US estate and gift tax rules

US estate and gift tax rules for resident and non-resident aliens

Are you a non-US citizen residing, working, or owning property in the United States? Understanding the potential tax implications is crucial.

Whether you plan to stay in the US indefinitely, embark on a long-term residency, or have a short-term assignment, it is essential to be aware of the potential adverse US estate tax consequences your estate may face upon your passing. Without careful planning, your loved ones could be burdened with unexpected tax liabilities. Additionally, lifetime transfers made by non-US citizens may also be subject to US gift tax, adding further complexity to your financial situation.

The information contained herein has been prepared solely for informational purposes. 


Residency and domicile considerations

Since 2018, US citizens and domiciliaries have been subject to estate and gift taxes at a maximum rate of 40%. The exemption amount, indexed for inflation, is currently $12,060,000 (2022). In contrast, non-US domiciliaries face estate and gift taxes on certain US assets, with a lower exemption of $60,000 applicable only to transfers at death.

Obtaining a green card establishes US residency but subjects you to US income tax on worldwide income. Green card status is a factor in determining US domiciliary status for estate and gift tax purposes. Surrendering the green card may result in non-resident alien status for income tax purposes, but substantial time in the US after surrendering can lead to US residency again. Consider potential US expatriation tax implications when surrendering the green card.

Understanding these tax implications is crucial. Seek professional guidance to ensure compliance and make informed decisions regarding estate and gift taxes.

Capital gains tax disposing of assets

Qualifying as a US domiciliary

Domicile for US estate and gift tax purposes is established when an individual resides in the US without the present intention of leaving. It’s important to note that determining domicile for estate and gift tax is distinct from determining US income tax residence. This means that you can be a resident for income tax purposes but not considered a US domiciliary for estate and gift tax purposes.

Various factors are considered under a facts and circumstances test to assess whether you are a US domiciliary. These factors include:

  • Statement of intent expressed in visa applications, tax returns, wills, and other relevant documents.
  • Length of residence in the US.
  • Green card status.
  • Lifestyle patterns within the US and abroad.
  • Connections to your former country.
  • Country of citizenship.
  • Location of business interests.
  • Maintenance of club and church affiliations, voting registration, and driver’s licenses.

If an individual does not meet the criteria established by the facts and circumstances test described above, they are considered a non-US domiciliary for estate and gift tax purposes. It is worth noting that a person may be regarded as a domiciliary in multiple countries, and certain assets may be subject to estate or gift tax in more than one country.

It is crucial to carefully evaluate these factors and seek professional guidance to determine your domicile status for estate and gift tax purposes. The complexities surrounding domicile require expert advice to ensure compliance and proper assessment of tax obligations in different jurisdictions.

Consult with a tax professional regarding your US domicile status.

Countries with estate and gift tax treaties

Starting from January 2022, the United States has established estate and/or gift tax treaties with 16 jurisdictions. These tax treaties play a significant role in defining domicile, resolving dual-domicile issues, mitigating double taxation, and offering additional deductions and tax relief.

The countries with which the US currently has gift and/or estate tax treaties are:

  • Australia
  • Finland
  • Ireland
  • Austria
  • France
  • Italy
  • South Africa
  • Canada* (through the income tax treaty)
  • Germany
  • Japan
  • Switzerland
  • Denmark
  • Greece
  • Netherlands
  • United Kingdom

These tax treaties aim to clarify and alleviate tax burdens for individuals with worldwide assets and tangible and intangible assets located within the United States. By identifying and quantifying your assets in these categories, you can better understand the benefits and relief these tax treaties offer.

Navigating the intricacies of international taxation can be challenging, so consulting with a tax professional is recommended to ensure compliance and optimize the advantages these estate and gift tax treaties provide.

Estate tax facts

US Estate Taxable Assets: US domiciliaries are taxed on their worldwide assets upon death, while non-US domiciliaries are taxed only on their US “situs” assets. These typically include US real estate, tangible property, US business assets, and stock in US corporations. Estate and gift tax treaties may modify this definition.

Tax Rates and Credits: Estate and gift tax rates range from 18% to 40% for all individuals, regardless of citizenship or domiciliary status. US citizens and domiciliaries have an exemption of up to $12,060,000 in 2022, while non-US domiciliaries have a lower exemption of $60,000 for US taxable estate assets. State estate and gift taxes may also apply.

Jointly Owned Property: If the surviving spouse is not a US citizen, the portion of jointly owned property taxed depends on the contributing assets used for the purchase. If the surviving spouse is a US citizen, approximately half the value of the jointly owned property is included in the first spouse’s estate to die.

Marital Deduction: A US citizen’s surviving spouse enjoys an unlimited marital deduction, meaning assets can pass to the spouse without estate tax. Unused exemptions can also be transferred to the surviving spouse. However, this deduction is generally unavailable if the surviving spouse is not a US citizen unless a qualified domestic trust is utilised. Some estate and gift tax treaties may provide alternative marital deduction provisions.

A tax professional is recommended to understand specific estate tax implications, treaty provisions, and available deductions. This ensures compliance and helps optimise tax planning strategies.

Gift tax facts

US Citizens and Domiciliaries: US citizens and domiciliaries are subject to gift tax on all lifetime gifts, regardless of location.

Non-US Domiciliaries: Non-US domiciliaries are only taxed on transfers of tangible personal property and US real property.

Exclusions and Credits: An annual exclusion of $16,000 per donee per year applies to “present interest” gifts. US citizens and domiciliaries can gift split up to $32,000 per donee per year. Non-US domiciliaries cannot use gift splitting.

Gifts to a US citizen spouse have no limit, while gifts to a non-US citizen spouse have an annual exclusion of $164,000.

Considerations for Intangible Property: Consult an international estate planning professional to determine the advantages of gifting intangible property before becoming a US domiciliary.

Seek guidance from a tax professional specializing in international estate planning to ensure compliance and informed decision-making regarding gift tax, tailored to your specific circumstances.

Thinking ahead

Non-US citizens residing, working, or owning property in the US must be aware of the potential impact of US estate and gift tax regulations. This article highlights the significance of residency and domicile choices in relation to tax consequences.

With the increasing mobility of individuals and companies across borders, many people are subject to multinational tax rules. We hope the insights provided here prompt you to consider the necessary measures to ensure you are well-prepared for potential US estate and gift tax implications associated with a relocation to the US or the acquisition of US property. 

To learn about share transfers and estate planning for holders of US company shares, download our free guide or contact us to understand more.

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