This guide is for families whose lives, assets or heirs span the UK and the US, including couples where only one spouse is a US citizen. In brief, the UK now decides inheritance tax exposure by long-term residence rather than domicile, the US taxes its citizens’ worldwide estates whatever their residence, and a 1978 treaty decides who taxes first. Most double tax can be relieved, but the planning points that matter most – spouses, pensions and gifts – work differently in each country.
How do UK inheritance tax and US estate tax differ?
Both charge a top rate of 40%, but the UK taxes estates above £325,000 (up to £500,000 with the residence band, doubled for most married couples), while the US exempts the first $15 million per person. Far more US–UK families face UK inheritance tax than US estate tax.
The UK taxes what a person owns at death, plus certain gifts made in the previous seven years. The nil-rate band has been £325,000 since 2009, and the residence nil-rate band has been £175,000 since 2020/21. Both are frozen until April 2031, following the 2025 Budget.[13] The residence band applies only when a home the person lived in passes to direct descendants, and it is withdrawn by £1 for every £2 by which the estate exceeds £2 million.[14] Any unused part of either band passes to a surviving spouse or civil partner.
The US system is a unified estate and gift tax. Lifetime gifts above the annual exclusion ($19,000 per recipient in 2026) use up part of the same $15 million basic exclusion that shelters the estate at death.[1] The legislation signed on 4 July 2025 – widely known as the One Big Beautiful Bill Act, which the IRS calls the Working Families Tax Cuts legislation – set the exclusion at $15 million from 2026 and indexed it for inflation from 2027.[3][4] A surviving spouse can also use a deceased spouse’s unused exclusion (“portability”).[4]
| Feature | UK inheritance tax | US estate and gift tax |
|---|---|---|
| Who is taxed on worldwide assets | Long-term UK residents (10 of the previous 20 tax years) | US citizens and US-domiciled residents |
| Main tax-free amount | £325,000 nil-rate band, plus up to £175,000 residence band | $15,000,000 basic exclusion (2026) |
| Rate above the threshold | 40% | Graduated, 40% top rate |
| Transfers to a spouse | Exempt; limited to £325,000 if the giver is a long-term UK resident and the spouse is not | Unlimited if the spouse is a US citizen; otherwise only through a QDOT at death, or $194,000 a year in lifetime gifts |
| Lifetime gifts | Most gifts to individuals are free if the giver survives seven years | Gifts above $19,000 per recipient a year use up the lifetime exclusion |
| Non-residents | Taxed on UK assets only | Taxed on US-situs assets, with only a $60,000 exemption |
Who is within UK inheritance tax since April 2025?
From 6 April 2025, the UK replaced domicile with a residence test. A person is a long-term UK resident, and so within IHT on their worldwide assets, if they were UK resident for at least 10 of the previous 20 tax years.[16] Anyone else is within IHT only on UK assets.
For Americans in Britain, this brings US brokerage accounts, US property and US retirement accounts within the UK net after ten years of UK residence, whatever their intention to return.
Status does not end the day someone leaves. A person who has been a long-term resident keeps that status for a “tail” period after leaving, which depends on how many of the previous 20 years they were UK resident.[16]
| UK-resident years in the previous 20 | Consecutive years of non-residence needed to lose status |
|---|---|
| 10 to 13 | 3 |
| 14 | 4 |
| 15 | 5 |
| 16 | 6 |
| 17 | 7 |
| 18 | 8 |
| 19 | 9 |
| 20 | 10 |
So under UK law a Briton who has lived in the UK all their adult life and retires to Florida remains within UK inheritance tax on their worldwide estate for ten full tax years after leaving, although after several years in the US the estate tax treaty may limit the UK’s claim. An American who spent 12 years in London before returning to New York would fall out after three. Residence for each year is determined by the statutory residence test, so the count depends on the facts of each year. See our guide to moving between the UK and the US.
Separately, from April 2026 100% agricultural and business property relief applies only to the first £2.5 million of qualifying property (transferable between spouses), with 50% relief above that.[21]
How does US estate tax apply to citizens and non-citizens?
US citizens are taxed on their worldwide estates wherever they live, with the full $15 million exclusion. Non-citizens who are not domiciled in the US are taxed only on US-situs assets, and have an exemption of just $60,000.
