The $60,000 line: US estate tax for people who never lived there

A charge on the US-situated assets of someone who dies neither a US citizen nor a US resident. It looks only at assets with an American connection, ignores everything else the person owned, and begins at a much lower level than the exemption Americans receive.

At $60,000. The IRS puts it plainly. An executor can usually transfer a non-resident non-citizen decedent's US-situated assets with no federal estate tax return and no tax. That holds where those assets, valued at death, plus adjusted taxable gifts, do not exceed that figure.

So the test combines assets at death with earlier gifts, which is easy to miss.

The IRS sets out the position for nonresidents in its own guidance.

A single modest US shareholding can reach it, which is why this catches ordinary families rather than only wealthy ones.

More than most people assume, and the list is the whole of the problem. The IRS names US real estate and all tangible property in the United States. It also names certain intangible property, such as US marketable securities, and debt of a US person. A US trade or business counts too, as do bank accounts used in connection with one.

In practice, US marketable securities is the line that catches British investors.

Shares in an American company are US-situated wherever the owner lives and wherever the certificate sits.

So a portfolio held through a British platform can still contain US-situated assets.

The asset usually stops moving. American brokers and transfer agents commonly want a transfer certificate first, and that certificate follows from the estate tax process. So nothing reaches the beneficiaries until somebody deals with the return. In practice that is what forces the issue, rather than a demand from the IRS.

So the practical enforcement is the asset itself.

Instead, families discover the obligation when a sale or transfer stalls.

By then the estate may be months into administration with other assets already distributed.

They are separate charges on separate bases, and both can apply to the same assets. Britain charges inheritance tax by reference to long-term residence and to UK-situated assets, while the American charge looks only at US situs.

So an estate can face both.

Relief for double taxation in this area works through the estate tax treaty rather than the income tax one.

Our guide to UK inheritance tax for Americans covers the British side, and GOV.UK sets out how inheritance tax works.

It can matter a great deal, and this is the practical lever. Holding American exposure through a non-US fund differs from holding shares in an American company. The fund changes the situs analysis, because the thing you own is the fund rather than what sits inside it.

In short, that is a structuring question rather than a reporting one.

It also collides with the passive foreign investment company rules for anyone who is a US person.

So the right answer differs sharply depending on whether the owner is American, and it is worth settling deliberately.

No. The charge follows the asset rather than the owner, so residence changes nothing about whether US estate tax for non-residents applies. Someone who never visited the United States, never worked there and never filed an American return can still leave an estate that owes it.

That is the part people find hardest to accept.

It also means the exposure arrives quietly, through ordinary investing.

A tracker fund sits in one category. Shares you hold directly in an American company sit in another.

Form 706-NA, the estate tax return for a non-resident who is not a US citizen. The IRS publishes the form and its instructions. The executor files it where the estate crosses the threshold.

That obligation sits with the executor rather than the beneficiaries.

An executor in Britain may have no idea it exists.

So the discovery usually happens when a US transfer agent or broker refuses to release the holding without it.

Yes, and this is where the position improves considerably. The IRS confirms that an executor may claim an exemption from US estate tax under a treaty. An executor may instead claim a pro-rata unified credit under a treaty. Either route can lift the effective threshold well above the statutory figure.

However, the claim is not automatic.

The executor makes it on the return and discloses a treaty-based return position.

Our guide to treaty-based return positions explains what that disclosure involves, and the IRS publishes Form 8833.

It scales the credit available to an American estate by the share of the worldwide estate that sits in the United States. So an estate with only a small American slice can end up with a credit far larger than the $60,000 equivalent.

That makes the worldwide figure relevant after all.

The executor has to disclose assets outside the United States to support the calculation.

Some families find that uncomfortable, and it is a genuine trade rather than a free improvement.

Joint ownership does not remove the question, and in some cases it complicates it. The rules look at what the decedent owned and contributed rather than simply at whose names appear on the account.

So a joint account is not a way around the threshold.

Evidence of who contributed what becomes important years later.

Keeping that record while both owners are alive is far easier than reconstructing it afterwards.

It does, because the threshold combines assets at death with adjusted taxable gifts. Lifetime giving has its own US rules for non-residents. They work differently from the estate rules, and they do not cover the same assets.

So gifting is not automatically a way to step under the line.

You have to look at the two regimes together.

Our guide to when a US person abroad files a gift tax return covers the American gift side.

A short sequence for working out whether this applies to your family.

Usually not. That counts as one of the few pieces of good news here. The IRS list names bank accounts used in connection with a US trade or business, which is narrower than it first appears.

An ordinary deposit account usually falls outside that.

So cash sitting in an American bank is not the same problem as American shares.

However, the detail matters, and it is worth checking rather than assuming either way.

A US pension or retirement plan raises its own questions. The answer turns on the type of account and on the terms of any treaty claim. For example, an old 401(k) left behind after a two-year posting is not the same as an annuity bought later. So the paperwork for the account matters as much as the balance.

Also, people who worked briefly in America often still hold one.

So the exposure can exist decades after a short posting.

In our practice this surprises clients who assume the plan ended when they left.

Not necessarily, because the exposure is manageable once you know about it. Avoiding American exposure altogether is a large investment decision to take for a tax reason. Most households do not need to go that far.

Instead the question is usually how to hold the exposure rather than whether to have it.

So treat this as a structuring point, not as a reason to change your whole portfolio.

Anyone holding American shares directly, and anyone owning American property. Those two cover most of the cases we see, and neither requires any other connection to the country. Retired people with long-held portfolios are a common group.

So are families who inherited an American holding a generation ago.

In short, the exposure follows ordinary investing rather than anything unusual, which is exactly why so few people have considered it.

A short list, and most of it sits in old paperwork. The executor needs the value of each US holding on the day of death, plus the name of the broker or registrar that holds it. They also need the will, the grant, and proof of who inherits. None of this is hard to find, but it all takes time.

The values matter most. Crucially, US estate tax looks at what each asset was worth on the day of death, not at what it cost.

Brokers also set their own rules. For example, most freeze the holding until the paperwork satisfies them, and a few ask for more than the IRS does.

So start early. In our practice the delay rarely comes from the IRS; it comes from a valuation nobody ordered in time.

Consider a British couple in Bristol with a long-held holding in two American technology companies, bought through a UK platform and never thought about again.

Neither has lived in America. Neither has filed an American return. The shares are nonetheless US-situated, and their value alone passes the threshold.

On the first death the executor meets a transfer certificate requirement nobody anticipated. The administration then stalls for months.

These facts are illustrative. The shape, though, is the ordinary one: the exposure came from the asset, not from any connection to the country.

The first assumes the multi-million American exemption applies. That figure belongs to citizens and residents, not to this situation.

The second assumes that holding shares through a British platform makes them British. Situs follows the company.

The third assumes a treaty claim happens automatically. The executor makes it on the return and discloses it as a treaty position.

The fourth leaves the question until after a death, when the options have narrowed to administration rather than planning.

We work out the situs position on what you actually hold. That is usually a shorter list than people fear, and occasionally a longer one.

Where the threshold is in play we set out whether a treaty claim is available and what disclosing it involves.

Our double tax treaty relief service covers the ground, and fees stay fixed and agreed in writing beforehand. How we work sets out the process.

In our practice the families who handle this calmly asked before a death rather than during an administration. So talk to us while the options are still open.