Estate Tax and Inheritance Tax: Planning a US–UK Estate After April 2025

Two taxes built on different questions

The US federal estate and gift tax attaches to who you are: citizens and US-domiciled individuals are taxed on worldwide estates and gifts, wherever they live. UK inheritance tax, since 6 April 2025, attaches to how long you have lived in the UK: a long-term UK resident — broadly, resident for at least 10 of the previous 20 tax years — is within IHT on worldwide assets, replacing the old domicile test. Anyone else is generally in scope only for UK-situated assets.

The new UK test has a tail: long-term residence status persists for up to 10 years after leaving, scaled to how long you were resident. Emigrating the year before a large inheritance or death event no longer works the way older planning assumed — the clock runs down slowly, and it starts from facts already fixed.

For a US citizen settling in Britain, the two systems converge with time: US exposure from day one by citizenship, UK worldwide exposure from the tenth year of residence. The years before that threshold are the estate-planning window, in exactly the way the FIG years are the income-tax window.

The exemption gulf

The systems' bark and bite are distributed differently. The US federal estate tax exemption is $13,990,000 per person for deaths in 2025, scheduled at $15,000,000 for 2026 — so most families face reporting questions rather than actual US federal estate tax. UK IHT starts from a nil-rate band a small fraction of that size (see HMRC's current figures), with the standard rate applying above it.

The consequence: for most US–UK families, IHT is the live tax and the US side is a compliance and coordination exercise. But the coordination matters — credits between the systems are not automatic, forms are required on both sides, and non-citizen and non-domiciled decedents face far smaller US exemptions on US-situated assets than the headline figure suggests.

The 1978 estate and gift tax treaty

Separately from the income tax treaty, the US and UK have had an estate and gift tax treaty since 1978. It allocates taxing rights over death and gift transfers, provides tie-breakers and credits, and can protect against the harsher edges — including some situations involving non-citizen spouses and dual exposure. It is older than both countries' current regimes and reads awkwardly against the UK's new residence-based test, which makes professional interpretation more necessary, not less. The point to retain: a second treaty exists, it is frequently decisive, and almost nobody outside the profession has heard of it.

Gifting across the Atlantic

Lifetime giving is where the systems diverge most sharply, because they do not even agree on who pays: the US taxes the donor; UK IHT operates through the seven-year survival rule and reservation-of-benefit principles. Recurring traps:

• Non-citizen spouses. The unlimited US marital deduction applies only to US-citizen recipient spouses. Lifetime gifts to a non-citizen spouse are capped at an annual exclusion — $190,000 for 2025 — with the excess eating lifetime exemption and requiring a gift tax return.
• The annual exclusion for other recipients is $19,000 per donee for 2025; UK IHT has its own, much smaller, annual exemption regime. A gift can be simultaneously exempt in one system and chargeable in the other.
• Timing against the ten-year clock. Gifts of non-UK assets made before long-term residence begins sit outside IHT; the same gift a year later may be a chargeable lifetime event.
• Trusts. US revocable trusts, common in American estate plans, can create UK tax problems; UK trusts can create punishing US reporting. No trust should cross the Atlantic undrafted for both systems.

Wills and plans that work twice

A US–UK estate plan has to answer both systems' questions at once: what passes under which law, which spouse exemption actually applies, where each asset is situated, what the residence history will be at the likely dates, and which treaty reliefs need claiming. That usually means coordinated drafting between UK and US advisers with the tax analysis done first — and revisited at the fixed points where options close: approaching year ten of UK residence, before a marriage, before a large gift, before a return move. The theme of all cross-border planning applies here with the least forgiveness: death and gift taxes are assessed on facts as they stand, and the facts are set earlier than people think.