The United States (US) imposes an estate tax on the transfer of a decedent’s taxable estate, also known as the gross estate, at death. US citizens and residents dying after 31 December 2012 are subject to a top estate tax rate of 40% and are entitled to a $5 million estate tax exemption,which is adjusted annually for inflation ($5.25 million for 2013). Nonresident aliens are also subject to a top estate tax rate of 40% but their estate tax exemption amount is only $60,000 which is not indexed for inflation.

The US imposes an estate tax liability on all US citizens and residents. See Section 2.2 for a discussion of who is a US resident and a nonresident alien for estate tax purposes. The estate tax will ultimately be assessed upon the gross estate, less applicable deductions. For a US citizen or resident, the gross estate is the fair market value of a decedent’s worldwide assets at date of death (the taxpayer may also elect an alternative valuation date 6 months after date of death). See Section 5.1 for filing procedures.

For an individual who is neither a US citizen nor a US resident (i.e., a nonresident alien), the gross estate only includes US situsproperty owned at death. US situs property includes real and tangible personal property located in the US, stock or options issued by a US corporation, debt of a US person (except portfolio debt), deferred compensation and pensions paid by US persons, and annuity contracts enforceable against US obligors. It does not include US bank deposits, insurance on the life of a nonresident alien or pensions payable by non-US persons.

The Internal Revenue Code (IRC) determines the situs of different types of property, the treatment of which may be modified through the application of estate and gift tax treaties that the US has concluded with various countries (see Section 1.1).

Retained interests

Due to retained interest rules, the reach of the estate tax is broader than simply the assets a decedent owned at death. Notwithstanding attempts to make lifetime transfers, some transferred property may be deemed to remain within the decedent’s gross estate at his or her death. This applies to property subject to the following retained interests:

• Certain gifts made within 3 years of death
• Transfers with a retained life estate
• Transfers taking effect at death
• Certain annuities
• Interests owned jointly
• Transfers that provide for broad powers of appointment
• Revocable transfers

In each case, the IRC applies rules to govern the circumstances in which assets that the decedent attempted to transfer are nevertheless included in the gross estate of the donor. The definition of the gross estate of a nonresident alien is “that part of his gross estate … which at the time of his death is situated in the United States.” Therefore, the estate will be subject to the same definitions of retained interests or powers as those that apply to the estate of a US citizen or resident alien — limited by the situs rules.

Situs rules provide that property subject to the retained interest transfer rules will be deemed situated in the US if such property was so situated either at the time of transfer or the time of death. This presents a number of issues for estate planning with respect to nonresident aliens. A transferor should therefore remain aware that transferring US property into a foreign entity may not convert the property to foreign situs property, even if the foreign entity no longer holds US property at the date of death.

Basis

All property subject to the estate tax receives a step-up in basis to its fair market value on the day of the decedent’s death. Each transferee’s basis in property received by a decedent is its fair market value for federal income tax purposes regardless of the transferor’s historical cost or basis adjustments.

State estate tax(許多州政府也有各自的房地產遺產稅)

Many states have a state-level estate tax. Where such taxes apply, the state-level estate tax is normally significant. Also, state tax rules for determining residence do not necessarily parallel the federal rules. Therefore, any nonresident alien should also seek state tax advice to determine potential estate tax and informational filing requirements for property situated in a given state. A decedent’s estate may be permitted an estate tax deduction at the federal level for any state estate taxes paid.

1.2 Gift tax(美國徵收贈與稅)

US citizens and resident aliens are subject to gift tax on transfers of all property, tangible and intangible, regardless of the location of the property. See Section 2.2 for a discussion of who is a US resident and a US nonresident alien for gift tax purposes. Gift tax applies to the fair market value of the transferred assets as of the date of the gift.

An annual, per donee exclusion (annual exclusion) exists that is indexed for inflation ($14,000 in 2013), which offsets tax on gifts of present interests. Transfers on behalf of a donee directly to a service provider for qualifying medical expenditures or to an educational institution for educational expenditures are exempt from the gift tax.

US citizens and resident aliens are subject to a top gift tax rate of 40% and are entitled to a $5 million gift tax exemption which is adjusted annually for inflation ($5.25 million for 2013). The US gift and estate tax are unified — there is only one exemption for both gift and estate tax purposes. Therefore, gifts made during an individual’s lifetime will reduce his or her estate tax exemption.

