Foreign Inheritance Tax USA: Do You Owe Tax on Money Inherited From Abroad?

The Short Answer

The US does not impose income tax on inheritances, foreign or domestic. If your aunt in Germany leaves you $300,000, that money is not taxable income when it arrives in your US bank account.

But that does not mean the inheritance is tax-free. Three separate tax systems can apply to a cross-border inheritance, and understanding which ones affect you is the difference between a straightforward transfer and a six-figure tax bill.

The Three Tax Layers

Layer 1: US estate tax on US-situs assets. If the deceased was a non-resident non-citizen (NRNC) and owned assets physically located in the US — real estate, tangible property, US corporate stock — the estate may owe US federal estate tax. The filing threshold is just $60,000 (compared to the $15 million basic exclusion for US citizens and domiciliaries in 2026), with rates climbing to 40%.

Layer 2: Foreign inheritance or estate tax. Many countries impose their own inheritance or estate taxes. The UK charges inheritance tax at 40% on estates above £325,000. France, Germany, Spain, and Japan all have inheritance taxes with their own rates and thresholds. As the US beneficiary, you are typically not directly liable for these foreign taxes, but they reduce the amount you ultimately receive.

Layer 3: US reporting requirements. While no income tax is owed, US persons must file IRS Form 3520 if foreign inheritances exceed $100,000 in a year. Failure to file triggers penalties of up to 25% of the inheritance value — turning an informational return into a financial catastrophe.

When Double Taxation Actually Happens

Double taxation occurs when both the US and a foreign country assert taxing rights over the same assets. The most common scenario:

The deceased was a non-US citizen who owned US real estate or US stock. The US imposes estate tax on these US-situs assets under the $60,000 threshold. Simultaneously, the deceased's home country imposes estate or inheritance tax on their worldwide estate, which includes those same US assets.

The estate is now taxed twice on the same property — once by the US and once by the foreign country.

How to Reduce or Eliminate Double Taxation

Bilateral estate tax treaties. The US has estate tax treaties with 16 countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the UK. These treaties coordinate taxing rights and often provide a prorated unified credit that can shelter significantly more than the standard $60,000 threshold.

The foreign death tax credit. For countries without a treaty, the US offers a unilateral credit under IRC Section 2014. If the foreign country taxed assets that are also subject to US estate tax, the estate can claim a credit on the US return (Form 706 or 706-NA) for the foreign tax paid, reducing the US liability dollar for dollar up to the US tax attributable to those assets. The credit is reported on Schedule P of Form 706.

Treaty domicile tiebreaker rules. If both countries claim the deceased as a domiciliary, the applicable treaty establishes a hierarchical test — permanent home, center of vital interests, habitual abode, nationality — to assign primary taxing rights to one country and credit obligations to the other.

Common Situations and What Applies

You are a US citizen inheriting from a foreign relative. No US income tax on the inheritance. File Form 3520 if it exceeds $100,000. Any foreign inheritance tax reduces what you receive but is not your filing obligation — it is handled by the foreign estate.

You are a US citizen who inherited foreign bank accounts. The accounts themselves are not taxed, but you must file an FBAR (FinCEN Form 114) if aggregate foreign account balances exceed $10,000 at any point in the year. You may also need to file Form 8938 (FATCA) with your tax return if the accounts exceed higher thresholds.

A non-US relative died owning US stocks. The estate likely needs to file Form 706-NA and may owe US estate tax. The estate's executor is responsible for this filing.

A non-US relative died owning US real estate. The same Form 706-NA filing threshold applies. If the estate has US-based accounts, financial institutions typically keep them frozen until the IRS issues a Transfer Certificate (Form 5173) confirming that estate-tax obligations are resolved.

The Mistake That Costs the Most

The single most expensive error in cross-border inheritance is assuming that because the inheritance is not income, it does not need to be reported. The $100,000 Form 3520 threshold, the $10,000 FBAR threshold, and the Form 8938 thresholds all exist independently of the tax obligation. You can owe zero tax and still face combined penalties in the hundreds of thousands of dollars for failing to file these informational returns.

The International Estate toolkit maps every reporting obligation to your specific situation — which forms apply, which deadlines govern, and which treaty benefits you can claim — so you handle the compliance correctly while working through the rest of the estate settlement.