Key Post Be careful if you hold more than $60,000 in US equities

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Marc

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Of course what most people don't appreciate is that if you are not a US citizen or US resident and you hold more than $60,000 in US equities then US estate taxes apply to transfers between spouses on death.

That's right if you die your spouse or civil partner would have to pay US Estate taxes!

Since there is no CAT on first death in Ireland you do not get any credit for US taxes paid.

Investment problems are rarely one dimensional!
 
Hi Marc

I neither have a wife nor any American equities, so this does not affect me. But I would imagine that a lot of people could be affected by it, so I have copied it to a separate thread from the ETF thread.

If someone has say extensive US equities and are elderly, should they sell them? Of course, they would be subject to CGT if they sell them while alive, but no CGT on death.

Brendan
 
Brendan,

The right approach to take depends on several variables as in everything in life.

It's not as simple as looking at the tax rates since, of course, these can change and we are talking about a future event.

However, Looking at it relatively simply CGT in Ireland is 33%, CAT 33% and US Estate tax is up to 40%.

So by continuing to hold, you might avoid Irish CGT on death but you pay 40% US Estate tax on the excess over 60k. This can be deferred on first death if you have a qualifying US trust but this would add to the cost of running the portfolio. If the US taxes are paid on 1st death, as I have noted above you get no credit against Irish CAT so if you are going to hold more than 60k then going to the expense of a qualifying US trust is probably worth investigating.

Investors would need to make a detailed assessment of their own circumstances and proceed as appropriate.

Some examples

Irish employees of US corporations. Almost always should sell their positions and pay the tax. This reduces their exposure to their employer and is generally good planning from a diversification perspective.

For example, we discussed this with an IBM employee a few years back. IBMs share price has fallen over the last year. Sensible investing strategy for most people.

If an investor wants exposure to the US Stockmarket the best way is a fund and the best funds are index funds. One point to note here is that Irish domiciled funds can access the US/Irish double tax treaty which cuts US dividend withholding tax from 30% to 15% whereas a fund domiciled in Luxembourg for example pays 30% DWT on US dividends.

Naturally, this would also apply to a Global stock index fund which by market cap weightings would have about 50% in US stocks. Assuming a 2% dividend yield on average and all else being equal you would add about 0.15%pa to the running costs of a global equity fund based in Luxembourg compared to one in Ireland.
 
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It appears to be the case that UK nationals (including those Irish citizens born before December 1948 who claim their British Subject status) may receive the same benefits as US domiciles. See the US-UK Estate and Gift Tax Treaty 1980 which appears to even apply to Irish residents/domiciles subject to the aforementioned nationality clause:


ARTICLE 8 DEDUCTIONS, EXEMPTIONS, ETC.


(1) In determining the amount on which tax is to be computed, permitted deductions shall be allowed in accordance with the law in force in the Contracting State in which tax is imposed.


(2) Property which passes to the spouse from a decedent or transferor who was domiciled in or a national of the United Kingdom and which may be taxed in the United States shall qualify for a marital deduction there to the extent that a marital deduction would have been allowable if the decedent or transferor had been domiciled in the United States and if the gross estate of the decedent had been limited to property which may be taxed in the United States or the transfers of the transferor had been limited to transfers of property which may be so taxed.


(3) Property which passes to the spouse from a decedent or transferor who was domiciled in or a national of the United States and which may be taxed in the United Kingdom shall, where


(a) the transferor's spouse was not domiciled in the United Kingdom but the transfer would have been wholly exempt had the spouse been so domiciled, and


(b) a greater exemption for transfers between spouses would not have been given under the law of the United Kingdom apart from this Convention, be exempt from tax in the United Kingdom to the extent of 50 per cent of the value transferred, calculated as a value on which no tax is payable and after taking account of all exemptions except those for transfers between spouses.


(4)(a) Property which on the death of a decedent domiciled in the United Kingdom became comprised in a settlement shall, if the personal representatives and the trustees of every settlement in which the decedent had an interest in possession immediately before death so elect and subject to sub-paragraph (b), be exempt from tax in the United Kingdom to the extent of 50 per cent of the value transferred (calculated as in paragraph (3)) on the death of the decedent if:


(i) under the settlement, the spouse of the decedent was entitled to an immediate interest in possession,


(ii) the spouse was domiciled in or a national of the United States,


(iii) the transfer would have been wholly exempt had the spouse been domiciled in the United Kingdom, and


(iv) a greater exemption for transfers between spouses would not have been given under the law of the United Kingdom apart from this Convention.


(b) Where the spouse of the decedent becomes absolutely and indefeasibly entitled to any of the settled property at any time after the decedent's death, the election shall, as regards that property, be deemed never to have been made and tax shall be payable as if on the death such property had been given to the spouse absolutely and indefeasibly.


