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US Tax

US Estate Tax on US Shares: The USD 60,000 Trap

A non-US investor who dies holding more than USD 60,000 of US shares owes US estate tax of up to 40% on the value, not the gain. The fix is to change who owns the shares.

By Suril Mehta, CA, Partner, K C Mehta & Co LLP | KCM Consultants LLC, Dubai

Published 11 November 202610 min

Key Takeaways

  • A nonresident, non-citizen (NRNC) is taxed by the US on US-situated assets at death. The effective exemption is USD 60,000, against USD 15 million for a US citizen or domiciliary in 2026.
  • On a USD 2 million US portfolio the tax is USD 732,800, even if the family has made no gain at all.
  • Shares of a US company are US-situated. Shares of a non-US company are not, even if that company holds only US stocks. This is the foreign blocker.
  • UAE families can use a UAE company. Indian families can use an Irish-domiciled ETF, an Indian LLP investing through a GIFT City AIF, or an irrevocable family trust. Each has conditions.
  • Fix this before the next large purchase. Moving an existing portfolio can trigger tax.

Introduction

Indian and UAE families buy US stocks and index ETFs in their own names because it is easy. Few realise that the US taxes the transfer of those holdings at death. The tax applies to the full market value above a USD 60,000 allowance, at rates reaching 40%. There is no offset for the amount invested, and the gain is irrelevant.

The cash-flow problem is as serious as the rate. The broker will not release the account to the heirs until the IRS issues a transfer certificate, and the IRS itself quotes 12 to 18 months to process the paperwork once it has all the documents.

How the tax works for a non-US investor

The US estate tax reaches an NRNC decedent’s US-situated property: US real estate, and shares of corporations organised under US law, wherever the share certificates are kept and even if a nominee holds them. Shares of a non-US corporation are outside the tax. Neither India nor the UAE has an estate tax treaty with the US, so no treaty relief is available to these families.

The tax is computed on the unified rate schedule in section 2001(c) of the Internal Revenue Code (IRC) and then reduced by a credit.

Taxable amount over But not over Tax on the lower figure Rate on the excess
0 10,000 0 18%
10,000 20,000 1,800 20%
20,000 40,000 3,800 22%
40,000 60,000 8,200 24%
60,000 80,000 13,000 26%
80,000 100,000 18,200 28%
100,000 150,000 23,800 30%
150,000 250,000 38,800 32%
250,000 500,000 70,800 34%
500,000 750,000 155,800 37%
750,000 1,000,000 248,300 39%
1,000,000 – 345,800 40%

Amounts in USD.

The USD 13,000 unified credit box. IRC section 2102(b) gives an NRNC a credit of USD 13,000. That figure is exactly the tax on USD 60,000 in the table above (USD 8,200 + 24% of USD 20,000 = USD 13,000), which is why the practical exemption is USD 60,000. The credit is a reduction of tax, not a deduction from the estate, and it is not indexed. Form 706-NA also uses USD 60,000 as its filing trigger (the US-situated estate, plus adjusted taxable gifts and the gift-tax specific exemption). Treaty residents of some countries get a larger, proportionate credit; India and the UAE do not.

Worked example: USD 2 million of US shares

A family invests USD 2.5 million in US stocks. At death they are worth USD 2,000,000. Assume no other US assets and no deductible expenses (in practice, deductions are limited to a proportion based on the US share of the worldwide estate).

Step Arithmetic USD
Taxable estate Value at death 2,000,000
Tentative tax 345,800 + 40% x (2,000,000 – 1,000,000) = 345,800 + 400,000 745,800
Less unified credit (13,000)
US estate tax 745,800 – 13,000 732,800
Effective rate 732,800 / 2,000,000 36.6%

This reconciles to the “roughly USD 733,000” in our LinkedIn post. The USD 500,000 shortfall against cost does not reduce it.

A common error is to treat the USD 60,000 as a deduction from the estate and then apply a flat rate to the remainder. That is wrong: the tax is computed on the whole estate through the rate table, and the USD 13,000 is then subtracted as a credit. Here is how the correct method behaves at other sizes:

US portfolio at death Tentative tax Less credit Estate tax Effective rate
100,000 23,800 13,000 10,800 10.8%
500,000 155,800 13,000 142,800 28.6%
1,000,000 345,800 13,000 332,800 33.3%
5,000,000 1,945,800 13,000 1,932,800 38.7%

Tentative tax at USD 5m: 345,800 + 40% x 4,000,000 = 1,945,800.

Blockers that work

Hold the US shares through something that is not American, so that on death the family inherits shares or units of a non-US vehicle.

UAE company (UAE families). The company buys and holds the portfolio. On death, the family inherits shares of a UAE company, which the US does not tax. In a free zone, a company that qualifies for the 0% rate on qualifying income can be considered for the portfolio income too; the key test is holding the shares for at least 12 months, failing which the 9% rate applies. See our free zone guide. A US company or US LLC does not work, because it is still a US asset.

Irish-domiciled ETF (any family). The Ireland-domiciled UCITS version of the same index fund is a non-US company. Units in it are not US-situated, so there is no US estate tax. The investor needs no US filing and no freeze on death.

