US Estate Tax risk for investors?

🤝 Help
1

My question is whether or not a client of Trading 212 faces the following potential problem, I ask it because shares with Trading 212 are actually held with Interactive Brokers, a US broker.

As I understand, there is a serious problem for non-US citizens, not US residents, in holding shares with a US-domiciled broker (like Charles Schwab, and perhaps Interactive Brokers LLC) in that on the investor’s death, Schwab will not release the US company shares to a UK executor until a US estate tax form 709 has been filed with the IRS and a Transfer release obtained from the IRS. This is complex and the IRS can easily take a year to complete the work. Meanwhile the account is frozen.

For a UK resident who is not a US citizen the UK-US treaty eliminates liability for US estate tax, but there is still the hassle of obtaining the IRS transfer form. My spouse would not be able to do this without professional lawyer/accountant help, and the cost of that could cut a long way into all savings I had made in transaction fees compared to using a UK broker who does not require an IRS transfer release, with risk of a year’s delay and costs. I am hoping someone can tell me that is not a risk when investing with Trading 212.

3 Likes
2

I believe that IBKR UK is a separate entity and not subject to the rules of the IRS, the same way it has different trading rules to the American broker.

3

This is a very good point. Can @admins clarify this?

4

Hello,

T212 holds client assets within an omnibus account at IB, so this will not affect you. In the unfortunate event of an investor’s death, we will release the assets as any other UK broker. Just bear in mind that we do not facilitate in-specie transfers at the moment, so any withdrawals will have to be in cash.

2 Likes
5

Thank you @Martin for answering. That is good to know.

Since under current UK law investments receive a step-up in their basis cost at an investor’s death the sale of the shares for cash should not a problem as only very small capital gains tax will arise. (Though I hope to live long enough to see Trading 212 introduce in specie transfer.)

3 Likes