US & UK estate planning. How can owning an offshore bond help?

Investing in an asset based in a different geographical location to where an investor is resident or domiciled can sometimes have unintended consequences. Such assets are known as ‘situs assets’ and can give rise to a potential liability to inheritance and estate in the country where they are situated. For example, UK (IHT) and United States estate tax are assessable on situs assets regardless of whether the owner of the asset is resident or domiciled in the UK or a US person. In this document we compare the rules governing non-UK domiciles and non-US persons* with situs assets.

*a non-US person is an individual who is neither a US citizen, US green card holder or US domiciled person.

What are the current inheritance tax/estate tax rates on situs assets?

Non-UK domicile with UK situs assets Non-US person with US situs assets IHT is levied on death on UK situs assets at a rate of 40% US estate tax is levied on death on US situs assets where the where the total value of the assets exceeds the nil rate band value of the US situs assets is more than US$60,000. Tax is of £325,000 (frozen until 2021). levied at rates of 18% to 40%.

How could your clients benefit from transferring publicly listed shares to a Quilter International offshore bond? Transferring UK or US listed shares into a portfolio bond could reduce or eliminate any liability to UK inheritance tax or US estate tax for non-UK domiciles and non-US persons which would otherwise be assessable on the deceased’s estate. Here is more detail:

UK US

Transferring the shares into a portfolio bond by way of an Where shares are transferred to a portfolio bond, the shares in-specie transfer to the product provider is not a gift for UK are unlikely to be liable to estate tax if the portfolio bond is inheritance tax purposes and therefore there are no UK regarded as non-US situs. It is our understanding that inheritance tax implications. There are generally no UK Quilter International’s portfolio bond is not a non-US income tax or implications for a non UK situs asset. resident/domicile transferring the shares. Alternatively, the shares could be sold and the cash used as the premium for the portfolio bond. There are generally no US income tax or capital gains tax implications for a non-US person transferring the shares1.

Once the assets are held within the bond, the previous owner relinquishes all legal and beneficial rights to the assets and therefore on death, the value of the shares are not assessable to either UK inheritance tax or US estate tax, whichever is applicable. Please be aware that taxation and the categorisation of insurance policies in the US can be complex. US tax advice should be obtained in order to determine the impact, if any, the transfer of assets may have on your clients and the tax consequences of owning the bond under the client’s specific circumstances.

1 US tax may be payable on the transfer of shares of a US real holding corporation.

For financial advisers only Investments can fall or rise in value and investors may not get back what they put in. This document is based on Quilter International’s interpretation of and tax practice in the UK and US as at July 2021. We believe this interpretation is correct, but cannot guarantee it. Tax relief and tax treatment of investment assets may change in the future. www.quilterinternational.com Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Quilter International Isle of Man Limited is registered in the Isle of Man under number 24916C. Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0)1624 655 555 Fax: +44 (0)1624 611 715. Licensed by the Isle of Man Financial Services Authority. All promotional material is approved by Quilter Investment Platform Limited. Quilter Investment Platform Limited is authorised and regulated by the Financial Conduct Authority. Financial Services register number 165359. The rules made under the Financial Services and Markets Act 2000 (as amended) for the protection of retail clients in the UK do not apply. Quilter International is registered in the Isle of Man as a business name of Quilter International Isle of Man Limited. Quilter International Ireland dac is regulated by the Central Bank of Ireland. Registered No 309649. Administration Centre for correspondence: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU. Tel: +353(0)1 479 3900 Fax: +353(0)1 475 1020. Registered and Head Ofce address: Hambleden House, 19-26 Lower Pembroke Street, Dublin 2, D02 WV96, Ireland. VAT number for Quilter International Ireland dac is 6329649S. Quilter International is registered in Ireland as a business name of Quilter International Ireland dac. 12485/INT21-0579/July 2021