Inheritance From USA
Discussion
My Father has recently been left a sum of money by a relative who had emigrated to the USA.
As part of the process, he has been contacted to advise that he would be responsible for tax payable on interest accrued on the amount. Due to this he has been asked to complete a W-7 form in order to get an ITIN ( Individual Taxpayer ID Number). This process involves providing original or certified copies of passport, driving licence etc He’s a bit concerned by this, despite the deceased relative unfortunately being genuine.
My attempts to google the subject haven’t thrown up anything definitive. Is this standard procedure for a US estate? The state in question is Washington which does appear to have an estate tax.
As part of the process, he has been contacted to advise that he would be responsible for tax payable on interest accrued on the amount. Due to this he has been asked to complete a W-7 form in order to get an ITIN ( Individual Taxpayer ID Number). This process involves providing original or certified copies of passport, driving licence etc He’s a bit concerned by this, despite the deceased relative unfortunately being genuine.
My attempts to google the subject haven’t thrown up anything definitive. Is this standard procedure for a US estate? The state in question is Washington which does appear to have an estate tax.
Not a lawyer....
Federal Estate tax is above 11 million (Paid from the estate)
State inheritance tax for Washington ranges from 10 to 20% over 2 million (paid by the heir)
I would add that it can get complicated as some States like New jersey have different rates for degrees of relationship. ie sons, daughters brothers sisters nieces not all treated the same. I don't think this is the case for Washington.
From what you wrote I'm guessing what he is on the hook for is income tax on any gain while the amount is in escrow.
We do have tax treaties with the UK, so he could opt to have nothing withheld and pay UK taxes. (I do the opposite with UK income)
If he does not comply I think they will withhold at 34% (of the accrued gain)
The executor is probably not a lawyer, just a trusted relative, although they may be getting the assistance of their family accountant.
I would follow the instructions to get a TID Tax ID number.
The requirements may seem over the top, but the executor must be sure he hands over correct portions of the estate to the correct people, he has a legal obligation to get it right.
Federal Estate tax is above 11 million (Paid from the estate)
State inheritance tax for Washington ranges from 10 to 20% over 2 million (paid by the heir)
I would add that it can get complicated as some States like New jersey have different rates for degrees of relationship. ie sons, daughters brothers sisters nieces not all treated the same. I don't think this is the case for Washington.
From what you wrote I'm guessing what he is on the hook for is income tax on any gain while the amount is in escrow.
We do have tax treaties with the UK, so he could opt to have nothing withheld and pay UK taxes. (I do the opposite with UK income)
If he does not comply I think they will withhold at 34% (of the accrued gain)
The executor is probably not a lawyer, just a trusted relative, although they may be getting the assistance of their family accountant.
I would follow the instructions to get a TID Tax ID number.
The requirements may seem over the top, but the executor must be sure he hands over correct portions of the estate to the correct people, he has a legal obligation to get it right.
Edited by jeff m2 on Saturday 20th April 23:06
jeff m2 said:
Not a lawyer....
Federal Estate tax is above 11 million (Paid from the estate)
State inheritance tax for Washington ranges from 10 to 20% over 2 million (paid by the heir)
I would add that it can get complicated as some States like New jersey have different rates for degrees of relationship. ie sons, daughters brothers sisters nieces not all treated the same. I don't think this is the case for Washington.
From what you wrote I'm guessing what he is on the hook for is income tax on any gain while the amount is in escrow.
We do have tax treaties with the UK, so he could opt to have nothing withheld and pay UK taxes. (I do the opposite with UK income)
If he does not comply I think they will withhold at 34% (of the accrued gain)
The executor is probably not a lawyer, just a trusted relative, although they may be getting the assistance of their family accountant.
I would follow the instructions to get a TID Tax ID number.
The requirements may seem over the top, but the executor must be sure he hands over correct portions of the estate to the correct people, he has a legal obligation to get it right.
Thanks a lot for your reply, Jeff.Federal Estate tax is above 11 million (Paid from the estate)
State inheritance tax for Washington ranges from 10 to 20% over 2 million (paid by the heir)
I would add that it can get complicated as some States like New jersey have different rates for degrees of relationship. ie sons, daughters brothers sisters nieces not all treated the same. I don't think this is the case for Washington.
From what you wrote I'm guessing what he is on the hook for is income tax on any gain while the amount is in escrow.
We do have tax treaties with the UK, so he could opt to have nothing withheld and pay UK taxes. (I do the opposite with UK income)
If he does not comply I think they will withhold at 34% (of the accrued gain)
The executor is probably not a lawyer, just a trusted relative, although they may be getting the assistance of their family accountant.
I would follow the instructions to get a TID Tax ID number.
The requirements may seem over the top, but the executor must be sure he hands over correct portions of the estate to the correct people, he has a legal obligation to get it right.
Edited by jeff m2 on Saturday 20th April 23:06
My Father has had correspondence from his late Aunt’s attorney to inform him that he was named in her will.
