Tax Planning

US Tax Proposals

By London & Capital | 22 Sep, 2021

An update

Since the US Presidential election nearly a year ago, there has been a lot of noise surrounding tax proposals and in particular, tax increases for US taxpayers. The most recent tax act is a draft legislation produced by the Ways & Means Committee on Monday, 13 September 2021.

The key personal tax headlines:

  • Highest ordinary income tax bracket to raise to 39.6% from current 37%
  • Highest long-term capital gains bracket to raise to 25% from current 20%
  • A 3% surcharge to ordinary income and capital gains for those with income above $5m (a top rate of 46.4% for income tax and 31.8% for capital gains after 3.8% NIIT!)
  • 5 year holding period for carried interest preferential tax treatment
  • Estate & Gift tax lifetime exemption reduced to $5m per person from current $11.7m
  • Future Grantor trusts to be included in decedent’s taxable estate where decedent is the deemed owner
  • Any sale between an individual and their own grantor trust will be treated as a third-party sale

What to expect?

On Wednesday 15 September, the house approved the proposals by way of a vote. The proposals now face a vote in the Senate, where a united front from all 50 Democrats would be needed to pass legislation.

Whilst some changes to the proposals are expected, it would be prudent to expect the main headlines to be law before 31 December 2021.

It is possible that income and capital gains tax increases could be effective from 13 September 2021, with a split tax year approach to income and gains occurring after that date. The lower estate and gift tax allowances would be effective 1 January 2022 – leaving time for some ‘use it or lose it’ planning.

Should I act?

Consider the main headlines to become law and ask yourself

  • Do I have an increased exposure to the raised income & capital gains taxes going forwards?
  • Will the total value of my estate now be more than the reduced lifetime allowance(s)?

If the answers are yes, or if you are uncertain, then you should consider discussing these points with your advisers. This will allow sufficient time for effective year-end planning (for estate tax purposes). Please get in touch if you need help with Tax and Advanced Planning.