Gifting US-Held Shares by UK National in the UK
Mar 11th 2024, 4:59 pm
#1
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Gifting US-Held Shares by UK National in the UK
Here's a good one!! I know I'll need to work with a specialist on this one, but wanted to get people's thoughts on my situation and potential options:
Parent 1, lives in the UK and is a British national. Their partner (British national) and Parent 1 are not married but have lived together for 20+ years. Both are in their 80s and healthy. Parent 2 died 10+ years ago.
Parent 1 will divide all (remaining) assets between Parent 1’s three children when he/she passes away. Parent 1 and Partner have agreed that the surviving person (Parent 1 or Partner) can continue to live in the house until they pass away at which point 50% of the house will pass on to the three children. Apart from the arrangement with the house, Parent 1 and Partner have agreed to pass down their respective assets to their children and not each other.
Parent 1 has property in the UK, cash in the UK and shares held in a US-based, US brokerage account. Shares are in the name of Parent 1 only. Shares are listed on the NYSE. 50% of property value and cash are over the £325K IHT threshold. Shares have been held for 12+ years. Value of shares today is over $500K. Parent 1 does not need the shares and is happy to ‘gift’ the shares equally to the children while alive, put in trust or look at other avenues to minimize IHT.
Parent 1 has 3 children. Child 1 is a British national and has always resided in the UK. Child 2 has US and British passports and has resided only in the US for 30+ years (does not file British tax returns). Child 3 has resided only in the US for 11+ years and holds a British passport. Child 3 has property in the UK that is rented out and files UK tax returns on the properties. There is a high-level of trust between siblings. All 3 children have US brokerage accounts at the same company as Parent 1.
What are the options for minimizing IHT while Parent 1 and partner are alive .... and thank you for your help.
Parent 1, lives in the UK and is a British national. Their partner (British national) and Parent 1 are not married but have lived together for 20+ years. Both are in their 80s and healthy. Parent 2 died 10+ years ago.
Parent 1 will divide all (remaining) assets between Parent 1’s three children when he/she passes away. Parent 1 and Partner have agreed that the surviving person (Parent 1 or Partner) can continue to live in the house until they pass away at which point 50% of the house will pass on to the three children. Apart from the arrangement with the house, Parent 1 and Partner have agreed to pass down their respective assets to their children and not each other.
Parent 1 has property in the UK, cash in the UK and shares held in a US-based, US brokerage account. Shares are in the name of Parent 1 only. Shares are listed on the NYSE. 50% of property value and cash are over the £325K IHT threshold. Shares have been held for 12+ years. Value of shares today is over $500K. Parent 1 does not need the shares and is happy to ‘gift’ the shares equally to the children while alive, put in trust or look at other avenues to minimize IHT.
Parent 1 has 3 children. Child 1 is a British national and has always resided in the UK. Child 2 has US and British passports and has resided only in the US for 30+ years (does not file British tax returns). Child 3 has resided only in the US for 11+ years and holds a British passport. Child 3 has property in the UK that is rented out and files UK tax returns on the properties. There is a high-level of trust between siblings. All 3 children have US brokerage accounts at the same company as Parent 1.
What are the options for minimizing IHT while Parent 1 and partner are alive .... and thank you for your help.
Mar 11th 2024, 6:36 pm
#2
Furby
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Re: Gifting US-Held Shares by UK National in the UK
0n the surface the best thing your parent could do would be to immediately gift as many of their assets as they are comfortable with and hope they live for seven more years to avoid U.K. Inheritance tax. The US does not tax US tax payers on overseas gifts from non US persons so there would be no issues there, although you would have to report it on Form 3520 if the gift exceeds $100K. They would have to consider the UK tax consequences of selling the assets and gifting the cash, versus gifting the assets and subsequently making the recipients responsible for taxes on all appreciation since purchase, which would be capital gains for the US tax payers. If inherited after death US tax payers would get the stepped up basis of the investment making it effectively tax free to that point, but if U.K. Inheritance tax applies at 40% then that would leave you worse off overall.
Placing assets into a trust would almost certainly make the US tax payers subject to tax on any inheritance versus being tax free outside of a trust (the state may charge tax either way). A trust may or may not help with U.K. inheritance tax (although usually nowhere as much as is envisaged) but could be disastrous tax wise for US tax payers.
As you say, a complicated situation because minimizing taxes for the US tax payers versus the non US tax payers may result in conflicting strategies resulting in interesting conversations between all concerned.
Placing assets into a trust would almost certainly make the US tax payers subject to tax on any inheritance versus being tax free outside of a trust (the state may charge tax either way). A trust may or may not help with U.K. inheritance tax (although usually nowhere as much as is envisaged) but could be disastrous tax wise for US tax payers.
As you say, a complicated situation because minimizing taxes for the US tax payers versus the non US tax payers may result in conflicting strategies resulting in interesting conversations between all concerned.
Last edited by Glasgow Girl; Mar 11th 2024 at 6:40 pm.
Mar 11th 2024, 9:12 pm
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Re: Gifting US-Held Shares by UK National in the UK
Thank you Glasgow Girl. I was thinking the same thing about gifting ASAP, but ...... if Parent 1 gift the shares and passes away in < 7 years, I wonder if it makes any difference if the partner is still alive (common-law husband & wife).
Mar 12th 2024, 8:55 am
#4
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Re: Gifting US-Held Shares by UK National in the UK
I agree with GG’s advice above, much less complicated to first liquidate shares before gifting them to a US person.
the 7 year rule can be a sliding scale, starting at 40% tax then going down to zero, depending on the size of the gifts
https://www.gov.uk/inheritance-tax/gifts
I think there is a big difference between “common-law” partners and cohabitation. If the partnership is not formalized I’m not sure that inheritance tax law applies. Need to get legal advice on best way forward there.
the 7 year rule can be a sliding scale, starting at 40% tax then going down to zero, depending on the size of the gifts
https://www.gov.uk/inheritance-tax/gifts
I think there is a big difference between “common-law” partners and cohabitation. If the partnership is not formalized I’m not sure that inheritance tax law applies. Need to get legal advice on best way forward there.
