A Large Gift from UK Parents: Form 3520, the Dollar Test and What You Report

Gift from UK parents: an introduction

A large gift from UK parents is not taxable income for a US citizen or green card holder. Even so, it can still create a US filing. Suppose your parents are not US persons. If their gifts to you top $100,000 in a tax year, you report them on Form 3520. The form carries no tax. However, the penalty for leaving it out is measured as a share of the gift itself.

This article supports our guide to FBAR and FATCA reporting. It is written for the person who receives the money, whether you live in the UK or the US. We cover the Form 3520 test, how two parents count together and the dollar conversion. We also cover the account filings that follow.

Why a gift from UK parents is a reporting question, not a tax question

Under section 102 of the Internal Revenue Code, gross income does not include property acquired by gift or inheritance. So the gift itself never appears as income on your Form 1040. Meanwhile, US gift tax falls on the donor, as the IRS gift tax FAQs explain. What remains for you is information reporting.

What this article leaves out

We do not cover how your parents should plan their giving. Their side is a UK inheritance tax matter, which we touch on only at overview level. Similarly, money paid out of a UK trust follows different rules. Our article on Form 3520 and UK trusts explains.

When does a gift from UK parents need Form 3520?

You file Part IV of Form 3520 when gifts from nonresident alien individuals or foreign estates exceed $100,000 in a tax year. Below that total, nothing is filed for the gift itself.

The $100,000 test for individuals

A nonresident alien is a person who is neither a US citizen nor a US resident for tax purposes. Most British parents living in Britain fall into that group, so a gift from UK parents is usually a foreign gift. The Form 3520 instructions, revised December 2025, cover this on line 54. You answer "Yes" if you received more than $100,000 from such a person in the year. Unlike the company threshold below, the IRS publishes no inflation adjustment for it. Once you cross it, you list each gift over $5,000 separately.

Both parents count together

The instructions make you add together gifts from foreign persons you know are related. Related persons include spouses, ancestors and siblings. Therefore, a gift from your mother and a separate gift from your father are one total for the test. The instructions give their own example: $75,000 from one person and $40,000 from a relative means you answer "Yes".

The much lower threshold for companies

Gifts from a foreign corporation or partnership face a separate, indexed threshold. The IRS page on gifts from foreign persons sets it at $20,116 for 2025 and $20,573 for 2026. In addition, the IRS may treat such a payment as income rather than a gift. If your parents send money from their family company, that matters far more than the $100,000 line.

How do you count a gift from UK parents in dollars?

The test is in dollars, while a gift from UK parents usually arrives in pounds. As a result, a sterling sum that looks comfortably under $100,000 can cross it on the exchange rate alone.

The exchange rate problem

For example, £80,000 is not the same as $80,000. At a rate of $1.30 to the pound, it is $104,000, which is over the line. The Form 3520 instructions do not set a specific exchange rate for Part IV. In our experience, the cautious approach is the rate on the day each transfer arrives, with its source written down.

Which year the gift belongs to

The test runs by your tax year, which for most people is the calendar year. Consequently, a gift sent on 20 December and a second sent on 5 January fall into two separate totals. That is a filing fact, not a planning suggestion. Use the date the money reaches you, and keep the bank statement that shows it.

What does not count as a gift

The instructions exclude qualified tuition and medical payments made on your behalf. These are amounts your parents pay straight to a school or a medical provider. Moreover, section 6039F excludes distributions already disclosed as foreign trust distributions. A genuine loan is also not a gift, but you need a written agreement to show the difference.

When is Form 3520 due, and what if you miss it?

Form 3520 is due on the same date as your income tax return. An extension of the return extends it too. Missing it can cost up to 25% of the gift.

The due dates

For a calendar year, the form is due on 15 April of the following year. If you live outside the US and qualify for the automatic two-month extension, the date moves to 15 June. In that case, you attach a statement saying which condition you meet. Furthermore, an extension of your income tax return, such as Form 4868, pushes it to 15 October. The instructions give a mailing address for the form at the IRS centre in Ogden, Utah.

The penalty under section 6039F

Section 6039F sets a monthly penalty of 5% of the gift, up to 25%. The IRS may also decide the income tax consequences of the payment for you. However, no penalty applies if you show reasonable cause and not wilful neglect. Reasonable cause is a set of facts showing you acted with ordinary care.

Why a complete form matters

The instructions state that only a complete Form 3520 is treated as timely. Therefore, a form sent on time with missing gift lines may still be late. Check every gift over $5,000 is listed with its date, description and value before you post it.

What changes when the money lands in a UK account?

The gift may be reported once, but the account it sits in is reported every year. A large balance in a UK bank can bring in the FBAR, Form 8938 and new interest income.

The FBAR on the new balance

The FBAR is FinCEN Form 114, a yearly report of foreign financial accounts. According to FinCEN's FBAR page, you file when your foreign accounts together exceed $10,000 at any time. The IRS FBAR page sets the due date at 15 April, with an automatic extension to 15 October. A single gift from UK parents can push a small account over that line for the first time.

Form 8938 thresholds

Form 8938 is a statement of specified foreign financial assets filed with your tax return. The IRS comparison of Form 8938 and FBAR requirements gives the thresholds for taxpayers living abroad. A single filer abroad files above $200,000 at year end or $300,000 at any time. For joint filers abroad, the figures are $400,000 and $600,000. Thresholds are lower for those living in the US. Our article on FBAR versus Form 8938 sets the two side by side.

