US Estate and Gift Tax

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The Basics

The American Taxpayer Relief Act of 2013 set the 2014 gift and estate tax exemption for US citizens to $5,340,000 per person. The applicable tax rate for anything in excess of the exemption is taxed at 40%.

Tax free transfers between US spouses are available. In the case of a non-US citizen spouse, transfers are slightly more complicated with an annual tax free allowance of $143,000 (2013). Planning is available that may allow the tax free allowance to pass to the non US spouse annually.

Gifts of less than $14,000 (2013) are excluded from gift tax. Any amount in excess of this reduces the $5million estate tax exemption and triggers a filing obligation with the IRS even if there is no additional tax due.

UK inheritance issues affecting US citizens residing in the UK

US citizens residing in the UK for less than 17 out of 20 years will likely be considered non-domiciled for Inheritance tax purposes. Non domiciled individuals are subject to inheritance tax on UK situs assets.

Once resident for 17 out of 20 years, individuals will be subject to inheritance tax on their worldwide assets.
The Inheritance Tax threshold (or ‘nil rate band’) is the amount up to which an estate will have no Inheritance Tax to pay. For 2014/15 the nil rate band is £325,000 per person.

If the estate – including any assets held in trust and gifts made within seven years of death – is more than the threshold, Inheritance Tax will be due at 40 per cent on the amount over the nil rate band.

From 6 April 2012 people who leave 10 per cent or more of their net estate to charity can choose to pay a reduced rate of Inheritance Tax of 36 per cent.

Points to note

Careful inheritance and estate planning is advice in mixed domiciled families.

Planning can be done to protect assets from inheritance tax exposure before the deemed domicile trigger point using excluded property trusts.

If you would like to speak to us about any of the issues raised above please contact us.