Takeover Confirmed: Revisiting the Biden Tax Policy Proposal 2021

1 February 2021

Here, we’re revisiting the Biden Tax Proposal, now that his administration takeover has been confirmed. How will it impact Capital Gains Tax, as well as Estate and Gift Tax.

If you’d like to read this later, you can download the PDF copy here:

Now that the US has a new president, there will inevitably be a lot of change for US citizens, both in the US and those living and working abroad.

With an evenly split senate, it may be easier for Biden to pass some of his proposed legislation that would have been impossible if there was a republican majority. Even a small majority in a vote can make life easier for him.

When reviewing the Biden taxes & policy change, two of the most pertinent changes could be those planned for Capital Gains Tax and Estate Planning.

Biden Tax Policy: Capital Gains Tax changes

Capital Gains Tax will change from a flat 20% to being taxed in line with income rates which are proposed to increase from 37% to 39.6% for the highest band (more than $400K).

It is unclear whether this increase in Capital Gains Tax includes the additional 3.8% tax applied to net investment income. If this is the case CGT could be as high as 43.4%.

However, there are some practical things you can do to reduce your Capital Gains Tax liabilities.

• Long-term investments: If you hold stock for a long time you will pay less CGT so selling early may not be as beneficial as it seems.

This can also mean anything bought more than a year ago can be considered long-term so ensure you check the trade date of the purchase to sell at the most beneficial time.

• Tax-deferred retirement plans – Investing in a retirement plan means you won’t have to pay immediate taxes. It is also possible to use this plan for investments which won’t be subject to CGT.
• Offset gains with capital losses – Essentially if you sold two stocks – one at a loss and one at a gain – the loss of one can be offset against the gains of another therefore reducing the CGT owed.

Biden Tax Policy: Estate and Gift Tax increase

The Estate and Gift Tax rate will possibly increase from 40%-45% and the tax exemption rate will decrease from $11.58m to $3.5m and $1m for lifetime gift tax exemption.

Essentially this restores the levels back to those of 2009. There are, however, some ways of taking advantage of the allowances to reduce the tax owed.

• Double-up – Married couples (or civil partnerships) have the same allowance each but by combining they are able to gift up to $30k of property tax free, per year.
• Gifts to spouse – If your spouse is a US citizen all gifts are tax free, but if they are not a US citizen the limit of tax-free gifts is $157k.
• Timing is everything – The gift allowance runs on the calendar year, and you are unable to carry over allowance from one year to another. However, you are able to spread a large gift over multiple years to reduce the gift tax due.
• Gifts to children – Gifts can be left in trust to your children, but they must own it outright before they are 21 years old. If they are under 18 there has to be an adult to manage the property for them.

We’ve revisited Biden Taxes – so what next?

With the situation being so uncertain, it is likely you will be watching the development over the next few weeks with bated breath. Instead you could start the conversations and find out what your options are and how such changes could affect you.

If you think some of these tax changes could affect you, or you would like clarification, give us a call today and we will offer advice on what the best plan of action could be for you at this time.