Interest on the gifted money

Section 102 protects the gift, not what it earns. Its subsection (b) says income from gifted property is still income. Consequently, interest on the gifted savings goes on your US return in dollars. If you are UK resident, it goes on your UK return too.

What if the gift from UK parents is a share of a house?

A share of a UK house still counts towards the $100,000 test at its market value. However, a house you own directly is not reported on the FBAR or on Form 8938.

The reporting position

The IRS comparison page marks directly held foreign real estate as not reportable on either form. Property held through a company is different, because the company can be a reportable asset. Therefore, the way the house is held changes the US paperwork.

Your US cost for a later sale

Under section 1015, your basis in gifted property is generally the same as your parents' basis. Basis is the cost the IRS uses to measure your gain when you sell. Accordingly, you need your parents' purchase price and date, ideally converted to dollars at that time. Ask for the purchase completion statement now, while it can still be found.

Gift, inheritance or trust distribution

An inheritance from a parent's foreign estate also goes in Part IV, on the same $100,000 test. Property inherited generally takes a basis equal to its value at death, under section 1014. By contrast, money paid to you by a UK trust is reported in Part III, not Part IV. That trust case needs its own review.

What is the UK side of a gift from UK parents?

For your parents, a lifetime gift is usually a potentially exempt transfer. It falls out of UK inheritance tax after seven years. It is their concern, not a US filing for you.

Potentially exempt transfers

A potentially exempt transfer is a lifetime gift to another person that becomes exempt after seven years. HMRC's Inheritance Tax Manual at IHTM04057 sets out the conditions. GOV.UK's page on gifts and inheritance tax says no tax is due if the giver lives seven more years.

Annual exemptions and the seven-year rule

In addition, each parent can give £3,000 a year free of inheritance tax. An unused amount carries forward one year. GOV.UK also describes taper relief for gifts made three to seven years before death. Taper relief applies only where gifts in the seven years before death exceed the £325,000 threshold. Your parents should keep a dated record of each gift, because their executors will need it.

When a house share costs your parents tax

Giving away a share of a property is a disposal for UK capital gains tax. GOV.UK's guidance on using market value lists gifts as a case for market value on the date of the gift. Moreover, GOV.UK says a house your parents give away but keep living in can still count towards their estate. Those are questions for their own adviser.

What should the recipient check, step by step?

Work through five steps in order, from the donors' status to the account filings. Then the gift is reported once and the accounts every year after.

Step one: confirm who gave the money

First, check that each parent is a nonresident alien. If either parent is a US citizen, the gift is not a foreign gift. Any US filing is then theirs, on Form 709. If a parent gave up US citizenship and is a covered expatriate, a different US tax may apply to you. Our article on the covered expatriate gift tax explains it.

Step two: total the year in dollars

Next, convert each transfer on the day it arrived. Then add the gifts from both parents together. Include gifts in kind, such as shares or a property interest, at market value. If the total exceeds $100,000, you file Part IV.

Step three: keep the evidence

After that, keep the bank statements and the exchange rate used. Add a short dated note from each parent saying the money is a gift. Where the gift is a share of a house, add the transfer deed and your parents' purchase records.

Step four and five: file, then watch the account

Now file Form 3520 by the due date of your return, including any extension. Finally, check whether the new balance triggers an FBAR or Form 8938, and report any interest it earns. These later steps repeat every year the money stays in a UK account.

A worked example: two parents, one year

Consider a typical case. Two separate transfers, each under $100,000, can add up to one Form 3520.

The facts

Hannah is a fictional US citizen living in Bristol. Her mother, Susan, sends her £45,000 in March 2026. Her father, David, sends £40,000 in November 2026. Both parents are British and have never been US persons. We assume rates of $1.30 and $1.34 to the pound on the two dates.

The US filings

In dollars, the gifts are $58,500 and $53,600, a total of $112,100. Because her parents are related, Hannah adds them together and crosses $100,000. So she files Part IV of Form 3520 for 2026, listing both gifts. With the overseas extension and a statement, it is due by 15 June 2027. Her UK savings account now holds over $10,000, so she files an FBAR as well. With no other foreign assets, she stays under the Form 8938 thresholds for a single filer abroad. Furthermore, the interest it earns goes on both her US and UK returns.

The UK side, for her parents

For Susan and David, each gift is likely a potentially exempt transfer. Any annual exemptions they use reduce it. Each gift starts its own seven-year period. Hannah has no UK filing for the gift itself. Her only UK filing is the interest, if her Self Assessment return needs it.

How US UK Tax Experts can help

US UK Tax Experts prepares US and UK returns from one file, so the two agree. For a gift from UK parents, we work out the dollar total and prepare Form 3520 and the FBAR. We also check Form 8938. We then carry the interest onto both returns. See our FBAR and FATCA service and our US federal returns service.

Conclusion

A gift from UK parents is not US income. Yet it can still need careful paperwork. Add both parents' gifts together, convert them to dollars, and compare the total with $100,000. Then file Form 3520 on time, and remember that the account holding the money brings its own yearly filings.

Contact us

Have you received a large gift from UK parents this year? Email hello@usuktaxexperts.com or use our contact page. Tell us the dates, the amounts and where the money went. We reply within one working day.