For a US citizen living in the UK, US estate tax only becomes a cost when the worldwide estate exceeds $15 million (or $30 million for a married couple using both exclusions). Below that, the US side is mainly a filing matter.
For a British citizen who is neither a US citizen nor US-domiciled, the rules are different. US-situs property includes US real estate, tangible property located in the US, and shares in US corporations; certain bank deposits and debt obligations are treated as situated outside the US.[6] If US-situs assets exceed $60,000 at death, the executor must file Form 706-NA.[6] The unified credit available is generally $13,000, which shelters about $60,000 of assets.[7] A British investor holding US-listed shares directly in a UK brokerage account can therefore be exposed to US estate tax on quite a modest portfolio.
The UK treaty contains an important protection here. The Form 706-NA instructions describe a treaty limit under which the US tax on a UK national’s estate may not exceed the US estate tax that could have been imposed on the decedent’s worldwide assets had they died domiciled in the United States.[7] In effect, a UK national whose worldwide estate is below the US exclusion can usually reduce the US liability to nil, although a return and a treaty claim are still needed.
Non-citizens without US domicile have no lifetime gift tax exclusion, but they are generally taxed only on gifts of US real and tangible property; gifts of intangibles such as shares are usually outside US gift tax.[8]
| Status | Assets within US estate tax | Exclusion or credit | Transfers to spouse |
|---|---|---|---|
| US citizen (anywhere) | Worldwide | $15,000,000 | Unlimited if spouse is a US citizen; QDOT or $194,000 a year if not |
| Non-citizen domiciled in the US (for example, a green card holder who intends to stay) | Worldwide | $15,000,000 | As above |
| Non-citizen, not US-domiciled | US-situs only (US property, US shares) | $13,000 credit (about $60,000); UK nationals may claim the treaty limit | Limited; treaty adjustments may apply |
What happens when both countries can tax the same estate?
The 1978 US–UK estate and gift tax treaty decides which country has the primary right to tax, and requires the other to give credit for tax paid. It gives each person a single treaty “fiscal domicile”.[11]
Each country first applies its own law. For treaty purposes a person is US domiciled if they are domiciled in the US under US law, or are a US citizen who was domiciled there at any time in the previous three years; they are UK domiciled if UK law treats them as domiciled.[11] Only if both countries claim the person does the treaty apply tie-breakers. The first is a nationality rule: a UK national (not a US citizen) who has been resident in the US for less than 7 of the previous 10 years is treated as UK domiciled, and a US citizen (not a UK national) resident in the UK for less than 7 of the previous 10 years is treated as US domiciled.[11] After that come permanent home, centre of vital interests, habitual abode and nationality, and finally agreement between the tax authorities.
HMRC’s guidance states that from 6 April 2025 a long-term UK resident is treated as having deemed UK domicile for treaty purposes.[12] This interaction is new, and its application to particular facts should be checked with a specialist.
Once domicile is settled, the non-domicile country can generally tax only real property and business property of a permanent establishment in its territory. There is one important exception: the treaty does not stop the US taxing its own citizens.[11] Where both countries tax, the country of domicile or citizenship gives a credit for the other country’s tax on real and business property, and where a US citizen is domiciled in the UK, the US gives credit for UK tax on other property too.[11] Claims must be made within six years of the death or gift, or within one year of the last date on which the tax was due, whichever is later.[11]
The UK test looks back 20 years and the treaty’s nationality rule looks back 10, so they can point in different directions. Take a fictional American, not a British citizen, who lived in London for ten years, then in the US for eight, and moved back to London two years ago. They have 12 UK-resident years in the last 20, so they are a long-term UK resident, but only two in the last 10. Because they were domiciled in the US within the last three years, both countries can claim them, and the nationality rule treats them as US domiciled, limiting the UK’s taxing rights. Once they have been back in London for more than three years with no intention of returning to the US, the US claim to treaty domicile falls away, the tie-breaker no longer applies, and the UK can tax their worldwide estate, with the US giving credit for UK tax.
What if one spouse is not a US citizen or not a long-term UK resident?
