- Indians holding US stocks face a 40% estate tax on assets above $60,000 at death
- US estate tax exemption for non-residents is $60,000, much lower than $13.99m for US citizens
- Investing in EU-domiciled UCITS ETFs can avoid US estate tax on US stock exposure
These days, several Indian investors are flocking to US equities through Portfolio Management Services (PMS) accounts, global trading platforms, and fintech apps, but many are unaware of a potential tax trap. Samir Arora, founder of Helios Capital, has warned that Indians holding US stocks directly may face a 40% estate tax if they died while owning these assets.
The US estate tax applies to foreign investors, including Indian residents, with a relatively low exemption limit of $60,000, potentially leaving heirs with a hefty tax bill. So, an Indian investor holding $200,000 in US shares would leave only $144,000 for their heirs after a 40% estate tax on the amount exceeding $60,000.
"These days everyone in India wants to invest in US stocks and fund managers are doing PMS to invest in US (where stocks will presumably be held in individual's names). Hope these investors are aware of the 40% estate tax if they pass away (applicable to foreign investors with a low threshold of only US$ 60,000). Google away, for further information, before getting carried away," Arora wrote on X.
See the tweet here:
Notbaly, the estate tax is progressive, meaning the rate increases as the estate value grows.
Reacting to the veteran investor's advice, one user wrote, "This is true, and it's surprising how few investors know this. When you invest directly in US stocks or ETFs held in US brokerage accounts, your assets can be hit by US estate tax if you pass away. This tax starts at 25% and can go up to 40%. On the total value of investments, not the gains."
Another said, "You can invest in UCITS ETFs of BlackRock , Invesco, etc. which are domiciled in the EU thus giving the benefits of investing in US stocks but without the risk of estate taxes."
A third added, "It's much better to invest through India in an FoF fund that invests in US stocks than directly investing in US stocks."
All about the US Estate Tax
The US estate tax is a federal tax imposed on the transfer of a dead person's assets to their beneficiaries. It's essentially a tax on the right to transfer property at death, and it's levied on the estate itself before distribution. For US citizens, the exemption amount is $13.99 million per individual in 2025. However, for non-US residents, the exemption is much lower, at $60,000.
Indian investors can explore alternative structures to minimise US estate tax liability. Since India doesn't have an estate tax treaty with the US, investors can consider:
Foreign-Domiciled Funds: Investing through mutual funds or ETFs based in Ireland or Luxembourg helps avoid US estate tax, as these vehicles are not classified as US assets, even if they hold American stocks.
IFSC Pooled Fund Structures: Holding US shares through pooled fund structures registered in India's International Financial Services Centre (IFSC) means individual investors are not considered direct owners of the US assets.
Corporate and Trust Structures: Establishing a non-US "blocker" company or an irrevocable foreign trust can legally shift ownership away from the individual, a strategy more common among HNIs and family offices.
Life Insurance: For those not willing to restructure, a life insurance policy can cover the estimated estate tax liability, providing liquidity to heirs.