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home | Inheritance tax & the UK/US Estate t . . .

Inheritance tax & the UK/US Estate tax treaty


Question:

I have 3 questions all linked to the other:

If a deceased individual who is UK domiciled has assets in the United States on death that becomes taxable under estate taxes, which country (the UK or USA) would have an exemption from tax or a tax credit to offset against the country's tax liability?

If the exemption is for USA would this cover both Estate taxes and State taxes?

How would I need to go about making the claim for the exemption under the Double Tax Treaty?

Answer:

Under the UK-US estate tax treaty UK domiciliaries are generally, only subject to US estate tax on US real estate and US business property. This assumes that the individual is not a US national.

In addition, the US/UK treaty caps the US estate tax imposed on a UK national at no more than would have been imposed on a US domiciliary.

Therefore you'd essentially look at the US real estate and business property, deduct any US exemptions etc and this would be subject to US estate tax.

As a UK domiciliary the worldwide estate would be subject to UK inheritance tax.The UK will give credit for the US Federal Estate Tax under the estate tax treaty.

If there is a State Estate Tax on the assets situated there this is not covered by the estate tax treaty. However a UK domiciliary could claim unilateral relief for this state estate tax (ie it's not under the terms of the double tax treaty). There is though a limit to the total tax credit being the amount of UK inheritance due on the US estate.

In terms of the procedure for the UK tax credit this would be via the IHT account.

Where a DT credit is due HMRC will provide a provisional allowance but they would require that the US estate tax payment is certified by the US authorities on Form 742.

They would therefore usually send two copies of this form and request you to send them to the US authorities. The IRS would then return one of the forms directly to HMRC.

About the Author

Lee Hadnum The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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Disclaimer

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i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.

ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.

These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.


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