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  • ARTICLE - UK, USA

    A matter of trust?

    01 Jan
    The very essence of Tax Natives is around the fact transactions that are structured efficiently from the perspective of one part of the world can be ineffective, or worse, when a participant suddenly finds themselves elsewhere.

    This the case for clients for US/UK clients. Here, tools traditionally used in wealth structuring that work for US tax purposes may not be quite so efficient when it comes to the UK.

    The danger is that an adviser might rely on the familiar ‘tricks of the trade’. However, where the client’s affairs are cross border, and for the purposes of this article, the client has a US/UK dimension, then it is important to ensure both bases are covered.

     

    US / UK cross border gifts

    The basis position is that there should be no fundamental issues with a UK person inheriting from a US individual directly.

    Setting to one side US estate taxes issued by individual states, the current level of lifetime federal gift and estate tax allowance in the US is generous. At the moment, this is set at $12,000,000. Of course, this means that serious levels of wealth can pass without any US estate tax hit.

     

    Can a trust bring any benefits?

    A US individual settling assets on to a trust can often be highly efficient for UK inheritance tax (“IHT”) purposes.

    This is because the non-UK assets of a non-UK domiciled – and non-deemed domiciled – individual are generally outside the scope of IHT. As such, a gift by our non-dom friend of his or her non-UK assets, either during their lifetime or on their death, should not result in IHT. 

    However, if one was to simply to bequeath those assets directly to a UK resident domiciliary then this would result in those assets falling within the IHT net. As such, it would potentially result in an IHT charge of 40% if the done held the assets on their own death. 

    A potential solution might, therefore, be to place those assets on an appropriate trust for the benefit of the done. It should be possible for this trust to remain outside the scope of IHT.

    With some careful planning, it might be possible to ensure that this trust largely avoids double exposure to US and UK tax. This allows our non-dom friend to create a highly tax-efficient, dynastic structure.

    …and what are the problems?

    Of course, George Bernard Shaw remarked that England and America are countries separated by a common language! This is perhaps rather accurate when it comes to the area of trusts.

    Indeed, common types of trust in the US may not be quite so familiar to a beneficiary in the UK. Whereas a UK discretionary trust will empower very wide powers on the trustees,  US trusts are often be more rigid in how they provide benefits to beneficiaries.

    Next steps?

    We would recommend that anyone to whom these issues speaks to an adviser who is well versed in US/UK cross border planning.

    If you have any queries about this article, or the matters discussed more generally, then please do not hesitate to get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

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    MR BLAKEFIELD. REGAL CAPITAL. FLORIDA.

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    MR BLAKEFIELD. REGAL CAPITAL. FLORIDA.

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    MR BLAKEFIELD. REGAL CAPITAL. FLORIDA.

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