Succeeding President Donald Trump’s signing of the Tax Cuts and Jobs Act (TCJA) in 2017, the US transfer tax system has seen its most significant reform in over 30 years. Transfer tax comprises gift tax; on property transferred during lifetime, and estate tax; imposed on property transferred at death, and under the TCJA, the exclusion rates of these taxes have doubled from $5.49 million to $11.18 million for individual US citizens. These increased tax inclusions are very generous to US citizens, protecting the majority of them from transfer tax, but these new laws do not apply to non-US citizens or those non-domiciled (non-US persons for ease of reference) meaning they remain subject to estate and gift tax.
Regarding gift tax, while US citizens are broadly liable, there are no exclusion thresholds for non-US persons and they remain subject to gift tax on gratuitous transfer of tangible property situated or deemed in the US. Additionally, there is an unlimited marital gift tax threshold allowed for transfer to US-citizen spouses but to non-US spouses, there stands a threshold of $152,000.
There are further limitations for non-US persons concerning estate tax; they are only eligible for an exclusion rate of $60,000 compared to $11.18 million (for US-citizens). Furthermore, while unlimited property can be transferred to the spouse of the deceased if they are a US-citizen, transfers to non-US spouses do not qualify for this unlimited threshold and therefore are subject to tax deductions.
Conclusively, because the benefits of these tax changes for non-US citizens are limited in comparison to US citizens, this proportion of the population should take appropriate advice to understand their estate and gift tax exposures in relation to their US situated assets.