If you hold US shares or ETFs as a non-US expat, two rules can quietly cost your family a fortune. Here is how they work — and how to plan around them.
US markets are where much of the world invests — and for good reason. But for a non-US expatriate, holding US-listed shares and funds carries two tax exposures that are easy to miss and expensive to ignore. Both are entirely plannable, provided you know they exist before, rather than after, the fact.
Trap one: 30% withholding on dividends
When a non-resident alien holds US stocks or funds, the US withholds tax on dividends at source — at a default rate of 30%. For an income-oriented portfolio, that is a material and permanent drag on returns. The good news is that the correct treaty position and structuring can often reduce this rate substantially, and the choice of where a fund is domiciled can change the outcome entirely.
Trap two: up to 40% US estate tax on death
This is the one that catches families off guard. US-situs assets — including directly-held US shares — above just US$60,000 can expose a non-resident alien's estate to US federal estate tax at rates rising to 40%. Unlike US citizens, non-residents do not get the large lifetime exemption. A substantial US equity holding can therefore trigger a very large liability at exactly the moment a family is least equipped to deal with it.
How to plan around both
None of this means avoiding US markets. It means holding US exposure in a way that manages these rules. Common approaches include:
- Gaining US-market exposure through appropriately-domiciled (e.g. Irish-domiciled) funds rather than direct US-situs holdings
- Using tax-efficient wrappers or offshore structures that sit outside the US estate-tax net
- Reviewing the treaty position that applies to your residency and structuring dividends accordingly
- Sizing life cover to fund any residual estate-tax liability so heirs are never forced to sell
The key is that these are design decisions, best made when a portfolio is built — not discovered years later. If you hold US equities and no one has ever raised these two points with you, it is worth a conversation.
This article is illustrative content provided for information only and does not constitute financial, tax or legal advice. Tax rules and thresholds change and depend on individual circumstances and jurisdiction. Always seek personalised professional advice.