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US estate tax

This article considers the estate/inheritance tax consequences of individuals transferring their US/UK shares to an Old Mutual International life assurance or redemption policy.

Holding a diversified investment portfolio means investors need to consider the right asset to invest in, the level of risk they are prepared to take versus the potential for return, and whether one geographical location for an investment may be more secure than another. 

Investing in an asset where its geographical location is different to where the investor is resident or domiciled can sometimes have unintended consequences such as a potential liability to inheritance and estate taxes in the country where the asset is situated (‘situs assets’). For example, UK inheritance tax and United States estate tax is assessable on situs assets regardless of whether the owner of the asset is resident or domiciled in the US or UK.

The following table compares the inheritance/estate tax position where shares, for example, are situated in the UK and US and the impact of them being transferred to an Old Mutual International life or redemption policy in consideration of any premium payable.

Non UK resident/non domicile individual with UK situs assets, for example shares

Non US resident/non domicile individual with US situs assets, for example shares

  • UK inheritance tax is levied on death on UK situs assets at a rate of 40% where the total value of the assets exceed the nil rate band of £325,000 (2015/2016)
  • Transferring the shares into a life assurance/redemption policy, by way of an in-specie transfer to the product provider, is not a gift for UK inheritance tax purposes and therefore there are no UK inheritance tax implications.
  • Once the assets are held within the bond the previous owner is deemed to have relinquished all legal and beneficial rights to the assets and therefore on death the value of the shares are not assessable to UK inheritance tax. 

 

  • US estate tax is levied on death on US situs assets where the value of the US situs assets is more than US$60,000. Tax is levied at a rate of 40%.
  • Where shares are transferred to a life or redemption policy the transfer is unlikely to be liable to estate tax where the life assurance/redemption policy is regarded as a non-US situs, alternatively, the shares could be sold and the cash used to source the premium for the life assurance/redemption policy.
  • Once the assets are held within the bond the previous owner is deemed to have relinquished all legal and beneficial rights to the assets and therefore on death the value of the shares is not assessable to US estate tax. 

 

Transferring UK or US listed shares into a life or redemption policy could reduce or eliminate any liability to UK inheritance tax and US estate taxes which would otherwise be assessable on the owner of the assets. 

US estate tax and the categorisation of life and redemption policies in the US can be complex. In some circumstances US advice may be required in order to determine the impact, if any, the transfer of assets may have on your client.

For financial advisers only. Not to be relied on by consumers.

This article is for information purposes only. The views expressed in this document are those of our sister company, Quilter Cheviot and not of Old Mutual Isle of Man or Old Mutual International Ireland, and are subject to change without notice.

You should be aware that investments, unit prices and income from units may fall as well as rise and you may not get back the amount you invested. Past performance is not a guide to future performance. Where a fund invests in securities designated in a different currency to the currency of the Old Mutual International product or where an underlying fund is denominated in a different currency, investments may rise and fall purely as a result of exchange rate fluctuations. Old Mutual International nor our sister company Quilter Cheviot do not provide investment advice. This document is provided for information purposes only and should not be relied or acted on by the recipient. It is not a recommendation to buy, sell or hold a particular investment. The views expressed in this document are those of Quilter Cheviot and not of Old Mutual International Isle of Man or Old Mutual International Ireland, and are subject to change without notice.

For information about your Old Mutual International policy and your investment choices, please contact your financial adviser.


 

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