The rules relating to inheritance taxes generally vary from country to country. In order to determine whether an asset will be subject to a specific country’s inheritance tax rules it is important to establish the “situs” of that asset.
For fixed assets or immoveable properties, the situs is generally easy to determine as this will be the jurisdiction where the properties are situated.
The rules regarding to situs for moveable / tangible assets such as shares, and collective investment schemes are more complex and unfortunately also differ from country to country.
Fortunately, most jurisdictions apart from the US and the UK, even if the moveable assets qualify as situs assets, do not levy inheritance taxes on such assets if the deceased owner or the beneficiary is not resident in and not domiciled in the country where the asset is a situs asset.
Both the US and the UK levy inheritance tax on assets which qualify as situs assets in those jurisdictions.
The position in the US
- The situs of an equity or bond will be in the US if the bond or equity instrument is issued by a US corporation.
- A US mutual fund will be a US situs asset if the fund is a US Registered Investment Fund, which will largely be applicable to all US mutual funds.
- The total value of all US situs assets belonging to a non-US resident will be subject to US Inheritance tax if the total value exceeds $60,000.
- No roll over relief is available if the beneficiary is the spouse, unless the spouse is a US Citizen.
- The applicable rate is based on a sliding scale ranging from 26% to 40%. The 40% rate is applicable once the situs asset value is equal to or exceeds USD 1 000 000.
The position in the UK
- The situs of an equity or collective investment scheme will be in the UK if the share register of the equity instrument or collective investment scheme is kept or maintained in the UK.
- Bonds will be UK situs assets if they were issued in the UK.
- The UK however applies exemptions to the situs rules for certain collective investment schemes such as authorised unit trust funds. This exclusion will apply if the beneficial owner is neither resident nor domiciled in the UK.
- The total value of all UK situs assets belonging to a non-UK resident will be subject to UK Inheritance tax if the total value thereof exceeds GBP 325 000.
- Roll over relief is provided if the beneficiary of the UK assets is the spouse with no inheritance tax levied on death of the first dying spouse, and then on death of the last dying spouse the threshold increases to GBP650,000 before inheritance tax becomes payable.
- The applicable rate is a flat rate of 40% above the applicable threshold of GBP325,000, or of GBP650,000 in the case of the surviving spouse.
Kindly contact marteen@fidelisvox.co.za if you need advice with regard to the treatment of your situs assets for estate planning purposes.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)