Mixed-nationality marriages lose the unlimited spouse exemption in both countries. In the US, assets left to a non-citizen spouse qualify for the marital deduction only through a qualified domestic trust; in the UK, transfers from a long-term resident to a spouse who is not one are exempt only up to £325,000 unless an election is made.
On the US side, the qualified domestic trust (QDOT) must have at least one trustee who is a US citizen or a US corporation. Income paid to the surviving spouse is not subject to the deferred estate tax, but distributions of capital are, unless made for hardship, and the remaining trust assets are taxed at the surviving spouse’s death. If the surviving spouse becomes a US citizen, the QDOT tax can stop applying to later distributions, subject to conditions.[9] During life, a US citizen can give a non-citizen spouse up to $194,000 a year (2026) without gift tax, provided the gift is of a present interest.[1]
On the UK side, where the giver is a long-term UK resident and the recipient spouse is not, the spouse exemption is limited to the nil-rate band – currently £325,000 – less any amount already used.[17] The non-resident spouse can elect to be treated as a long-term UK resident, which restores the full exemption. The election is irrevocable and lapses only after ten consecutive years of non-UK residence, and HMRC warns it can make earlier transfers chargeable.[18] It brings the electing spouse’s own worldwide assets into IHT, so it is a trade-off, not a formality.
The treaty adds a specific UK relief: where a US national or domiciliary leaves property to a spouse who is not UK domiciled, 50% of its value can be exempt from UK tax where no greater exemption is available.[11]
For a mixed-nationality couple, a “simple” will leaving everything to the survivor can produce US estate tax at the first death (no QDOT) or UK inheritance tax (a capped spouse exemption). Wills and beneficiary designations on US retirement accounts need to be read together.
How will pensions be treated for inheritance tax from April 2027?
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the estate for IHT. This was legislated in the Finance Act 2026, which received Royal Assent on 18 March 2026.[20]
Until then, most pension funds sit outside the estate, which is why many people have treated a SIPP as the last asset to spend. Death-in-service benefits paid while the member was employed, dependants’ scheme pensions, joint-life annuities and trivial commutation of dependants’ pensions remain outside. Transfers to a spouse or civil partner remain exempt. The personal representatives are responsible for reporting and paying the tax, and can ask the scheme to pay it directly.[20]
Pension property held in qualifying non-UK pension schemes and section 615 schemes is also brought into scope.[20] For a long-term UK resident with US retirement accounts, unused pension wealth is therefore generally part of the IHT calculation from April 2027 whether it sits in a SIPP or a US plan, although how a particular US plan is classified is a technical point to confirm.
The IHT charge comes before any income tax. Where the member dies at 75 or over, all death benefits are taxable as the beneficiary’s income.[20] For US inherited accounts, heirs also face the US distribution rules; see inheriting a US IRA while living in the UK and UK pensions for US persons.
Can gifts reduce inheritance tax for a US–UK family?
Yes, but the two systems count gifts differently. In the UK, most gifts to individuals fall out of the estate after seven years, and regular gifts from surplus income are exempt immediately. In the US, a citizen’s gifts above $19,000 per recipient per year must be reported and use up the lifetime exclusion, even though no tax is paid until $15 million is exceeded.
The UK exemptions include a £3,000 annual exemption (with one year’s carry-forward), small gifts of £250 per recipient, and wedding gifts of up to £5,000 to a child. Gifts above these are potentially exempt: if the giver survives seven years they are free of IHT, and if death follows after three to seven years the tax on the gift is tapered to 32%, 24%, 16% or 8%.[15]
The most useful UK exemption for many cross-border families is normal expenditure out of income. There is no cap, provided the gifts are regular, made from income, and leave the giver able to maintain their usual standard of living.[15] A retired couple with income they do not spend can use it to fund grandchildren’s savings with no seven-year wait, provided they keep records the executors can use to show the pattern.
Suppose a US citizen in the UK gives £30,000 a year from surplus income to an adult child. The UK treats it as exempt. The US treats the amount above the $19,000 annual exclusion as a taxable gift, reported on Form 709 and deducted from the $15 million exclusion, with no tax due unless lifetime gifts and the estate together exceed it. In the other direction, a US person who receives gifts or bequests from a non-US individual must report them on Form 3520 if they exceed $100,000 in a year.[10]
Should US–UK families use trusts?
