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TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15335
Experience:  International tax
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A family member of mine has inherited some money from a relative

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A family member of mine has inherited some money from a relative in the U.S.A. She has recieved a cheque from which a third has been deduced for Federal tax. She is a U.K. resident. Is she entitled to claim back this tax and if so how?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
There is no Inheritance Tax (IT) in the USA at Federal Level. Some individual States do, however, levy IT which is collected by sending bequests to beneficiaries net of IT. These States comprise Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee and rates of tax range from 1% to as high as 20%. Moral, check the State of the deceased's residence.
There is clearly something fishy here as the sum deducted is well above the highest rate of any of the eight States imposing IT.
I do hope I have been able to shed some light on one of your family member's situation, it clearly needs further investigation.
Customer: replied 2 years ago.

Thank you Keith. It does not involve any of the states listed. How can we help her to claim back the tax?

Expert:  bigduckontax replied 2 years ago.
Intuit Turbotax has the following tiny addendum. It appears a rather unlikely scenario.
'There is one narrow exception to the general rule that the beneficiary does not pay inheritance tax. If you receive an inheritance from the estate of a “covered expatriate". A covered expatriate is a former U.S. citizen or long-term resident who renounces their citizenship or residency and has annual average net income for the most recent five tax years in excess of IRS thresholds, has a net worth of over $2 million or fails to certify under penalties of perjury that they have complied with all U.S. tax laws in the previous five years. When receiving an inheritance from a covered expatriate, you are responsible for the payment of tax—which you calculate using the highest possible rate that the estate tax laws allow for.'
As this deduction is pretty obviously incorrect I would be inclined to start with the person or persons who sent her the remittance and demand an explanation and the payment of the gross sum due. If the sum is substantial it may be necessary to take recovery action through the State's legal procedures. Some US attorneys will undertake such actions on a contingency basis ie they get a negotiated percentage of the amount recovered.
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Expert:  TaxRobin replied 2 years ago.
I am a different expert. I am also an expert in US tax.
A Nonresident Alien of the US that receives a source of income form the US would have 30% withholding on that amount.
It is most likely that your relative received a distribution form a taxable account in the US. Perhaps a pension.
If this is the case the 30% would be withheld unless tax treaty provided a lower amount.
If the amount received did come from an account that would have been taxable then let me know and I would be happy to see if filing a US nonresident return would allow a refund of at least some of the withheld tax.
There is nothing fishy about the US tax and withholding on non US persons from US sources. It is US tax law.
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15335
Experience: International tax
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Expert:  bigduckontax replied 2 years ago.

I see my colleague has a different opinion. However various sources are adamant that such with holding of IT is inappropriate. It might be necessary to take this up with the executor.

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