The Lemon Fool

Hi All.

I was comparing VWRL and VWRP here: https://thefipharmacist.com/vwrl-vs-vwrp/

In doing so, I came across the "Estate Tax" section, which says as follows



Does anyone have sufficient international tax expertise to verify how that reads to me - that upon death, the estate of a UK-resident holder of IRE domiciled ETF's, such as the two named, would be subject to US Estate Tax if the US assets exceed $60K?

Regards, Newroad

PS If accurate, this strikes me as likely to be an issue for any collective investment vehicle exhibiting similar characteristics

Newroad wrote:Does anyone have sufficient international tax expertise to verify how that reads to me - that upon death, the estate of a UK-resident holder of IRE domiciled ETF's, such as the two named, would be subject to US Estate Tax if the US assets exceed $60K?

What the author is trying to say here, and unfortunately hasn't said entirely clearly, is that non-US investors who held the underlying US assets directly (or, though US domiciled ETFs) could face US estate tax on holdings above $60,000, but holding these same US assets through an Ireland domiciled ETF insulates non-US investors from rapacious US estate taxes, while at the same time these Ireland domiciled ETFs are not at any risk from Irish inheritance tax when held by non-Irish investors.

The article's author lives in Singapore, and he's writing this for Singaporean investors. Singapore has no US estate tax treaties, so the $60k limit is something Singaporean investors need to worry about. (Also, because of the $60k exemption the US estate tax rates actually work out to 26%-40%, not 18%-40% as written.) The UK does however have a US estate tax treaty, and this protects UK investors up to (and in some cases, even above) the standard $11m or so US estate tax exclusion allowed to US investors.

In other words, as a (presumed!) UK investor you can realistically ignore US estate tax issues. If you invest through Ireland domiciled ETFs then you are covered that way. And if you hold any 'US situs' assets directly, such as shares or -- now difficult, thanks to PRIIPs -- US domiciled ETFs, you have cover from the US/UK estate tax treaty.

Thanks, TedSwippet.

Much appreciated

Regards, Newroad

TedSwippet wrote:

Newroad wrote:Does anyone have sufficient international tax expertise to verify how that reads to me - that upon death, the estate of a UK-resident holder of IRE domiciled ETF's, such as the two named, would be subject to US Estate Tax if the US assets exceed $60K?

What the author is trying to say here, and unfortunately hasn't said entirely clearly, is that non-US investors who held the underlying US assets directly (or, though US domiciled ETFs) could face US estate tax on holdings above $60,000, but holding these same US assets through an Ireland domiciled ETF insulates non-US investors from rapacious US estate taxes, while at the same time these Ireland domiciled ETFs are not at any risk from Irish inheritance tax when held by non-Irish investors.

The article's author lives in Singapore, and he's writing this for Singaporean investors. Singapore has no US estate tax treaties, so the $60k limit is something Singaporean investors need to worry about. (Also, because of the $60k exemption the US estate tax rates actually work out to 26%-40%, not 18%-40% as written.) The UK does however have a US estate tax treaty, and this protects UK investors up to (and in some cases, even above) the standard $11m or so US estate tax exclusion allowed to US investors.

In other words, as a (presumed!) UK investor you can realistically ignore US estate tax issues. If you invest through Ireland domiciled ETFs then you are covered that way. And if you hold any 'US situs' assets directly, such as shares or -- now difficult, thanks to PRIIPs -- US domiciled ETFs, you have cover from the US/UK estate tax treaty.

Just to add that I believe whilst holding US assets directly (such as US stocks) most likely wouldn't incur any inheritance tax liability being owed to the US due to the treaty that Ted indicated, however your heirs would still have to go through the US estate reporting/declaration process in order to get the assets released to them. Additional paperwork/effort that a solicitor would charge for. I don't know how complex/simple that action might be, suspect relatively simple (inexpensive), but don't know for sure.

1nvest wrote:Just to add that I believe whilst holding US assets directly (such as US stocks) most likely wouldn't incur any inheritance tax liability being owed to the US due to the treaty that Ted indicated, however your heirs would still have to go through the US estate reporting/declaration process in order to get the assets released to them. Additional paperwork/effort that a solicitor would charge for. I don't know how complex/simple that action might be, suspect relatively simple (inexpensive), but don't know for sure.

In this context it may be useful to know that US banks and brokerage accounts allow for a form of ownership that is not available in the UK. When you open a US financial account you can designate a "transfer on death" beneficiary. This has a similar effect to owning an asset as joint tenants here, except that the account holder does not give up half of the account.

The designation ensures that upon the death of the account-holder the assets pass immediately to the designated beneficiary, regardless of what the will says and without needing or being affected by probate. It effectively sets up a trust under the covers. This is an incredibly useful estate planning tool which, inexplicably, is not available in the UK.

So if there is a plan to hold US securities, then holding them within a US account with this kind of designation could bypass probate and the associated restrictions. As I understand it the beneficiary merely takes, shows or sends the death certificate to the institution, whereupon the assets are transferred.

Lootman wrote:

1nvest wrote:Just to add that I believe whilst holding US assets directly (such as US stocks) most likely wouldn't incur any inheritance tax liability being owed to the US due to the treaty that Ted indicated, however your heirs would still have to go through the US estate reporting/declaration process in order to get the assets released to them. Additional paperwork/effort that a solicitor would charge for. I don't know how complex/simple that action might be, suspect relatively simple (inexpensive), but don't know for sure.

In this context it may be useful to know that US banks and brokerage accounts allow for a form of ownership that is not available in the UK. When you open a US financial account you can designate a "transfer on death" beneficiary. This has a similar effect to owning an asset as joint tenants here, except that the account holder does not give up half of the account.

The designation ensures that upon the death of the account-holder the assets pass immediately to the designated beneficiary, regardless of what the will says and without needing or being affected by probate. It effectively sets up a trust under the covers. This is an incredibly useful estate planning tool which, inexplicably, is not available in the UK.

So if there is a plan to hold US securities, then holding them within a US account with this kind of designation could bypass probate and the associated restrictions. As I understand it the beneficiary merely takes, shows or sends the death certificate to the institution, whereupon the assets are transferred.

Thanks. Any suggestions for a US brokerage available to UK residents that also supports ISA and US stocks held within that i.e. preferably with auto dividend reinvestment to avoids double £/$ currency conversion costs to have those dividends reinvested?

I'm largely with ii, but their 1.5% FX conversion cost = 3% to have US stock dividends paid, reinvested. https://freetrade.io/pricing indicates 0.45% (0.9% round trip) which has appeal, but that's UK based so wont include the Transfer on Death option (AFAIK).

1nvest wrote:Thanks. Any suggestions for a US brokerage available to UK residents that also supports ISA and US stocks held within that i.e. preferably with auto dividend reinvestment to avoids double £/$ currency conversion costs to have those dividends reinvested?

I don't think that's technically possible. It would seem to involve holding $$ in the ISA ( however briefly ) and that's not allowed. You'd need the US holding to be issuing stock dividends, which limits your options for investment.

I struggle to imagine that any US broker has heard of an ISA.