US estate tax on Swiss estates? What investors should know
Published on 21.05.2024 CEST
At first glance, everything seems clear: A Swiss estate passes from a Swiss individual to a Swiss heir. So why should the US tax authorities be concerned? A brief overview of the US federal estate tax for investors who own or inherit US assets.
This situation isn’t new and was already addressed in a double taxation agreement between the USA and Switzerland in 1951. This agreement states that Swiss heirs may also be subject to limited estate taxation in the USA if so-called “US situs assets” worth more than USD 60,000 are present in the estate. These includes, in particular, US real estate or shares of US companies.
Filing a tax return in the US
Once an estate contains US situs assets of more than USD 60,000, the entire estate must be disclosed in the US. Depending on circumstances a tax return may need to be filed and US federal estate taxes may be due.
Tax allowances under the applicable double taxation agreement
Due to the double taxation agreement between the USA and Switzerland, higher exemption threshold often apply in practice. For Swiss decedents, this exemption threshold could potentially exceed USD 60,000. This is because the exemption threshold often depends not only on the amount of the US situs assets but also on the size of the total estate and the applicable exemption for US persons. The latter can change at any time. The following formula can be used for a rough calculation:
Example calculation for CHF 1 million in US assets with an estate of CHF 5 million: CHF:
1 ÷ 5 × tax exemption for US persons = applicable tax exemption threshold for Swiss estate
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Navigating the tax jungle can be challenging. It’s easy to fall into a tax trap. Not all taxpayers are on a level playing field when dealing directly with the tax authorities. Our tax experts negotiate Swiss tax matters on equal footing with the authorities on your behalf and obtain binding tax rulings when necessary.
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Which assets are affected by US estate tax and which are not?
US estate tax applies, in particular, to direct investments in:
- Real estate in the USA
- Shares of US companies
- Certain US bonds
- Certain investment funds from US issuers
US estate taxes primarily affect direct US investments. Foreign fund shares comprising US investments or other indirectly held US investments (e.g. via structured products) are generally not affected.
Does a non-US person with direct investments become subject to US estate tax on all their assets?
No, the non-US person is only subject to US estate tax on their directly held assets (see above). Depending on the decedent’s last country of residence, different tax allowances or even tax exemptions may apply.
Since when has this US estate tax liability on US securities existed?
Since 1951 in the current estate tax agreement between Switzerland and the USA, which is still in force today. This also applies to non-US persons.
What is the tax-free amount for a decedent in Switzerland?
Non-US persons are entitled to a one-off allowance for inherited US assets of USD 60,000. According to the current double taxation agreement between Switzerland and the USA, the exemption amount for Swiss resident decedents currently exceeds USD 60,000 and is calculated according to the formula above.
Speak to our tax experts to discover rules of thumb that you can use to better estimate the current tax situation and any tax allowances.
