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  • US Tax Reform

    The implications for High Net Worth Individuals and Families abroad


US Tax Reform - Estate Planning

03 August 2018

Part 2: Estate Planning

We are coming to terms with the Tax Cuts and Jobs Act, the most substantive change to US tax legislation since 1986. The broad intent was to reduce taxes for both individuals and corporations, yet the American abroad may not achieve this.

In a series of articles by our London-based Private Client US Tax Advisory team we consider the recent US Tax reform through the eyes of the American abroad.  In this second instalment, we look at estate planning and the high net worth family.

The article series is also being featured in eprivateclient

In 2017, the discussions by the US administration regarding comprehensive tax reform seriously considered the demise of estate tax. In the final analysis, the exemption for gifts and estates was set at $10m plus inflationary uplifts, setting the current exclusion amounts at $11.18m for 2018. 

The change is temporary, expiring at the end of 2025, so consideration of leveraging of gifts for future generations should be high on the agenda for American families where wealth permits. Existing wills may contain clauses that are quite simply no longer fit for purpose given the substantial increase in exemptions.

By contrast to the $11.18m exclusion amount applying to the US person there have been no changes in the taxes imposed on the estates of non residents who hold or inherit US situs assets.  A non resident has a taxable US estate where US assets exceed a mere $60,000 before 40% tax may apply subject to any reliefs in an Estate tax treaty.

For a ‘global’ family, consisting of both US and non US persons the changes in US estate and gift rules exacerbates the difference, with a chasm between where the US person exclusion levels apply with a family and not. How these families hold US assets has always been important but increasingly will be a key consideration.

For Americans in the UK approaching 15 out of 20 years resident in Britain, the gap between the US and UK exemption levels has widened considerably.  An exposure to UK inheritance tax (IHT) would apply where UK assets exceed £325,000 per person. A focus on structuring non-UK assets to limit exposure to UK IHT should therefore be part of a family re-think.

So, given the step change in US Estate and Gifts tax exemptions, families with US assets may be tempted to do nothing. However, for global families consisting of US and non-US persons particularly those who are long-term residents in the UK, the change should be a call to action.

The message quite simply is where there is a US aspect to an individual’s business or family interests – seek specialist advice. Our Private Client US Tax Advisory team, based in London, comprises dual qualified US UK tax professionals experienced in the international taxation for ‘US-connected’ clients:

  • ‎US citizens living abroad
  • Foreign nationals moving to US or with investments in the US
  • Businesses looking to expand into or out of the US

For more information visit our US Tax Advisory webpage or get in touch with one of the team directly: Mark Walters, Andrew Harrison or Nitin Naik.

Read further articles on US Tax Reform for Private Clients