US Federal Estate Tax: The Hidden Tax Exposure for Irish Investors

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US Federal Estate Tax: The Hidden Tax Exposure for Irish Investors

Many Irish investors assume that US Federal Estate Tax only applies to US citizens or individuals living in the United States. However, this is not always the case. Irish residents who hold certain US assets, including shares in US-incorporated companies, may create an unexpected tax exposure for their estate.

Example

Consider the example of John, who lives in Cork and has worked for a US multinational for over 20 years. During that time, he has accumulated shares in his employer worth €100,000. He also holds a further €50,000 in US company stocks through an investment portfolio. Under the terms of his Will, John’s assets will pass to his wife on his death.

Although John is Irish resident and domiciled, his estate may still have a US tax exposure. Under the Ireland/US tax treaty, assets such as real property and shares are taxable in the country where the asset is located or where the company is incorporated. Assets such as bank accounts are taxable in the jurisdiction in which the deceased was domiciled at the date of death. This means shares in US companies are treated as US-situated assets, giving the United States primary taxing rights for US Federal Estate Tax (FET) purposes.

The current top rate of FET is 40%. While US citizens benefit from a much higher exemption threshold of $16,000,000, the exemption available to non-resident, non-US citizens is only $60,000. As a result, even a relatively modest holding of US shares can give rise to a filing requirement and potential tax liability.

The Ireland/US tax treaty applies to inheritance tax, but not gift tax, and Irish Revenue will allow a credit for the US tax paid. However, there can be a mismatch between the jurisdictions on how inheritances are treated. In Ireland, transfers between spouses are exempt, however in the US, such transfers between non-US citizen spouses are subject to FET. This means that if John leaves his estate to his wife, there is still a liability to US FET.

There can also be practical complications for executors. In many cases, registrars or brokers may not release US shares to an estate until the relevant US tax filings have been completed and formal clearance has been obtained from the IRS.

Conclusion

If you hold shares or investments in US companies, it is important to consider whether your estate could be exposed to US Federal Estate Tax. Advance planning can help identify potential liabilities, reduce delays for your executors and ensure your estate plan operates as intended.

Reach out to us if you hold US investments and would like advice on the potential tax implications for your estate.

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Everything you need to know about Pillar Two

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Everything you need to know about Pillar Two

The Irish Revenue have now implemented the Pillar Two tax rules which may have consequences for Irish companies who are part of a multinational group.

To determine whether your company may be liable to file additional tax returns and pay a top up tax, we have prepared FAQs to provide you with the key characteristics of the Pillar Two Tax rules.

Who do the Pillar Two Rules apply to?

Multinational groups with an annual revenue exceeding €750 million. The test is based on the two of the four Fiscal Years immediately preceding the tested Fiscal Year.

What do these groups have to do?

The pillar 2 rules require these groups to pay minimum corporation tax of 15% on income earned in each jurisdiction in which they operate

If the tax rate is lower than 15% in a jurisdiction what must they do?

If the effective tax rate in a jurisdiction is below 15%, the new top-up tax may be levied.

If a top up tax is required, it is collected in one of three ways;

  1. Income Inclusion Rule:
  2. Qualified Domestic Top-up Tax:
  3. Undertaxed Profit Rule

These options can be discussed in detail if the Pillar Two rules apply to your group.

When do these rules come into effect?

Ireland has introduced the IIR and QDTT with effect for accounting periods beginning on 1 January 2024.

The UTPR will take effect for accounting periods commencing from 1 January 2025.

When should I register for the Pillar Two Taxes?

Within 12 months of the end of the first fiscal year in which the entity is subject to tax.

For example, a company who will be liable to the IIR and QDTT for 2024, must be registered for those taxes by 31 December 2025.

If they are then liable to UTPR, they must register by 31 December 2026.

What reporting obligations does a company have if they are within scope of the Pillar Two Rules?

They must submit a top up tax information return to Revenue within 15 months of their year-end. For the first year being within scope, this deadline is extended to 18 months.

E.g. a company with a December year end would be required to file a return by 30th June 2026 in their first year, and 30th March thereafter.

Are there any exemptions available from the Pillar Two Rules?

There are safe harbours available that we can discuss if the Pillar Two rules apply to your group.

Please feel free to contact us to discuss these new tax rules if you think they may apply to you.

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