At the beginning of August, it was reported that Apple became the first company to have a market capitalization of over one trillion, i.e. more than 1000 billion. This has been the result of a rising price of Apple shares, which has gained about 80% within the last three years. Also, a look at the American stock market indices, makes immediately apparent that they achieved a much better performance than their European counterparts.
Therefore, it has been for many investors only natural to profit from the rally and also invest in Apple, Coca Cola, Amex and other US equities. However, what many investors do not realise is the issue with the US inheritance tax. Non-US citizens who are resident in Switzerland may, under certain circumstances, be subject to an inheritance tax.
The following investment categories could be affected: equities of the US companies, US real estate and, in some cases, US bonds and investment funds of the US issuers with a total volume of more than USD 60,000. This is a consequence of an agreement with the USA from signed in the year 1951.
The following calculation formula can be applied:
US assets x tax exempt amount for US citizens * / total value of estate
If an investor holds USD 2 million in US equities with a total estate of USD 25 million, the tax-exempt amount is USD 896,000. If this allowance is deducted from the US assets of USD 2 million, USD 1,104,000 will be taxed. With a tax rate of presumably 40%, the tax amount to be paid is, thus, just under USD 450,000.
In order to be eligible for this allowance, the entire estate must also be disclosed to the US tax authorities.
In principle, the US estate tax does not apply to non-US collective investment schemes or to other indirectly held US investment vehicles designed as, for example, structured products. This gives investors the opportunity to still participate in the US equity market without risking their own estate being heavily taxed. It is important that every case is examined individually in order to implement a tailor-made solution.
* The allowance for US persons is adjusted for inflation annually. For the year 2018, this amounted to USD 11,200,000
Konstantin Wyser | Partner
Your Wealth at a Glance.