Gifts by US citizens or resident aliens to a US citizen spouse are entitled to an unlimited marital deduction and, therefore, do not incur gift tax. However, for transfers to a non-US citizen spouse, the marital deduction is limited to transfers of up to $143,000 in 2013 (as indexed for inflation). This is an annual limitation. See Section 5.2 for filing procedures.

Unlike US citizens and residents, nonresident alien individuals do not receive a lifetime gift tax exemption, but are entitled to use of the annual exclusion amount. Thus, every transfer of US situs property by a nonresident alien in excess of the gift tax annual exclusion ($14,000 in 2013) is subject to gift tax. Nonresident aliens must generally pay gift tax on transfers of real property and tangible property located in the US. Intangible property, including stocks and bonds, is generally exempt. Nonresident aliens, citizens and residents share the same gift tax rates. See Section 2.2 for a discussion of who is a US resident and a US nonresident alien for gift tax purposes.

1.3 Real estate transfer tax(美國徵收房地產移轉稅)

Individual states, counties and municipalities may impose a transfer or recordation tax on conveyances of real property. Generally, the transferor (individual or entity) remains liable for any tax due upon transfer; however, local customs vary as to how such costs are allocated among the transferor and transferee. Furthermore, indirect transfers of real estate through the sale or exchange of stock or partnership interests may also result in transfer taxes if the entity itself owns real estate. Although no federal transfer or recordation tax exists upon a transfer of real estate, if the underlying transfer constitutes a sale, the transaction may trigger both state and federal income taxes. Exceptions to the general rule may apply in situations where no change in the beneficial ownership of the property occurs, e.g., when the transfer occurs for purposes of securing financing or if the owner transfers property to a revocable trust controlled by the original property owner.

1.4 Endowment tax

No endowment tax laws exist in the US.

1.5 Transfer tax

A minority of states independently retain inheritance tax regimes. Generally, inheritance tax provisions do not impose taxes on transfers to spouses and descendants. Although, in the limited circumstances where inheritance taxes do apply, the impact can result in significant tax burdens, with rates ranging up to 20%.

1.6 Net wealth tax

US federal law does not impose a net wealth tax, but individual localities may impose such a tax on certain real and personal property interests. If at all, property subject to tax at the state and local level includes real estate, vehicles, boats, aircraft, livestock and intangible personal property. The tax generally only subjects real property or personal property physically situated within the specific taxing locality to this tax. Intangible property, if taxed at all, is generally taxable only to individual taxpayers residing within the locality, whereas personal property used in a trade or business carried on in the state or locality can subject individuals to tax based on their contacts with a taxing jurisdiction instead of on the basis of their residence.

1.7 Expatriation (exit) tax

Before 17 June 2008, the US did not have an exit tax. However, reporting requirements and potential US income tax liability still burdened former US citizens and former long-term residents under a complex set of rules generally in effect for each expatriate for 10 years following expatriation.

Effective from 17 June 2008, the new US exit tax regime subjects certain individuals known as covered expatriates to immediate taxation on the net unrealized gain in their property exceeding $600,000 (indexed for inflation; $668,000 for 2013). The tax treats covered expatriates as if they sold their worldwide property for fair market value the day before expatriating or terminating their US residency. In general, covered expatriates include US citizens and long-term residents (green card holders for any part of 8 tax years during the preceding 15 years) who have a 5-year average income tax liability exceeding $124,000 (indexed for inflation; $155,000 for 2013) or a net worth of $2 million or more. This treatment applies to most types of property interests held by individuals.

The above rules also affect the taxation of certain deferred compensation items (including foreign and US pension plans), interests in and distributions from non-grantor trusts and certain tax-deferred accounts (e.g., 529 plans, Coverdell education savings accounts and health-savings accounts) by accelerating the taxation of these amounts absent certain exceptions.

At the election of the taxpayer and subject to Internal Revenue Service (IRS) approval, the expatriating taxpayer may defer payment of the exit tax upon presentation of adequate security. This tax deferral election remains irrevocable, carries an interest charge and requires the taxpayer to waive any treaty rights with respect to the taxation of the property.