Trusts can be useful, but a structure that works well in one country is often inefficient, or costly to report, in the other.
A UK discretionary trust, for example, carries UK periodic and exit charges; if a US person settles it or benefits from it, it is usually a foreign trust for US purposes, which can bring annual US information returns and, in some cases, harsh treatment of accumulated income. The UK has also tightened the rules for trusts connected with people who are not long-term residents, including charges of up to 6% when trust property leaves the scope of IHT.[19] A US revocable “living trust” may be analysed quite differently in the UK. Specialist legal advice in both jurisdictions is needed before any trust is set up.
Worked example: UK inheritance tax to the second death, before and after April 2027 (computed in Edale’s planner)
Fictional households, for illustration only. Estate values are at the date of death; UK nil-rate band £325,000 and residence nil-rate band £175,000, both transferable between spouses; residence band tapered above £2 million; 40% rate; no lifetime gifts, reliefs or charitable legacies; the home passes to children. From April 2027, unused pension funds are included in the estate. Results are not guaranteed and tax rules may change. US estate tax is not modelled in Edale’s planner and is not included.
| Case | Estate | Nil-rate bands available | Inheritance tax |
|---|---|---|---|
| Married couple, second death, home to children | £1,800,000 | £1,000,000 | £320,000 |
| Same couple plus £600,000 unused pension (death after April 2027) | £2,400,000 | £800,000 | £640,000 |
| Single person, home to children | £1,200,000 | £500,000 | £280,000 |
In the first case the survivor’s estate has two nil-rate bands and two residence bands, £1,000,000 in total; the remaining £800,000 is taxed at 40%, giving £320,000.
The second case is the same couple with a £600,000 pension that has not been drawn. Before April 2027 it would normally sit outside the estate. Afterwards, it lifts the estate to £2.4 million. That does two things. It adds £600,000 to the taxable estate, and it pushes the estate £400,000 above the £2 million taper point, which removes £200,000 of the combined £350,000 residence bands. The available bands fall to £800,000, and the tax doubles to £640,000. The pension therefore adds about £320,000 of inheritance tax – more than half its own value – before any income tax the children may pay when they draw it.
The single person has only one set of bands, £500,000, so £700,000 is taxed at 40%: £280,000.
If the survivor in the second case were a US citizen, an estate of about £2.4 million would be well within the $15 million US exclusion, so no US estate tax would be expected. Whether drawing the pension earlier, making gifts, or neither suits a family depends on the whole plan; take advice.
How the Edale Wealth Hub helps
Estate planning for a cross-border family is cashflow planning with an end date: what matters is not only the tax due at death but the spending, gifting and drawdown decisions that lead to it.
An adviser working with a client can model the household across the US and UK together, year by year to age 100 and beyond, with UK inheritance tax calculated to the second death. The calculation applies the nil-rate and residence nil-rate bands, transfers them between spouses, applies the taper above £2 million, takes account of gifts and the seven-year rule, and brings unused pensions into the estate from April 2027. Because tax rules can be held at today’s thresholds or applied as legislated, the adviser can show the difference the April 2027 change makes to a particular family.
The planner’s guided what-ifs let a client see the effect of first death, of making gifts, of downsizing, or of drawing pensions earlier rather than leaving them. Scenarios sit side by side, so a family can weigh the income tax cost of drawing more from a SIPP now against the inheritance tax it may save later, with US tax on withdrawals calculated for US persons. For heirs of US retirement accounts, the Inherited IRA optimiser searches distribution schedules within the SECURE Act rules.
The planner does not model US estate tax. For most families the US exclusion of $15 million makes that a filing and structuring question rather than a cash cost, but where US estate tax, QDOTs or the treaty are relevant, US legal and tax specialists need to be involved. The Wealth Hub’s outputs are planning summaries, not tax returns or legal documents, and wills and trusts should be drafted by solicitors or attorneys in the relevant jurisdictions.
The written report is delivered through the client’s secure portal. Read more about the cashflow planner or arrange a conversation.
Frequently asked questions
Do Americans living in the UK pay UK inheritance tax on their US assets?
