What US tax is due if I own US assets when I die?

Brendan Burgess

Brendan Burgess

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If you own American shares or an American ETF when you die, your estate may be liable to US Foreign Estate Tax.

How does it work?


Brendan
 
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Crudely speaking, you get a $60k exemption and the excess is taxed at rates of 18-40% depending on the amount (taxable amounts of $1m or more incur the 40% rate.

Credit is available for the US tax against any CAT, but the big problem is that a spouse won’t have CAT and there’s no spousal exemption in respect of the Estate Tax.
 
Thanks Gordon

Is the following roughly correct:


John has an estate of €600k which he leaves to his wife and children.
There is no CAT paid.

The estate includes $260k in an American ETF

So his tax liability is:
Value of assets: $260k
Less exempt: €$60k
Taxable: $200k
Tax due to IRS in America: 32% of €200k or €64k
 
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Thanks Gordon

Do any other countries have similar Estate taxes on death for shares? I know many countries have them on property.

I would say that lots of Irish people have American ETFs and shares in Apple and Microsoft without knowing about the potential tax liability.

Brendan
 
Plenty of people working in the multinational sector take any bonuses going in shares and hold for a minimum 3 years to avoid income tax (approved revenue schemes) and have a tendency to do salary forgone to purchase additional shares. Your holding can build up quickly if not cashing in.

If buying shares directly via broker(Davy for example) would it make sense to buy the euro/uk version of shares of an American company eg pfizer?

Would this be a way to avoid this unfair estate tax?

If I have to pay tax it should be to the Irish government and not uncle Sam..
 
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Yes, the UK has a similar system, but with a higher threshold (£325k) and a spousal exemption.

Buying the UK line of a US company doesn’t work as I understand it.
 
Are you sure that holding shares in american companies in a brokerage account in Ireland or the EU makes you liable for US Estate duties?

I would have thought that only applies if the assets are held in an american brokerage account?

Edit: Sorry, this is wrong - apparently shares in US companies are considered liable to US Estate tax
 
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jpd said:
Are you sure that holding shares in american companies in a brokerage account in Ireland or the EU makes you liable for US Estate duties?

I would have thought that only applies if the assets are held in an american brokerage account?

From Wikipedia:-
Click to expand...
I’m positive.

It’s the situs of the underlying asset that counts, not the situs of the brokerage account.
 
Is the spousal exemption really just a postponement?

If a man dies with £1m of assets subject to Estate Tax in the UK, his wife gets the assets free of Estate Tax.

But when she dies, the assets will be subject to the Estate Tax.

And what if he leaves half his estate to his children?

Brendan
 
Hi Brendan,

To answer your questions:

1) It applies to all assets

2) Yes and no. The £325,000 threshold gets doubled to £650,000 and there’s credit for the IHT against CAT

Gordon
 
I am just really surprised that the implications of this for overseas diversification have not been discussed more widely.

I know Irish people who have a few properties in the UK and I am guessing that they are blissfully unaware of this.

Brendan
 
Both US and U.K. estate taxes for Irish resident investors are set out in excruciating detail in my latest tax guide.

joom.ag

Global Wealth Tax Guide 2022 v1.0

Tax Guide Incorporating Budget 2022 and Revenue E-Brief 164/21 ETFs
joom.ag joom.ag

The U.K.tax is a real problem for a U.K. domiciled and Irish resident with an Irish resident and Irish domiciled spouse. This is my own situation.

I’m subject to U.K. inheritance tax on my worldwide assets but my wife isn’t. Therefore HMRC restricts the amount I can leave my wife on my death to 2x the nil rate band. This amount used to be just £55,000.

This is addressed by a post death nomination on her part to obtain an unlimited spousal exemption.

Similarly I have developed a solution for Irish investors holding US property which we have mutualised to risk share across the population.

The objective again is to obtain an unlimited spousal exemption and defer the US federal estate tax until second death when a credit is available against Irish CAT.
 
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What about shares in US companies where you hold an ETF which is invested in US companies eg S&P 500 ETFs?
 
“What about shares in US companies where you hold an ETF which is invested in US companies eg S&P 500 ETFs?”

That’s different. A company is an effective block against federal estate tax because a company cannot die.
 
In any case, whatever about the legal obligations, there must be many people holding US outside the US who just ignore this completely and I can't imagine the IRS trolling through share registers to to collect a meagre amount of tax - I think my € 15,000 holdings in Microsoft are pretty safe and most unlikely to be reported to the IRS
 
jpd said:
In any case, whatever about the legal obligations, there must be many people holding US outside the US who just ignore this completely and I can't imagine the IRS trolling through share registers to to collect a meagre amount of tax - I think my € 15,000 holdings in Microsoft are pretty safe and most unlikely to be reported to the IRS
Click to expand...
Have you ever completed a W8ben?
It’s an obligation so yes of course you have.
You put on it your name, address, date of birth and just to make it easy for them your PPS number.

How would the IRS ever track you down?

I took out a credit card in the U.K. about 25 years ago. This year I had a €30 Irish stamp duty pinned onto it and the U.K. isn’t even in the EU anymore.

They went after me for €30. That’s how joined up global tax is becoming.
 
jpd said:
In any case, whatever about the legal obligations, there must be many people holding US outside the US who just ignore this completely and I can't imagine the IRS trolling through share registers to to collect a meagre amount of tax - I think my € 15,000 holdings in Microsoft are pretty safe and most unlikely to be reported to the IRS
Click to expand...
That’s below the $60,000 threshold.
 
jpd said:
What about shares in US companies where you hold an ETF which is invested in US companies eg S&P 500 ETFs?
Click to expand...
That depends where the ETF is itself domiciled. If it’s US, you’ve an issue. If it’s, say, Ireland, there’s no issue.
 
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