US citizens or resident aliens receiving gifts or bequests of more than $14,000 (indexed for inflation in 2013) from covered expatriates are taxed at the highest gift or estate tax rate currently in effect (40% in 2013). Under the general US gift tax rules, the IRS assesses the tax on the donor. However, in situations where a covered expatriate makes a gift or bequest to a US citizen or resident, the IRS imposes the gift tax liability on the donee. This rule does not appear to have a time limit either. So, the tax on gifts or bequests from a covered expatriate to a US citizen or resident may be assessed at any time when the receipt of such a gift or bequest occurs after the expatriation of the covered expatriate.

1.8 Generation-skipping transfer tax

In 1986, the US Congress enacted a generation-skipping transfer (GST) tax designed to prevent wealthy individuals from transferring property to heirs more than one generation removed from such individuals and thereby allowing that property to pass without any estate or gift tax liability assessed to the generation(s) in between the transferee and transferor. The GST tax is imposed on all direct transfers to skip persons and on taxable distributions and taxable terminations by trusts that have skip persons as beneficiaries. The IRC defines a skip person as someone who is 2 or more generations below the transferor or a trust for which all beneficiaries are skip persons. Generation-skipping transfers that are subject to GST tax are taxed at a rate of 40%. There is a GST exemption of $5 million which is adjusted annually for inflation ($5.25 million for 2013). The GST exemption is in addition to the gift and estate tax exemption.

General

The GST tax potentially applies to all transfers of a US person’s worldwide assets. See Section 2.2 for an analysis of who is deemed a US person. As stated above, the GST tax applies to any transfer from one taxpayer to a skip person or any donee assigned to a generation 2 or more generations below the transferor. For taxable terminations, the trust is liable for the GST tax on the fair market value of the assets in the trust at the time of the taxable termination. For taxable distributions, the beneficiary is liable for the GST tax on the fair market value of the property received. Similar to the estate tax, this is a tax-inclusive result. For direct skips, the the transferor is liable for the GST tax on the fair market value of the property transferred at the time of the transfer — a tax-exclusive result like the gift tax.

For GST tax purposes, a nonresident alien can transfer non-US situs property without the transfer triggering GST tax, but transfers of US situs property do trigger the GST tax regime — whether covered by applicable exclusions or exemptions or taxable in nature. The definition of US situs property depends upon whether the transfer constitutes a gift or bequest. Lifetime gift transfers use the same situs rules as the gift tax, and bequests use the same situs rules as the estate tax. In addition to the application of general situs rules, estate and gift tax treaties the US has concluded with various countries may also modify the situs and treatment of an asset. See Section 1.1. Additionally, the GST tax also excludes property exempt from taxation by the gift tax annual exclusion or the qualified educational and medical expenses exclusion.

GST tax exemption

US citizens, US residents and nonresident aliens have the same GST tax exemption amount. A taxpayer may irrevocably allocate GST tax exemption to any property transferred during life or at death. The individual or the individual’s executor can make the election on a timely filed gift or estate tax return. GST tax exemption is automatically allocated to direct skip transfers and indirect skip transfers (a transfer to a trust in which skip persons are beneficiaries) up to the total amount of the transferor’s remaining GST tax exemption, without further action by the transferor to affirmatively alter this allocation.

The United Kingdom (UK) has a unified estate and gift tax called inheritance tax (IHT). IHT applies to the value of an individual’s estate when he or she dies (in which case he or she is deemed to make a transfer of the whole estate immediately before such time) and to certain transfers or gifts made during the individual’s lifetime. The tax applies on the basis of the loss to the donor’s estate that arises by reason of the transfer of value.

Adjustments are made to property that increases or decreases in value by reason of an individual’s death (i.e., life insurance policies that mature on death and form part of the deceased’s estate).

Certain other events give rise to deemed transfers of value (e.g., deliberate depreciatory transactions), and sales at an undervalue or where a person’s interest in certain trusts comes to an end or where a close company (broadly one in the control of 5 or fewer persons) makes a disposition. In addition, certain trusts are subject to 10 yearly inheritance tax charges and charges when an asset is distributed out of trust.

Types of transfer

Essentially 3 types of transfer for IHT purposes. These are:

Exempt transfers

As noted in 4 below, certain transfers, in lifetime or on death, attract special exemptions such as gifts to charities and spouses. These attract no tax.

