Probate Q & A – Transferring US assets to the UK
Samantha Waller, from specialist probate research firm Title Research, explains the hurdles to overcome when dealing with US assets worth more than $60,000 at the date of death.
Why does the transfer or sale of US assets worth more than $60,000 take longer than those below this threshold?
In the USA the Internal Revenue Service (IRS) set the tax threshold at $60,000. If you are dealing with an estate that includes US assets valued over $60,000 at the date of death, the estate will need to obtain tax clearance from the IRS in order to transfer those assets to the beneficiaries. Estate tax clearance from the IRS confirms to the banks and transfer agents that tax is not payable in the United States in accordance with the tax treaty between the US and UK.
If there is a tax treaty why does the IRS need to be notified?
The IRS need to check whether tax has been paid correctly in the UK in accordance with the tax treaty. Even though there is a tax treaty in place, US tax may be payable in some unusual circumstances, although this is quite rare. Usually tax will only be due for matters involving Individual Retirement Accounts (IRAs), property or land.
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How long does it take for the IRS to give an estate tax clearance?
The IRS will generally release half the value of the estate three months after the IRS has received the documents requesting tax clearance. The IRS do not authorise the transfer of the entire US estate in case further tax liabilites come to light that need to be paid before the assets are fully transferred.
In our experience, the remaining half of the funds are typically released a further nine months after the first half has been released, therefore taking an average of twelve months to obtain tax clearance and for all assets to be released.
Does the IRS offer a fast track process?
There is no fast track process. Returns are processed in the order they are received. However, using an agent with experience and knowledge of IRS requirements helps avoid any unnecessary delays.
Can the IRS be avoided?
The transfer agent or bank dealing with the assets could potentially cut out the IRS but they prefer to secure clearance otherwise they could be liable to pay tax on the assets. As such, the transfer agents and banks are unlikely to transfer an asset that is valued at over $60,000 without the correct documentation and authority from the IRS to do so.
Furthermore, not obtaining tax clearance from the IRS can have financial implications for the estate, as detailed below.
If tax clearance is not obtained, what are the consequences?
If the IRS is not notified but tax is payable the transfer agent could be liable to pay the tax, if the IRS becomes aware of the transfer, and subsequently determine that the estate is required to pay tax in the US.
However, more importantly for the estate, if tax clearance is not obtained from the IRS then the US banks and transfer agents will automatically tax the assets. This means that the estate will pay tax on the asset in the UK and the US, resulting in less money for your client, the beneficiary.
Once tax clearance has been obtained, how long does it take to transfer the assets to the UK?
The transfer will typically take four-six weeks once tax clearance has been obtained. If the asset is under the $60,000 threshold clearance is generally not required. In these circumstances the process also takes between four-six weeks.
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