Trusts & Estates
8 services, 7 core filings, US and UK
US and UK tax for trustees, beneficiaries and executors where a trust, a gift or an estate has a connection to both countries.
Who is the Trusts & Estates division for?
Trusts and estates are where the two systems differ most. A structure that is routine in English planning can be a foreign trust to the IRS, with its own forms and proportional penalties. We handle the reporting and advise before assets move.
Services in this division
- Estate & Trust Planning
Wills, trusts and estate planning for families with US and UK connections, including foreign trust reporting and the inheritance tax position.
- Private Client
Ongoing tax advice for wealthy families with US and UK ties, covering residence, investments, trusts, gifts and the estate position together.
- Gift Tax Returns
Form 709 for US donors and Form 3520 for US recipients of foreign gifts, with the UK inheritance tax position on the same transfer.
- Foreign Income & FBAR
FBAR and Form 8938 reporting for UK accounts, with the income those accounts produce reported correctly on the US return.
- PFIC Reporting
Form 8621 reporting and elections for US persons holding UK funds, investment trusts and non-US ETFs, inside or outside an ISA.
- Treaty Relief
Claims under the US/UK income tax treaty, with Form 8833 disclosure, residence tie-breaker analysis and reduced withholding on US income.
- Tax Planning
Forward planning across the US and UK tax systems: timing income, choosing investments, arriving, leaving and organising family finances.
- IRS Representation
Representation before the IRS for people and businesses with UK ties, from answering notices to penalty relief and payment arrangements.
When a trust or estate crosses borders
A US person who receives a distribution from a UK trust, or who funds one or is treated as owning one, reports it on Form 3520.
A foreign trust with a US owner also needs Form 3520-A. The penalties are proportional: for trust transfers and distributions, the greater of $10,000 or 35% of the gross reportable amount. Distributions of income accumulated in earlier years can be taxed under throwback rules that add an interest charge, so the timing of distributions and the quality of the trustees' records matter to a US beneficiary.
Inheritances and gifts from UK family are not taxed as income in the US, but they are reportable. A US person who receives more than $100,000 in a year from a foreign individual or estate files Form 3520, and the penalty for missing it is 5% of the gift for each month it goes unreported, capped at 25%. Inherited UK funds may be passive foreign investment companies from the day they arrive. Inherited accounts count towards the FBAR and Form 8938 thresholds in the year of receipt.
On death, each country applies its own test. The US taxes the worldwide estate of its citizens above an exclusion of $13.99 million. A non-resident who is not a citizen has an exemption of only $60,000 against US-situs assets such as US shares, before treaty relief. UK inheritance tax at 40% now reaches the worldwide assets of anyone UK resident for ten of the previous twenty tax years. Bequests to a spouse who is not a US citizen miss the US marital deduction unless a qualified domestic trust is used.
Situations we see most often
- 01
- Form 3520 for distributions from UK trusts to US beneficiaries
- 02
- Form 3520-A where a US person is treated as owning a foreign trust
- 03
- Reporting inheritances and large gifts received from UK relatives
- 04
- US estate tax exposure for UK residents holding US shares or property
- 05
- Wills and lifetime gifts where spouses hold different citizenships
The forms this division files
Most of the work sits in a handful of returns and information forms. These are the ones we prepare most often for this group.
- Form 8938Statement of Specified Foreign Financial Assets (FATCA)
- Form 8621PFIC Shareholder Return
- TreatyThe US-UK Income Tax Treaty
Why US UK Tax Returns
The same people keep the file year after year, so elections, carryovers and treaty positions follow you from one return to the next.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
My mother in England left me money. Do I owe US tax on it?
An inheritance is generally not income for US purposes, so there is normally no US tax on receipt. There is a reporting duty. If what you receive from a foreign individual or estate in the year exceeds $100,000, you file Form 3520, and the penalty for not doing so is 5% of the gift for each month it goes unreported, capped at 25%. Income the assets produce afterwards is taxable, and UK accounts you inherit count for FBAR purposes.
I am a beneficiary of a UK family trust. What do I have to file?
In any year you receive a distribution, you report it on Form 3520, whatever the amount. How it is taxed depends on whether it carries current income, accumulated income or capital, and the trustees need to supply a beneficiary statement for you to show that. Without one, the IRS default treatment is unfavourable. If you have signing authority or a reportable interest in the trust's accounts, the FBAR and Form 8938 can also apply.
I am British and own US shares. Could US estate tax apply when I die?
It could. Shares in US companies are US-situs assets, and a non-resident who is not a US citizen has an exemption of only $60,000 under domestic law. The estate tax treaty between the US and the UK can give a larger, proportionate exemption to a person domiciled in the UK under the treaty, but it has to be claimed on a US estate tax return. The result depends on the mix of assets and on how the shares are held.
I am a US citizen and have been asked to act as trustee of a UK trust. Does that cause problems?
It creates obligations for you personally and may affect the trust. Signature authority over the trust's UK accounts is enough to require an FBAR from you, even though the money is not yours. A trust is domestic for US purposes only if a US court supervises it and US persons control its substantial decisions, so the trust usually remains foreign. The position should be reviewed before you accept the appointment.
We missed a Form 3520 for an earlier year. What happens now?
The penalties are proportional to the amount that should have been reported, so they can be large even where no tax was due. The IRS has delinquent international information return procedures, under which a late form is filed with a statement of reasonable cause. Whether that statement is accepted depends on the facts. Where income was also omitted, the Streamlined procedures may be the better fit, provided the conduct was non-wilful.
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