency arithmetic.

What improves is the credit picture. UK tax you pay personally on a later sale or on rental profit does generate a credit against the American charge, unlike inheritance tax paid by the estate.

British conveyancing expects a UK bank account and identity checks that assume a UK address. Both take longer from overseas, so start them before marketing the property.

A reporting deadline also applies to UK land disposals, separately from the annual return. Missing it brings penalties even where no tax is owed.

Instruct a solicitor who has handled non-resident sellers before. The saving in time exceeds any difference in fees.

In our practice the conveyancing timetable, not the tax, is what delays these sales.

Work through these in the first six months if you can.

Take an illustrative estate. An American inherits her father's house in Yorkshire, valued at £400,000 on the date he died, and sells it eighteen months later for £415,000.

The receipt produces no US income tax, though it exceeds the reporting threshold and goes on Form 3520. Her US basis is the £400,000 value converted at the date-of-death rate.

Britain taxes the £15,000 rise. America measures the same sale in dollars, so the answer depends on what the pound did in between. The figures are illustrative; the two-currency comparison is the work.

First, assuming the inheritance is taxable and paying tax that was never due. Second, missing Form 3520 on a bequest over the threshold.

Third, failing to get a date-of-death valuation, which quietly forfeits the basis advantage. Fourth, claiming credit for inheritance tax the estate paid.

Fifth, treating a pound gain as the American gain. Sixth, ignoring inherited accounts when checking reporting thresholds.

Seventh, assuming the solicitor will volunteer what an American needs. They are administering an estate under English law and have no reason to think about a foreign return.

Eighth, treating inheriting UK property as a single event. It is three: a receipt, a holding period in a foreign currency, and eventually a disposal, each with its own reporting.

We start with the valuation and the conversion, because those two numbers determine every future outcome. Then we model selling against letting against keeping, in both systems, before anyone commits.

Our US federal return service covers the reporting forms and the eventual sale or rental position in the same engagement.

Send us the probate valuation and a note of what else came from the estate, and we will set out what each option costs.