Potentially exempt transfers (PETs)

These are certain lifetime transfers that only become chargeable if the transferor dies within 7 years of making the gift. Types of gift that fall within this category include outright gifts from one individual to another.

It should be noted that the potential tax exposure, which would arise on death, can normally be insured at quite competitive rates.

Chargeable transfers

These are immediately chargeable and will utilize the nil-rate band (see Section 4 below) and any available annual allowances, with any excess being liable at 20% (and potentially higher taxes if death occurs in the following 7 years). Common lifetime chargeable transfers include transfers to a trust or to a company that is not 100% owned by the transferor.

Transfers on death are fully chargeable at 40% unless specific reliefs are available (e.g., business property relief) or the transfer is exempt (e.g., a bequest to a spouse (to the extent that the spouse exemption is unlimited — see Section 4) or to an exempt person such as a UK-registered charity).

Transfers by non-UK deemed domiciliaries

With respect to the 3 types of transfers set out above, it is important to note that where an individual is non-UK deemed domiciled (as set out in section 2.2), then these transfer rules only apply to assets that are UK situs.

Gifts with reservation

A gift where the donor has reserved or retained some direct or indirect benefit or enjoyment over the property given away is treated as being part of the donor’s estate for tax purposes until the reservation is removed. It should be noted that this does not affect the normal tax consequences on making the gift; although if ultimately this causes potential double taxation, regulations provide appropriate offset to avoid this. For example, a gift to a trust of which the settlor is a beneficiary may trigger a lifetime tax charge at 20% whilst still remaining within the settlor’s estate for IHT purposes. The release of the reservation is regarded as the making of a potentially exempt transfer. These provisions can also be triggered by any informal non-binding arrangement made with the recipient of the gift, to provide a benefit in some indirect way to the donor.

Pre-owned assets charge

Although this is not a transfer tax, this income tax charge depends on whether or not property is included in a person’s estate for IHT purposes. The provisions were introduced to counter planning measures that gave the donor continued benefit from the assets given away, but which did not fall within the gifts with reservation legislation. From 6 April 2005, where a donor has previously owned an asset (either tangible or intangible) and no longer does so, but arrangements have been made to give him or her continued enjoyment of such property, without the asset forming part of his or her estate for IHT purposes, an income tax charge is imposed on him or her, broadly based on the value of the benefit he or she receives. The charge applies where there was previous ownership by the donor at any time since 17 March 1986, and complex rules cover situations where substitutions and replacements have been made by the donee since then. Gifts of cash can also cause the provisions to apply if made within the prior 7 years.

1.2. Gift tax

There is no specific gift tax in UK law although the above sets out circumstances when lifetime gifts can trigger an IHT charge. Additionally, lifetime gifts (other than to a spouse) are treated as disposals for capital gains tax purposes.

1.3. Real estate transfer tax(英國有房地產移轉稅)

The UK levies a stamp duty land tax charge on transfers of land and buildings, at rates ranging from 0% to 7% (for residential properties in excess of £2 million). The duty is charged on the purchaser of the land or property. Gifts of land and buildings for no chargeable consideration do not, however, realize a charge.

As well as this, a special stamp duty land tax (SDLT) rate of 15% is now payable on the acquisition of residential properties above £2m by ‘non-natural persons’, such as companies (which are defined as bodies corporate), collective investment schemes and partnerships where at least 1 of the partners is a company (irrespective of whether these are UK or non-UK entities). These changes may affect many individuals with offshore structures who use Special Purpose Vehicles or offshore trusts to hold UK property and will not be limited to those who have engaged in SDLT planning.

An annual tax charge (known as the Annual Tax on Enveloped Dwellings “ATED”) equivalent to between 0.3% and 0.75% of the property value (but capped initially at a maximum of £140,000 p.a.) will apply to those interests held by non-natural persons from 1 April 2013.

1.4. Endowment tax

There is no endowment tax in the UK.

1.5. Transfer duty

There is no specific transfer duty in UK law (other than for real estate), although the above sets out circumstances when lifetime gifts can trigger an IHT charge.

1.6. Net wealth tax

There is no net wealth tax in the UK. However, an annual ATED charge (mentioned above in Section 1.3) is to apply from April 2013 for residential properties in excess of £2 million held by ‘non-natural persons’.