When non-US persons invest in US assets, they face a very different gift and estate tax regime compared to US citizens or US domicilaries. The US imposes transfer taxes on certain US-situated assets transferred by non-US persons, often with far less generous exemptions and more limited deductions than those available for US persons. This article outlines the key issues, how exposures can be managed, and compliance requirements for non-US persons with US assets.
Who is a ‘non-US person’ for US transfer tax purposes?
For US gift and estate tax, the key factor is not your citizenship or income tax residency, but where you are ‘domiciled’. You are considered a non-US person (a ‘non-citizen non-US domiciliary’ or NCND) if, at the time of the transfer (either during life or at death), you are neither a US citizen nor domiciled in any State within the US. Domicile is determined by your intent to remain in the US permanently. Even if you have a green card or spend significant time in the US, you may still be a non-US person for transfer tax purposes if you do not intend to stay indefinitely. The IRS looks at various factors, including, but not limited to, location of main home, where your family and business interests are, and your immigration status.
Which US assets are subject to gift tax and estate tax?
Non-US persons are subject to US gift and estate tax only on US situs assets. The definition of US situs assets is broader for estate tax than for gift tax, meaning non-US persons are more likely to face a US estate tax exposure on US assets held upon passing than be subject to US gift tax during lifetime.
If you make gifts during your lifetime, US gift tax only applies to gifts of US real estate and tangible personal property. Importantly, gifts of US stocks or other intangibles are not subject to US gift tax for non-US persons. The question of whether cash held in a US bank account is a tangible asset and therefore subject to US gift tax in the hands of a non-US domiciliary is unclear. It is generally recommended that gifts are not made from US based accounts but rather from a non-US bank account to alleviate any risk of a gift tax charge. Aside from gifts of US real estate or tangible business property, US gift tax exposure can largely be managed during lifetime.
In contrast, the definition of US situs assets for estate tax is broader than for gift tax. US situs assets for estate tax include:
- US real estate (such as a home or investment property);
- Tangible personal property located in the US (like art, jewellery or cars);
- Shares of US companies (regardless of where the shares are held); and
- Certain US debt instruments (unless they qualify for special exemptions).
Assets that are not subject to US estate tax include:
- Bank deposits with US banks (in most cases);
- Portfolio debt instruments (such as certain US bonds that meet specific requirements); and
- Life insurance proceeds on your own life.
The key difference here is that shares of US companies are subject to US estate tax. With a relatively low exemption, which is covered below, owning US shares directly can quickly create a potential US estate tax liability without appropriate management.
Special Note: US Real Estate
US real estate is always considered a US asset for gift and estate tax purposes, and special rules apply for debt and ownership structures. Owning US real estate can also create complex issues for US income tax. Because of these complexities and unique planning strategies, the topic of US real estate ownership by non-US persons will be addressed in a separate article.
What are the current tax rates, exemptions and deductions?
The US estate tax rate for non-US persons can be as high as 40 percent. The estate tax exemption is much lower than for US citizens and domicilaries, currently at just $60,000 (compared to $13.99 million for a US citizen or domiciliary). This means that if the total value of your US assets exceeds $60,000 at the time of your death, your estate may owe US estate tax on the excess.
Deductions are available for certain debts and expenses, but only in proportion to the value of your US assets compared to your worldwide assets. If you leave assets to a spouse who is not a US citizen, special rules apply and the usual marital deduction is not available unless the assets are placed in a special trust, known as a Qualified Domestic Trust (QDOT).
There is no lifetime gift tax exemption for non-resident ‘aliens’, only the annual exclusion which is currently $19,000 per donee in 2026. Gifts to a non-citizen spouse have a higher annual exclusion, $194,000 for 2026. Gifts in excess of the applicable exemption will be subject to tax up to 40 percent.
Can gift and estate tax treaties help?
The US has gift and estate tax treaties with a limited number of countries, including the UK. These treaties can sometimes provide higher exemptions or more favourable rules about which assets are taxed. The US/UK Estate Tax Treaty, for example, can limit US estate tax to US real estate and US business property for a UK domiciliary or provide a ‘pro rata’ unified credit equivalent to the relief available to US citizens and domicilaries for the relevant year based on a pro rata share of US assets as a portion of worldwide assets. Treaty provisions vary significantly, so if you are a resident of a treaty country, it’s important to carefully review the relevant treaty and check whether you can benefit from its provisions. Claiming treaty benefits requires specific filings, so professional advice is essential as any treaty relief will not apply automatically.
What are the compliance requirements?
If you pass away owning more than $60,000 in US assets, the executors of your estate must file a US estate tax return (Form 706-NA), which is generally due nine months after the date of death, although additional extensions of time to file are often available. US banks and financial institutions will generally not release your assets to your heirs until they receive proof that all US estate tax obligations have been met. Typically, this requires the IRS to issue a Federal Transfer Certificate. This process can be time-consuming, so advance planning can help mitigate this.
Form 706-NA is required to be filed to make any Treaty based claims.
For gifts in excess of the annual exemptions, Form 709-NA must be filed.
How to reduce exposure
If you currently own, or are considering acquiring, US assets, it is essential to assess your potential US estate tax liability and explore opportunities to manage or reduce this exposure. Once a non-US person passes away owning US assets directly, it is generally too late to restructure so any actions must be taken in advance.
The most effective way to reduce or eliminate US estate tax exposure is to avoid holding US assets directly. Common strategies include:
- Holding US assets through a non-US corporation, so that you own shares in a foreign company rather than the US assets themselves; and
- Using certain types of foreign trusts.
Wherever possible advice should be taken before acquiring US assets so that an effective structure can be adopted from the start.
The best approach will depend on your specific situation, the type of assets, and your long-term plans. Tax issues in your home jurisdiction must also be considered.
Practical issues: Probate
US assets owned directly by a non-US person may be subject to US probate, which can be costly and time-consuming. Structuring ownership through joint accounts, entities or trusts can help avoid probate, but these arrangements must be carefully planned to avoid unintended tax consequences in both the US and your local jurisdiction.
In Summary
The US estate tax rules, in particular, can create significant US tax exposure for non-US persons with US assets, such as US shares. The low exemption, high tax rates, and complex compliance and administrative requirements make taking early advice essential. By understanding the rules and working with experienced advisers, you can understand and manage US tax exposures and ensure a smooth transfer of your US assets to your heirs.
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