I have a stockbroking account with a bank in London. I would like to know if stocks held from, say a US stock exchange, would be regarded as US assets or UK assets in the event of my death?
Thank you very much for your question. In preparing this answer, we have assumed that you are a South African resident and a registered taxpayer in this country.
Whether an asset is regarded as a UK asset or US asset will be determined by its ‘situs’, which is where the asset is considered to be located for legal purposes. US situs assets generally include real and tangible personal property located in the US, business assets located in the US, and the stocks of US corporations. Hence, in your case, if the stock purchased by you through the London stockbroking account is in respect of a company that was incorporated in the US, that stock would be subject to estate tax in the US. As a result, it does not matter where the stockbroking account is located.
For example, if you have a stockbroking account in South Africa through which you purchased Apple shares, the fact that Apple was incorporated in the US means that those shares would qualify as a US asset in the event of your death.
It is also important, however, to understand at what threshold would your assets qualify for ‘death tax’.
As a South African resident, you are liable for estate duty on your worldwide assets. As an individual, you only pay estate duty on your assets in excess of R3.5 million at a rate of 20% up until R30 million, and thereafter at a rate of 25% on any assets after R30 million. If you own assets outside of the borders of South Africa, such as in the UK or US, these assets can also attract a death tax – otherwise known as estate tax in the US or inheritance tax in the UK.
In the UK, the inheritance tax rate is a flat 40% and is taxed on the asset value over £325 000. As a non-resident in the US, the estate tax would be payable on the total asset value over $60 000 at a maximum rate of 40%. To prevent double taxation, South Africa has entered into an estate duty agreement with both the UK and US which allows those countries in which the situs assets are located to tax such assets.
South Africans are able to claim a credit in South Africa for the situs taxes paid in the UK and US. However, the credits are limited to a maximum of the 20% South African estate duty payable on the asset, even though you may have paid 40% in the US and UK. This essentially means that, instead of paying 20% estate duty in South Africa, you will pay 40% situs tax.