Indian LLP investing through a GIFT City AIF (Indian families). Under the FEMA Overseas Investment Rules, an unlisted Indian company or LLP cannot buy US stocks directly, and an individual in India cannot set up a UAE company merely to hold a portfolio. An Indian LLP can instead invest in a GIFT City AIF, which buys the US stocks. The family owns LLP interests, not US shares. See our GIFT City AIF vs offshore fund guide.

Irrevocable family trust. A parent settles an irrevocable trust that holds the portfolio. If the parent keeps no beneficial interest and no powers over it, the US has nothing to include in the parent’s estate. A revocable trust fails, a trust where the parent is beneficiary or trustee fails, and the retained-power rules (IRC sections 2036 and 2038) are the reason. Gift and income tax on funding still need analysis. See foreign trusts as estate tax planning tools and estate tax blockers.

Route Works for Fails when
UAE company UAE-resident families Used by an individual in India (FEMA)
Irish UCITS ETF UAE and Indian investors Fund is US-domiciled
Indian LLP + GIFT City AIF Indian families LLP buys US stocks directly
Irrevocable trust Families able to give up control Settlor keeps benefit or powers
US company or US LLC No one Always US-situated

Image to redraw: attachments p01-p03 (see end).

Irish ETF vs US-listed ETF: income tax inside the structure

Estate tax is not the only difference. The US withholds tax on dividends paid to a non-US holder.

US-listed ETF held directly Irish UCITS ETF
US estate tax on death Up to 40% above USD 60,000 None (non-US company)
US withholding on dividends UAE resident: 30% (no US-UAE income tax treaty). Indian resident: 25% (treaty cap) 15% at fund level (US-Ireland treaty)
US tax on gains Not usually taxed for a nonresident alien present fewer than 183 days None at fund level; Irish exit tax is not applied to non-residents who make the declaration
Transfer certificate delay Yes, 12 to 18 months No US process
Own-country tax UAE: none on personal portfolio income. India: dividends and gains taxed under the Income-tax Act 2025; US tax creditable India: dividends and gains taxed under the Income-tax Act 2025

Dividend example: on USD 100,000 of US dividends, a UAE investor holding a US ETF directly bears USD 30,000 of US withholding; through an Irish ETF the fund bears USD 15,000, a saving of USD 15,000 a year. For an Indian resident the comparison is USD 25,000 against USD 15,000, before Indian tax. Total fund costs, tracking difference and share-class choice (accumulating or distributing) also matter.

FEMA and LRS access for Indian residents

For an Indian resident individual, the Irish ETF is an overseas investment. Under the FEMA overseas investment framework, units of an overseas fund are overseas portfolio investment, remitted under the Liberalised Remittance Scheme (LRS) within the USD 250,000 per financial year limit, with tax collected at source on the remittance. The RBI’s 2024 clarification confirmed that residents may invest in units or other instruments of an overseas investment fund. Practical access still depends on your authorised dealer bank or broker offering the fund; check availability and the reporting conditions before you buy.

What to do / practical considerations

  1. Count US-situated assets: US shares, US ETFs, US-domiciled mutual funds and any US real estate. If the total exceeds USD 60,000, you have exposure.
  2. For new money, choose the vehicle first (Irish ETF, UAE company, GIFT City route or trust) and buy second.
  3. For an existing portfolio, model the exit. Selling to restructure crystallises gain in India or the UAE, and some transfers trigger US reporting.
  4. Check the home-country rules: FEMA and LRS for Indians; free zone conditions and substance for UAE companies; the trust deed and retained powers for trusts.
  5. Keep the succession plan, will and nominee details aligned with the structure.

FAQ

Does the US tax gains when a non-US person sells US shares?
Generally no. A nonresident alien present in the US fewer than 183 days is not usually taxed on capital gains from US shares. The estate tax is different: it applies to the value at death, whether or not there is any gain.

What is Form 706-NA?
It is the US estate (and generation-skipping) tax return for NRNC decedents. The executor files it when the US-situated estate, plus adjusted taxable gifts and the gift-tax specific exemption, exceeds USD 60,000. It is due nine months after death, extendable by six months with Form 4768, and the tax is payable at the same time.

What is the transfer certificate and why does it delay everything?
It releases the US estate tax lien on the decedent’s US property. Brokers and transfer agents ask for it before they release assets. It is not needed where a US-appointed executor administers the property. The IRS says processing takes 12 to 18 months from receipt of the complete file. If the estate is below the threshold, file the affidavit route and do not send a Form 706-NA unnecessarily.

Does a UAE-resident or Indian-resident investor get any treaty relief from US estate tax?
No. The US has no estate tax treaty with India or the UAE. Only a limited list of countries have one.

Does the 40% rate or the USD 15 million figure change?
The top rate is 40%. The USD 15 million is the 2026 basic exclusion amount for US citizens and domiciliaries under the 2025 US tax legislation (Public Law 119-21, commonly called the OBBBA) and is indexed from 2027 (USD 15,480,000 for 2027 deaths). The NRNC credit of USD 13,000 is not indexed.

Talk to our US tax team. To check your own US-asset exposure, contact KCM.

Sources and last checked: 6 November 2026

This is not to be construed as legal advice. The actual advice will depend upon the facts and will have to take into consideration the case-specific facts and the anti-abuse regulations.

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