(5) Where property may be taxed in the United States on the death of a United Kingdom national who was neither domiciled in nor a national of the United States and a claim is made under this paragraph, the tax imposed in the United States shall be limited to the amount of tax which would have been imposed had the decedent become domiciled in the United States immediately before his death, on the property which would in that event have been taxable.
 
A post on boards.ie says it is not if you hold US equities that counts, it is if you purchased them from a US exchange.

FURET on boards.ie said:
Any stock bought from a U.S. stock exchange is subject to the Estate Tax. If you buy US stock from a non US exchange, you escape the Estate Tax.
Click to expand...

Is there a source to clear this up?
 
What they're referring to is the following:

If you buy the US shares through an Irish broker, the shares are held in a nominee account (e.g. Broker Nominees 12345). If you die, the Irish broker doesn't need to see a US grant of probate, and the US authorities just see shares being disposed of by a nominee account. So you get around having to pay the tax. Shares held in paper form or through a US broker get caught.
 
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I paid US Estate tax on company shares over the $60,000. I was born in the United Kingdom but hold an Irish passport and live in Ireland. Could I have claimed UK Nationality at that time?
 
Under the US and British double tax treaty British Citizens have the same exemption as US citizens. So if you had a British passport then you would have an exemption an Irish one doesn't.

But under the US Irish double tax treaty an Irish resident can inherit $5M from a US relative free from CAT so it cuts both ways
 
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That clarifies things for me
I am about to make my first ETF investment and I was looking at Irish based brokers (Degiro,TD) or US based ones (interactive brokers)
So, I guess the inheritance tax applies to interactive brokers, but not to Degiro or TD?

Also, my understanding is that there is nothing to worry about in relation to US withholding dividend taxes, ( gross dividend is declared on the Irish tax return with a credit claim for the US tax paid).
Is that the case in both cases? Irish and US based brokers?
 

Are we sure about this? This article might suggest differently


"Investing in a US corporation that is a domestic corporation presents not only a real investment opportunity, but also exposure to estate and gift tax. The stock of a US corporation is owned or “beneficially owned” or deemed beneficially owned by a non-resident alien at death if sitused in the US. Under this rule, the actual location of the certificates of stock is irrelevant. This means that a non-resident alien is still subject to federal estate tax even when using a nominee or other agency arrangement."

The article is from 2005. Not sure if anything changed since
 
Hi,

If I buy UK investment trusts on the London Stock Exchange through a broker in the US (e.g., Interactive Brokers), am I liable for US estate tax?

What is the important factor? The location of the exchange where they are purchased or the location of the trust/company? Does it matter if the trust has some US holdings?
 
With the Capital Gains Tax as it is I suspect that more and more Irish people are sitting on long standing assets that they would dearly love to sell but won't because they can't stomach the CGT bill.
Its not just the liability for taxes thats important but also there is a considerable hassle and expense factor for executors sorting out probate in other juristictions.
 
Gordon Gekko said:
No such hassle arises if you simply hold your assets through an Irish broker.
Click to expand...

True. but people don't simply need assets held. When investing abroad and building up a nest egg, using an Irish Broker is an expensive option. But when the investment is built up, it gets expensive and complicated to transfer assets back to an irish broker, so it doesn't get done.....
 

Far cheaper than using a foreign broker in many cases.

And in any event, charges can become utterly irrelevant if the "cheap" US or foreign option blows up because of a material tax problem.
 
Do we know for sure what the important factor is when determining if we could be liable for US estate tax? The location of the exchange where they are purchased or the location of the trust/company?
 
Thanks for the article, Sarenco – very interesting.

I did some reading on Bogleheads and believe the following to be true for 'non-resident aliens':
  • As long as you avoid holding US stocks, US bonds, US domiciled ETFs and other 'US situated' assets in your account, you are not liable for US estate tax.
  • The location of the broker does not decide the location of the assets you hold.
  • For ETFs, what matters is where they are domiciled (regardless of the location of the companies that make up the ETF).
  • A cash balance in a US bank is not 'US situated', but a cash balance in a US brokerage is.
The last point is bizarre and means that if you hold more than $60k in assets (even if they are not US-situated) and then liquidate them into your US brokerage account and die before moving the cash out of the broker, your estate will be liable for US estate tax.

Of course, in practical terms (as mentioned in the article Sarenco linked to), if you hold US assets in a non-US broker the IRS is unlikely to know that you have died. But, who knows, information sharing might expand in the coming years.

I'd be grateful for feedback on the above points – whether agreeing with them or disputing them.
 
Hi All. Just joining this thread now. My question is the same as trmartin above (I think).

If a husband & wife have a joint a/c with an Irish Stockbroker and one of them dies, does anybody know if there is any impact on their share portfolio & whether or not this Estate Tax discussion is even impacted?

Furthermore, in this case, if the couple have adult children who have already maximised their Group A threshold through lifetime gifts, then i'm assuming when the 2nd spouse dies, then the Executors can ensure that there is a tax offset between the Inheritance tax payable by the children (33%) and the 40% US Estate Tax ?
 
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