Only once they become long-term UK residents: UK resident for at least 10 of the previous 20 tax years. Before that, only UK assets are within UK inheritance tax. The US–UK estate tax treaty may further limit what the UK can tax where the person is US domiciled under its tie-breaker rules, so the position depends on individual facts.
How much can a US citizen leave free of US estate tax in 2026?
The basic exclusion amount is $15,000,000 per person for 2026, and it will be indexed for inflation from 2027. Transfers to a US-citizen spouse are unlimited, but transfers to a non-citizen spouse at death need a qualified domestic trust to defer tax.
Is there US estate tax on a British person’s US shares?
Potentially. A non-US citizen who is not US-domiciled is liable on US-situs assets, including shares in US companies, with a credit that shelters only about $60,000. For UK nationals, the treaty limits US tax to what would be due if they had been US-domiciled, which often removes the tax for estates below the $15 million exclusion. A US return may still be needed.
What is a QDOT and when is it needed?
A qualified domestic trust lets an estate claim the US marital deduction for assets left to a spouse who is not a US citizen. At least one trustee must be a US citizen or US corporation. Estate tax is deferred, not removed: it is charged on capital distributions, other than for hardship, and on the trust assets when the surviving spouse dies.
Will my pension be subject to inheritance tax?
For deaths on or after 6 April 2027, most unused pension funds and death benefits will be included in the estate for inheritance tax. Death-in-service benefits and dependants’ scheme pensions remain outside, and pensions passing to a spouse or civil partner remain exempt. Beneficiaries may also pay income tax on what they draw, especially where the member died at 75 or over.
How long does UK inheritance tax follow me after I leave?
If you were a long-term UK resident, status continues for between three and ten consecutive tax years of non-residence, depending on how many of the previous 20 years you were resident. Someone resident for 13 years or fewer needs three years away; someone resident for all 20 needs ten. During that tail, worldwide assets remain within inheritance tax.
Do gifts from surplus income work for US citizens?
In the UK, regular gifts from income that leave your standard of living intact are exempt immediately. In the US, a citizen’s gifts above $19,000 per recipient in 2026 must be reported on Form 709 and reduce the lifetime exclusion, though no tax is paid unless total lifetime gifts and the estate exceed it. Records matter in both countries.
Sources
- IRS — IRS releases tax inflation adjustments for tax year 2026 (accessed September 2026)
- IRS — Revenue Procedure 2025-32 (accessed September 2026)
- Legal Information Institute — 26 U.S. Code § 2010, Unified credit against estate tax (accessed September 2026)
- IRS — What’s new: estate and gift tax (accessed September 2026)
- Legal Information Institute — 26 U.S. Code § 2001, Imposition and rate of tax (accessed September 2026)
- IRS — Some nonresidents with U.S. assets must file estate tax returns (accessed September 2026)
- IRS — Instructions for Form 706-NA (accessed September 2026)
- IRS — Frequently asked questions on gift taxes for nonresidents not citizens of the United States (accessed September 2026)
- IRS — Instructions for Form 706-QDT (accessed September 2026)
- IRS — Gifts from foreign person (accessed September 2026)
- Joint Committee on Taxation — Explanation of proposed estate and gift tax treaty between the United States and the United Kingdom (JCS-23-79) (accessed September 2026)
- GOV.UK — Inheritance Tax: double taxation relief (accessed September 2026)
- House of Commons Library — Inheritance tax: a basic guide (accessed September 2026)
- GOV.UK — Check if an estate qualifies for the Inheritance Tax residence nil rate band (accessed September 2026)
- GOV.UK — Inheritance Tax: gifts (accessed September 2026)
- legislation.gov.uk — Inheritance Tax Act 1984, section 6A (long-term UK resident) (accessed September 2026)
- legislation.gov.uk — Inheritance Tax Act 1984, section 18 (spouses and civil partners) (accessed September 2026)
- HMRC — Inheritance Tax Manual IHTM47038: spousal long-term UK residence election (accessed September 2026)
- GOV.UK — Inheritance tax: anti-avoidance measures for non-long-term UK residents and trusts (accessed September 2026)
- GOV.UK — Technical note: Inheritance Tax on pensions (accessed September 2026)
- House of Commons Library — Changes to agricultural and business property reliefs for inheritance tax (accessed September 2026)