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Biden’s proposed personal tax plan explained

19 March 2021

Democrats will now control the House and Senate for at least the next two years and, as a result, President Biden will likely be able to bring more of his tax agenda to fruition.

Unlike some of his opponents in the Democratic primaries, Biden has not pushed for a “wealth tax” but he is nonetheless focused on taxing the wealthy more heavily.

His plans include raising the highest personal income tax rate from 37%, under Trump’s 2017 Pre-Tax Cuts and Jobs Act, to 39.6%, increasing capital gains tax rates from 20% to normal rates, eliminating the step-up in basis for inherited capital assets, increasing the top rate of estate tax to 45 percent and reducing the lifetime gifts and estate tax exemption from $11.7m to $3.5m per person.

US citizen individuals are subject to estate tax on all transfers of property from one person to another on death. The current rate of estate tax is 40% (identical to the UK inheritance tax rate).

Transfers from one US citizen spouse to another US citizen spouse are exempt from estate tax. However, there is no spousal exemption for assets left by a US citizen spouse to a non-US citizen spouse and this can result in a substantial estate tax liability if proper planning is not implemented (the same principle applies under UK inheritance tax law where there is a “mixed domicile” couple).

To date the lifetime gifts and estate tax exemption of $11.7m was often sufficient to eliminate any concern over an estate tax liability but the proposed reduction of this exemption to $3.5m means that many more estates will fall within its scope.

Biden is unlikely to achieve everything he wants because the Democratic majorities in Congress are razor thin and amending tax legislation is going to take some time, not least as a result of the pandemic. That said, if you are a US person, are married to one or have any other connection to the US, you may want to review your estate planning in advance of President Biden’s plans making it through Congress, including maximising the unified tax credit and making use of lifetime and will trusts.

We advise UK connected clients on UK and US estate planning, both in isolation and in collaboration with US attorneys and accountants. If you would like advice on your position, please get in touch.

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Hannah is a dual UK/US citizen and advises UK and non-UK resident clients on matters including tax and succession planning, wills, trusts and lasting powers of attorney. She is also experienced in advising on the administration of estates, frequently with a cross-border element such as non-UK assets or a foreign domicile issue.

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Hannah Wall BA (Hons), MA
Senior associate, solicitor
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