It does appear to be a Cousin (who is a US citizen) that is coordinating things and their accountant is suggesting that the W-7 form is necessary for any tax liability on the interest. I don’t expect that this will amount to any great figure but he was cautious about what exactly he was making himself liable for.
What you’ve explained will help ease his mind and I’ll get the form completed and sent off for him.
Much appreciated - thanks again.
Edited by Creg on Sunday 21st April 01:11
Creg,
I own a block of shares in a major USA HQ'd company. The shares are traded on the NYSE. I receive dividends for these shares on a quarterly basis and have the dividends paid into the UK.
As far as the USA IRS is concerned, tax is payable on the dividends, as one would expect. However, there is a double taxation agreement between USA and UK which means that a preferential rate of tax (known as withholding tax) is deductible in the USA before the dividends are remitted to me to me in the UK. In order to get this preferential tax treatment in the USA, I am registered as a Non-resident Alien for USA IRS purposes. I achieve this by completion of a form W8-BEN every three years.
When dividends are remitted they are paid net of the withholding tax. Then as far as UK HMRC is concerned when I complete my annual SA I can claim the withholding tax and offset it against any UK income tax liability.
So, in your case, I strongly suspect that there is something similar whereby your father can become registered as a Non-resident Alien for USA tax purposes and thus reducing the amount of tax paid in the USA on the inheritance. If this is possible, it will need to be done before payment of the inheritance is made, of course. I think you should discuss Non-Resident Alien possibilities with the party requesting that your father completes the other requested USA tax forms.
Note that I too am not a lawyer or tax expert.
R
I own a block of shares in a major USA HQ'd company. The shares are traded on the NYSE. I receive dividends for these shares on a quarterly basis and have the dividends paid into the UK.
As far as the USA IRS is concerned, tax is payable on the dividends, as one would expect. However, there is a double taxation agreement between USA and UK which means that a preferential rate of tax (known as withholding tax) is deductible in the USA before the dividends are remitted to me to me in the UK. In order to get this preferential tax treatment in the USA, I am registered as a Non-resident Alien for USA IRS purposes. I achieve this by completion of a form W8-BEN every three years.
When dividends are remitted they are paid net of the withholding tax. Then as far as UK HMRC is concerned when I complete my annual SA I can claim the withholding tax and offset it against any UK income tax liability.
So, in your case, I strongly suspect that there is something similar whereby your father can become registered as a Non-resident Alien for USA tax purposes and thus reducing the amount of tax paid in the USA on the inheritance. If this is possible, it will need to be done before payment of the inheritance is made, of course. I think you should discuss Non-Resident Alien possibilities with the party requesting that your father completes the other requested USA tax forms.
Note that I too am not a lawyer or tax expert.
R
The Leaper said:
Creg,
I own a block of shares in a major USA HQ'd company. The shares are traded on the NYSE. I receive dividends for these shares on a quarterly basis and have the dividends paid into the UK.
As far as the USA IRS is concerned, tax is payable on the dividends, as one would expect. However, there is a double taxation agreement between USA and UK which means that a preferential rate of tax (known as withholding tax) is deductible in the USA before the dividends are remitted to me to me in the UK. In order to get this preferential tax treatment in the USA, I am registered as a Non-resident Alien for USA IRS purposes. I achieve this by completion of a form W8-BEN every three years.
When dividends are remitted they are paid net of the withholding tax. Then as far as UK HMRC is concerned when I complete my annual SA I can claim the withholding tax and offset it against any UK income tax liability.
So, in your case, I strongly suspect that there is something similar whereby your father can become registered as a Non-resident Alien for USA tax purposes and thus reducing the amount of tax paid in the USA on the inheritance. If this is possible, it will need to be done before payment of the inheritance is made, of course. I think you should discuss Non-Resident Alien possibilities with the party requesting that your father completes the other requested USA tax forms.
Note that I too am not a lawyer or tax expert.
R
Thanks, R.I own a block of shares in a major USA HQ'd company. The shares are traded on the NYSE. I receive dividends for these shares on a quarterly basis and have the dividends paid into the UK.
As far as the USA IRS is concerned, tax is payable on the dividends, as one would expect. However, there is a double taxation agreement between USA and UK which means that a preferential rate of tax (known as withholding tax) is deductible in the USA before the dividends are remitted to me to me in the UK. In order to get this preferential tax treatment in the USA, I am registered as a Non-resident Alien for USA IRS purposes. I achieve this by completion of a form W8-BEN every three years.
When dividends are remitted they are paid net of the withholding tax. Then as far as UK HMRC is concerned when I complete my annual SA I can claim the withholding tax and offset it against any UK income tax liability.
So, in your case, I strongly suspect that there is something similar whereby your father can become registered as a Non-resident Alien for USA tax purposes and thus reducing the amount of tax paid in the USA on the inheritance. If this is possible, it will need to be done before payment of the inheritance is made, of course. I think you should discuss Non-Resident Alien possibilities with the party requesting that your father completes the other requested USA tax forms.
Note that I too am not a lawyer or tax expert.
R
The W-7 gives him the option to select he is a non-resident Alien. I believe this is what he’s been instructed to register as.
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