USA Resident Inheritance Tax on UK Residence

[gjquigley]

We own a Uk second residence and we both are residents of the US. My wife is a US citizen and I am a dual citizen of the US and the UK. We are engaged in estate planning with a US attorney. Our attorney has no knowledge as to the tax on non-U.S. assets upon the death of one or both owners of said assets. Can you give us some guidance?

[kirstie.williamson@a]

Cross border estate planning is a complex area particularly wher the US is involved so specialist advice must be sought. If your attorney does not specialise in cross border issues then he may wish to obtain a second opinion on the interaction of UK/US estate taxes.

A good starting point for you is the Inland Revenue booklet IHT18 ( available from their website) which explains in layman's terms how the two taxes interact.

You or your attorney should also get hold of the US / UK Convention of 19 October 1978 which is the double tax treaty in relation to capital taxes between the UK and US. Articles 5 and 6 are of particular relevance to you. IHT 18 tells you how to get hold of a copy.

As a general rule if you and your wife are both US domiciled then UK IHT will be due on the UK property but credit can be given in the US for any UK tax paid.

However, I am not clear on your domicile since you say you are a UK and US citizen. If you are UK domiciled for IHT purposes then you will be liable to UK IHT on worldwide assets (even if you die in the US). You need specialist advice on your domicile if there is any uncertainty.

Daniel Feingold who contributes to this website is such an expert and may be able to assist if required.

Tolley's also publish an excellent guide to UK/US estate planning.

KW

[kirstie.williamson@a]

Do you have a separate UK will for the UK property ?

You may need one since getting a foreign will proved in the UK can be onerous. Again specialist advice is needed.

KW

[Taxbar]

The complexity of the interaction of US and UK estate tax is very client specific.

Broadly, if under the Estates tax treaty you are considered Domiciled in one of the 2 countries you will be taxable there with a credit for tax paid in the other country on the basis of domestic law. E.G. UK taxes property on the basis of Situs.
The US taxes on Citizenship anyway.

The UK has an unlimited spouse exemption on first death, but if one spouse has a different non-UK Domicile then the amount is restricted to £330,000.

You might want to consider UK tax planning to avoid UK IHT altogether.

I work with US tax lawyers on these issues for US citizens and dual nationals and would be happy to assist your US attorney.

Daniel Feingold
STP
info@stratax.co.uk

[gjquigley]

I want to thank Kristie and Daniel for your prompt replies. Our US Attorney will be contacting Daniel in the near future.

Thank you,

Gail and John Quigley