American assets could could cost you dearly

The plight of illegal Irish workers in America has been a concern and their personal finances can be very complicated. So too can the finances of legal Irish workers who return home, or Irish-based investors, both of whom have left money or assets in the USA.

The plight of illegal Irish workers in America has been a concern and their personal finances can be very complicated. So too can the finances of legal Irish workers who return home, or Irish-based investors, both of whom have left money or assets in the USA.

First, the illegal worker, let’s call him Sean X, contacted me recently. His story is typical of many young Irish builders who lost their livelihood with the economic crash. With lots of friends and family already in the US he quickly found a place to live in a mainly Irish/American neighourhood.

He found good paying, temporary jobs on building sites where sympathetic Irish/American bosses were prepared to look the other way. For the past six years he has worked hard, kept under the authorities’ radar; he isn’t registered with the IRS, doesn’t have a US driver’s license or health insurance and hasn’t returned home for fear of being caught out by emigration.

Sean’s (tax-free) hard work and the loyalty of his new tribe means he’s been able to save a remarkable amount of money - $150,000, half of which he was able to repatriate and deposit in an Irish bank. He wanted information about good investment opportunities in Ireland.

Financial advisers I spoke to about Sean X’s case were all surprised to hear that he – or more likely someone authorised by him - was able to make the $75,000 deposit. “How did he get around the ID and money-laundering requirements?” one asked.

As for what to do with the money, “he’s on his own”, said another. The advisors all suggested that too many tax, immigration and money laundering/banking violations have occurred on both sides of the Atlantic and that if and when he is caught - most likely by US or Irish tax authorities, emigration or customs officials at an airport or even his Irish bank - “he’ll be needing legal, not investment advice. He can expect is to lose a lot of dollars to taxes, penalties and surcharges.”

Meanwhile, Irish residents with perfectly legal financial assets in the United States (and the UK) have some pressing issues to deal with.

An Irish couple who contacted me invested a $10,000 lump sum in a US stock market indexed fund back in the late 1970’s when they were both legal resident immigrants. It’s now worth in the region of $150,000, such is the power of c35 years worth of compound interest. And while the annual dividends were subject to US withholding tax, and they have no further US tax liability, they’re wondering about a potential Irish tax bill.

Only by examining their original US fund document, said financial planner and adviser Marc Westlake of Goldcore Wealth Management, who specialises in advising foreign residents and Irish citizens with overseas investments, could he determine their Irish liability, either on the annual returns “which they should have been declaring to the Irish tax authorities, even if they might not have had an Irish tax bill due to double tax agreements” – or on the final encashment value.

As ‘Non Resident Aliens’ (NRA’s) however, their US tax category since they live here and not in the US and are not US citizens, Westlake warned that for so long as their fund remains in the United States, this couple are liable to US estate tax regulations “that could potentially cost them thousands”.

“Holding assets in foreign jurisdictions adds a significant layer of complexity to personal finances and is not generally recommended for the DIY investor,” Westlake told me. Under the US gift and estate tax system – the equivalent of our capital acquisition tax system - gifts or inheritances between married NRAs are not eligible for the unlimited, tax-free US marital deduction that applies to US citizens. (In the same way that such transfers/inheritance is tax-free between married couples here.)

“NRAs only enjoy a $60,000 estate/gift tax exemption, as opposed to the current estate tax exemption of $5 million for US citizens.” The estate/gift tax rate is 40% on any value over that $60,000 tax-free threshold.

In the event of the death of a husband or wife, resident here, but with assets in the US such as cash, investment funds, property, stocks and shares, etc the surviving spouse would not enjoy the tax-free inheritance of US citizens and the tax free inheritance threshold would be just $60,000, not $5 million.

Thousands of Irish people with assets in the US could be affected by these transfer/inheritance regulations, he said, “and they haven’t got a clue.”