tax on usa IRA accounts???

[chrish93]

Hello. Recently my Mother has passed away and we are in the stages of adding up all her assets and preparing to go to Probate. My Mother was a dual US/UK citizen. Originally English, but married my Dad who was American. Long story short, she moved to England but has a Traditional IRA and a Roth IRA in the US for retirement. She also owns a property in Spain and a property in England. My Mother was 61.

The tax laws seem to say that the limit for tax free assets is 325k , but 425k if the will includes a home bequeathed to her children (which it is). Also from what I've read, it seems to say that accounts recognized as 'pensions' are also tax free. What I'm asking is if the British governement will recognize Mum's USA retirement accounts as pensions. I'm hoping they will because it will save us tens of thousands in taxes each. We are far over the 425k threshold (between her three children) and are trying to find out if the accounts are taxable, or even traceable by the UK governement. The accounts in the USA have already been bequeathed to my brother and I, as in the USA IRA's are not included in Probate during inheritance and aren't ever taxed. Will the English governement know about these accounts? Will we have to pay taxes on them?

Mum's total assets seem to be around 800k £ (including the IRA's) which means we will owe around 140k in taxes IF the ira's do not count as a pension.

Thank you

[DavidTreitel]

This is a common problem and will be difficult to resolve. From a US income tax perspective, the executors will need to ensure that US income tax returns and FBARs are filed up to the date of death. If the executors are also US citizens, the executors will need to remember to report signature authority over the accounts of the estate on their own FBARs when these are filed next year.

The IRA is generally considered to has no special treatment for UK IHT purposes. Consequently, the value is subject to UK IHT. The beneficiaries could also suffer UK income tax on money they withdraw from the traditional IRA. With hindsight, from an estate planning perspective, best advice would have been to withdraw the money during mum's lifetime and for her to have paid tax on the money herself.

It seems likely that the beneficiaries are all US citizens. If they are not currently US compliant, they will want to become so and will probably use the IRS streamlined procedures to catch up.

These are all issues I see routinely, so please feel to send a private message if my firm can help further at this time.

[rlkswan]

I have a similar issue, but am owner of an IRA with significant value earned in the USA and now retired in the UK. I take distributions with no witholding and pay UK income tax on these under the double tax treaty. I am UK Resident, UK citizen and my green card expired. Single.

The IRA beneficiaries are my 3 children who are all UK Resident and UK citizens. As I understand it, on my death there will be 30% witholding on the fund value in the US, together with 40% IHT in the UK, as my estate is over the threshold and there is no inheritance tax double tax treaty available. Is this correct?

If I withdraw the funds now at the maximum UK income tax rate the only way to avoid IHT double taxation will be to gift the net proceeds and live 7 years.

Advice would be welcome!

[DavidTreitel]

The expiry of a green card has no effect on US tax. Hopefully you are filing annual US income tax returns reporting worldwide income and gains each year. Should you ever wish to abandon the green card it would be helpful to read further beforehand about US expatriation tax rules.