In this blog from our US tax team, we look at President Biden’s plans for significant tax rises for both high net worth individuals and US corporations. We have blogged on some of this before (see link) but things have moved on significantly since then.
By way of reminder, unlike many of our competitors based in the UK we actually have a specific US team based in London providing US tax private client services. For further information on the services we provide for our US clients please follow this link.
Democratic legislators have now produced detailed legislation intended to give effects to the tax elements of President Biden’s “Build Back Better” agenda. This won’t be the final version of the law, it is highly likely to be modified especially because Biden only has a tiny majority in the Senate. Both Senators and Congresspeople will be considering the impact of the proposed changes on their electorate especially where this includes a significant number of high-net-worth individuals.
The list below is not comprehensive, there are a whole raft of tax changes being proposed. We have focused below on personal taxes, corporations and certain Estate Tax changes.
• Raise the top individual income tax rate to 39.6 percent for single filers making above $400k for head of household filers above $425k, and for joint filers above $450k;
• Create a 3 percent surcharge on modified gross adjusted income above $5m;
• Prohibit Individual Retirement Accounts (IRAs) contributions when balances reach $10 million and accelerate required minimum distributions for those accounts;
• Expand the base of the 3.8 percent Net Investment Income Tax to apply to active business income for passthrough firms;
• Increase the top capital gains tax rate from 20 percent to 25 percent, and adjust the top capital gains tax bracket to $400k for single filers, $425k for head of household filers, and $450k for joint filers;
• Extend the holding period for carried interest from three years to five years;
• Return to a progressive corporate income tax rate structure with a top rate of 26.5 percent applying to corporate income above $5 million;
• Create a new limitation on interest expense deductions for certain multinational corporations;
• Make some detailed changes to the GILTI/QBAI and FDII rules;
• Reduce the estate tax exemption beginning in 2022 (currently scheduled to occur in 2026) to $6,020,000, and make related changes to the unified estate tax credit;
• Change the treatment of certain trusts such that:
- assets in grantor trusts are now to be included in the deemed owner of the trusts estate at death; and
- distributions from a grantor trust during life of the deemed owner are to be considered completed gifts where they are made to any party other than the owner or spouse of the owner.
• A termination of the current $11,700,000 estate and gift tax exclusion returning it to $5m indexed for inflation. That is likely to mean the exemption will be around $6,030,000 from January 2022;
We will continue to update you as things progress. In the meantime, please do contact our dedicated US tax team if you want to discuss your own tax situation or how any of the above might affect you or your family.
