If you are dealing with an Estate in the UK that has assets in the US over a certain value then you may have come across the expression Federal Transfer Certificate or perhaps this was referred to as preparing a US Gift Estate & Gift Tax return. This is a complex matter and not for the faint hearted, fortunately we can assist.
What is the Federal Transfer Certificate
The Federal Transfer Certificate is issued by the IRS (Internal Revenue Service) in the US. This is a very important part of the probate process because by ensuring you have filed the correct information with the IRS ensures you have fulfilled your obligations correctly. Without doing so you leave yourself vulnerable to prosecution. Even though it may be that there is no tax to pay in the US you must show to the IRS there is none by filing the correct paperwork.
US Tax Treaty
When dealing with an estate for probate, there is a Tax Treaty between the UK and the US, this is known as the US-UK Estate & Gift Tax Treaty and specifically detailed under article 8(5). In most probate estates this would mean there is no tax to pay to the IRS in the USA. Contact us for further information and help in dealing with the Federal Transfer Certificate. A point to note however is that in terms of the IRS in the US they are actually slower than our own HMRC (Inland Revenue) and typically to obtain the correct clearance takes around 6-12 months.
What can I do without the Federal Transfer Certificate?
If the asset in the US relates to stocks, shares and securities, without the correct Federal Transfer Certificate in place, some Transfer agents would still transfer or sell the stocks. They would do this without holding back any Witholding Tax this is because it is your responsibility to file the correct papers. They of course would insist that the Medallion Signature Guarantee is fixed to the stock transfer form and a Grant of Probate or Letter of Administration. But this is the time where the IRS could look to create problems for you. Do not overlook this process even if you think that it has all been done. Having sold or transferred the shares is not necessarily the end of your duty. We have know clients to fall into this trap.
UK Estate Tax return
Something that is very easily overlooked when filing the UK part of the inheritance tax process is whether there are overseas assets. Part of successfully claiming the tax treaty exemptions from the IRS is to ensure that the correct values were filed with the UK tax authorities. If they do not match a Corrective account must be filed. Do not think you can simplify the UK process by adding the value of the foreign assets into the UK assets and thus avoiding forms IHT400, this is 100% the wrong thing to do. If the IHT forms submitted to the UK Inland Revenue do no match the information filed with the US Tax authorities you can certainly expect a letter from one or the other to drop through your letter box.
If you need help with the Federal Tax Clearance and or obtaining the Federal Transfer certificate then call us.