Inheritance in British Pounds tax question:

[PastaPrimavera]

My father died a few years ago in England. His will gave general guidelines for distributions to his heirs. The attorney handling his estate proposed distributions in British Pounds about 7 months ago which he filed with the court in London. I have not yet received any money but the value of what I should receive has dropped significantly due to the decline in the value of the British Pound. Can I claim this loss on my taxes when I receive my settlement in US Dollars? If so, how would I report it? Thanks!!

 

[LdiJ]

My father died a few years ago in England. His will gave general guidelines for distributions to his heirs. The attorney handling his estate proposed distributions in British Pounds about 7 months ago which he filed with the court in London. I have not yet received any money but the value of what I should receive has dropped significantly due to the decline in the value of the British Pound. Can I claim this loss on my taxes when I receive my settlement in US Dollars? If so, how would I report it? Thanks!!

Sorry, but no you cannot. Its not your money until its distributed to you.

 

[tranquility]

My father died a few years ago in England. His will gave general guidelines for distributions to his heirs. The attorney handling his estate proposed distributions in British Pounds about 7 months ago which he filed with the court in London. I have not yet received any money but the value of what I should receive has dropped significantly due to the decline in the value of the British Pound. Can I claim this loss on my taxes when I receive my settlement in US Dollars? If so, how would I report it? Thanks!!

Most times there are easy questions, some times they are hard, and once in a while we have subtle issues that are argued by those who know something about the law; but rarely do we have easy questions that are hard.

To start, I don't have the answer. The sad part is, this is kinda what I do. I can argue principles if I like. However, I suspect there is some guidance in rulings or cases out there. Sorry, I just got home from 11 hours of doing such things and don't really want to do any research right now. If you don't get a good answer from the other knowledgeable people here or from some who are expert on looking things up, "bump" this after tax season. I find the question interesting. (By "bump" I mean you post to the thread again to bring it to New Posts. If you get more information, even the better.)

As to principles, the basis of things is as of the death of the deceased. Even if he died in England. (I assume you are in the U.S. If not, move on sir, we've got nothing for you.) I also know people who have "invested" in Iraqi currency (Suitcase full of bills. It is quite impressive.) Tried to sell them and took a loss. It is a valid loss as currency speculation is big money for some. Winners pay tax, losers take a loss. Yet, an undistributed inheritance? I have not seen that. Even if it was distributed, it does not change the basic question too much. Is the question intent? Is the question reality? Is the question control (when combined with reality and intent)? I don't know. Without research, I could argue either side.

Wait for someone knowledgeable in international issues or who are good at looking things up. If you don't get a good answer, bump. I might just try.

 

[Just Blue]

Most times there are easy questions, some times they are hard, and once in a while we have subtle issues that are argued by those who know something about the law; but rarely do we have easy questions that are hard.

To start, I don't have the answer. The sad part is, this is kinda what I do. I can argue principles if I like. However, I suspect there is some guidance in rulings or cases out there. Sorry, I just got home from 11 hours of doing such things and don't really want to do any research right now. If you don't get a good answer from the other knowledgeable people here or from some who are expert on looking things up, "bump" this after tax season. I find the question interesting. (By "bump" I mean you post to the thread again to bring it to New Posts. If you get more information, even the better.)

As to principles, the basis of things is as of the death of the deceased. Even if he died in England. (I assume you are in the U.S. If not, move on sir, we've got nothing for you.) I also know people who have "invested" in Iraqi currency (Suitcase full of bills. It is quite impressive.) Tried to sell them and took a loss. It is a valid loss as currency speculation is big money for some. Winners pay tax, losers take a loss. Yet, an undistributed inheritance? I have not seen that. Even if it was distributed, it does not change the basic question too much. Is the question intent? Is the question reality? Is the question control (when combined with reality and intent)? I don't know. Without research, I could argue either side.

Wait for someone knowledgeable in international issues or who are good at looking things up. If you don't get a good answer, bump. I might just try.

Example of "bump".....

