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show me the money?
October 18, 2010 7:11 AM   Subscribe

So, my awesome great aunt passed away, and she left me a bequest! It's coming this week. Snowflake: She was Canadian, I am an American citizen resident in the UK. It's a Canadian cheque, how long will it take to clear and will I have to pay US or UK tax on it, or both?

I plan to deposit it into my Lloyds account, and it's a low-ish five figure sum.
posted by By The Grace of God to Work & Money (11 answers total)
 
In the UK, inheritance tax is only paid on sums over £325,000 at present.

You're an American citizen, so (I may be wrong on this) US taxes will only kick in if the sum you recieve plus your normal income for the year is over $80,000. However, because this is an inheritance from a non-US citizen, it might not count towards that total.

Bottom line, spend a couple of hundred quid and ask an international tax lawyer.
posted by Happy Dave at 8:05 AM on October 18, 2010


IANYL, but, under US law, inheritances are never taxable events to the recipient at the federal level. I doubt that the international aspect would change that in any way.
posted by iknowizbirfmark at 8:55 AM on October 18, 2010


Bear in mind that Lloyds will charge you a fee to cash the cheque, and will cash it in pounds. So you might want to investigate their charges and current exchange rate, and if it seems a bit screwy you might want to look into other banks.

As for tax law, echoing to ask a lawyer.
posted by djgh at 9:36 AM on October 18, 2010


Regardless of your nationality, the tax liability applies only in the country in which you are resident for tax purposes (which is why you don't pay income tax to the US Govt and the UK Govt on the same income). Therefore if you are a UK taxpayer, UK tax regulations apply concerning the inheritance, and as Happy Dave states, the limit is currently £325,000. Anything below this is tax free.
posted by Biru at 12:02 PM on October 18, 2010


Biru, just to note, the US levies tax on any income earned outside the US over a certain figure, which is currently around $80,000 I believe. But as this is inherited and outside the US, I don't believe this applies.
posted by Happy Dave at 12:54 PM on October 18, 2010


Is that the case if the OP is also paying income tax for UK purposes? I used to work as an IFA, and thought it has been a few years now, I do seem to recall that reciprocal tax agreements were in place to prevent precisely this type of scenario (eg, being taxed twice on an income). Which country you paid tax in depended upon which you were resident in for tax purposes. Eg, an American model flies to London to do a photoshoot and is paid in pounds. He/She then declares this earned income on their tax return in the US, and is taxed on it accordingly. HM Revenue and Customs do not receive any tax from it, though may indirectly from whoever hired said model.
posted by Biru at 1:16 PM on October 18, 2010


As an aside, Inheritance Tax (in UK Law) is chargeable to the estate of the deceased, and not to the individual in receipt of the windfall. However, it is commonly perceived as a tax against those receiving the windfall as in the case of poor financial planning on the part of the deceased, the value of their estate can mean that tax is due, and must be paid before any other sums can be released. This is a tad back to front, as you may be asked to pay a tax bill of (for argument's sake) £10,000 to receive your inheritance of £25,000. You don't have £10,000 to hand, so can't claim your £25,000. Common sense says the Government should simply allow you to receive the £25,000 and pay the due tax of £10,000 within 30 days or some such. Hopefully the tax situation is more conducive in Canada.
posted by Biru at 1:20 PM on October 18, 2010


Is that the case if the OP is also paying income tax for UK purposes? I used to work as an IFA, and thought it has been a few years now, I do seem to recall that reciprocal tax agreements were in place to prevent precisely this type of scenario (eg, being taxed twice on an income).

It's called the Foreign Earned Income Exclusion (currently $91k, my bad) and it applies to any US citizen abroad unless they become permanently domiciled abroad, which I believe is pretty complex to do (I think you forfeit rights to Social Security etc). But yeah, there is definite tax liability for US citizens above that figure, regardless of where earned or current country of residence.
posted by Happy Dave at 2:31 PM on October 18, 2010


This is great info! Canada's deceased person pays the tax, so I'm cool there.

Anyone know how long this cheque is gonna take to clear?
posted by By The Grace of God at 1:54 AM on October 19, 2010


And Biru: There's a cheque being sent to me (from Canada) so I'm guessing any taxes have already been paid?
posted by By The Grace of God at 1:58 AM on October 19, 2010


Yes, if it's anything like the UK system, nothing can be doled out from the value of the estate until the estate has settled any tax liability incurred as result of the value of the estate's asset. (You dun' get paid till the Guvamen' get paid.) As for clearing, I've had a look around and it seems banks are wary of posting times they claim it will take, mostly because it varies on the amount (lower amounts you can sometimes get credited immediately if the cheque is from a large EU or US bank), and on the issuing country. Best to call your branch and ask them for advice, detailing which bank the cheque is coming from, and its value.
posted by Biru at 10:32 AM on October 19, 2010


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