 

[tranquility]

Sorry, but no you cannot. Its not your money until its distributed to you.

When has the person taken a basis on property he has inherited?

 

[LdiJ]

When has the person taken a basis on property he has inherited?

He cannot take a basis in the property he has inherited because he will not know exactly how much property he has inherited until all of the expenses of the estate are settled and there is a final amount of money to distribute. The executor is showing that the distributions will be in cash according to the OP so its not going to be in property.

He did not "invest" in British pounds. He is inheriting cash. I agree that there could be a capital loss if he had invested in British pounds, but that is not the case. He did not take US post tax dollars and invest them in British pounds. He is inheriting money that was never and will never be taxed by the US.

 

[davew128]

My gut is telling me its a non-deductible loss but I really don't have the time to sort through all the Sec. 988 examples to demonstrate why that is. Key elements here are that money was originally received as GBP, and that this is a personal foreign currency conversion transaction, and its a one way transaction.

 

[tranquility]

As I said, I could argue both sides. The unknown expenses issue is a non-starter as that is the case in all inheritances. That does not change the date basis is determined. If we inherited 100 gold coins and the executor had to sell 10 for estate expenses (Thought experiment, not saying the numbers or doing this is reality.), the basis of the 90 left will be the date of death. I agree it will not be the date of death (or alternate valuation date) value of all 100 coins, but only the coins received. As to investing, isn't that intent? How long would he have to hold the money before it is an investment? Then, what would the basis be?

But, the issue as to if it is an investment or just personal is the key to davew128's comments on Section 988. Investment? Ordinary gain or loss as it would be a 988 transaction. Personal? Capital gain or loss. (Unless under $200.)

 

[davew128]

Lets take this another step. When was the inheritance ever in USD? Only when it came here. Was it an investment in GBP? No. GBP was the functional currency. When did the OP own the money? When it was distributed to him. Theoretically, if there was a loss on valuation in the currency, who realizes it? Nobody. Not the estate because GBP was the functional currency. Not the OP because until there was ownership, there was nothing. I agree property is valued on the date of death and foreign currency is property, but until that property is distributed it belongs to the estate. Functional currency is not property to the estate, it is cash.

My answer MIGHT change if this were a US estate with a foreign account. In that instance the estate might recognize the loss on valuation.

 

[Stephen1]

Here's a suggestion: Open a bank account in UK and have the funds deposited there as pounds. Then when the exchange rate is more favorable transfer it to a US bank.

I don't know the tax ramifications of holding funds in a foreign bank. I'm just coming up with a suggestion for how to increase the US value of the pounds received.

 

[tranquility]

My gosh, there is not an easy answer out there. On a somewhat comparable note, if the amount inherited is over $100,000, it must be reported on Form 3520. Since pounds are a non-functional currency (At least to our problem.), the amount is going to have to be translated into dollars. Will that valuation be the FMV on the date received or on the date of death?

 

[davew128]

My gosh, there is not an easy answer out there. On a somewhat comparable note, if the amount inherited is over $100,000, it must be reported on Form 3520. Since pounds are a non-functional currency (At least to our problem.), the amount is going to have to be translated into dollars. Will that valuation be the FMV on the date received or on the date of death?

Date received.

 

[davew128]

Here's a suggestion: Open a bank account in UK and have the funds deposited there as pounds. Then when the exchange rate is more favorable transfer it to a US bank.

The increase in value will now be taxable income.

I don't know the tax ramifications of holding funds in a foreign bank.

Now the OP has to report the foreign account to IRS via Schedule B, FinCEN114 and possibly FATCA.

 

[LdiJ]

The increase in value will now be taxable income.

Now the OP has to report the foreign account to IRS via Schedule B, FinCEN114 and possibly FATCA.

Not worth it in my opinion...

 

[davew128]

Not worth it in my opinion...

Wouldn't disagree with that. Sometimes people micromanage things for marginal results. The people with high 6 figure incomes who save every doctor co-pay and $20 charitable donation...