We help families who hold US accounts but live in the UK. From April 2025 the IHT rules shift to a long‑term residence test. That change can affect how your family pays tax on what you leave behind.
We will explain, in plain English, how UK inheritance tax and US estate tax can interact. We set out the main traps, the order that matters, and the practical conversations to have with advisers.
Our aim is clear. We show which assets are exposed, what can be structured, and when treaty co‑ordination is essential to limit double tax. We use real examples so you can map the rules to your family.
We won’t give one‑size‑fits‑all checklists. Instead, we explain the rules, key traps, and the type of specialist advice that makes a plan durable, not just good on paper.
Key Takeaways
- The April 2025 shift to a 10‑in‑20 test changes long‑term residence status and IHT exposure.
- UK inheritance tax and US estate tax can pull in different directions; treaty co‑ordination matters.
- Order of actions often matters as much as the actions themselves.
- Commonly owned brokerage accounts, pensions and property need careful review.
- Work with cross‑border accountants and solicitors to make plans robust.
Who this guide is for and why US-UK estates are uniquely complex
We wrote this guide for British nationals holding US shares and funds, dual‑national couples, UK residents inheriting from American parents, and returners who still hold US accounts.
Two different systems sit behind most surprises. The US taxes by citizenship and green card status. The UK uses residence and tax years. That split causes familiar double taxation and mismatch traps.
Mismatch means the same gain can be treated as different types of income in each country. That can block credits and leave families overcharged.
Common friction points
- Transparent US entities that look opaque to HMRC.
- US calendar‑year reporting versus the UK tax year.
- Different reliefs for homes and pensions that don’t line up.
Families often feel fine until a single event — a sale, a gift, a trust payment or a death — triggers a sudden tax bill. Our aim is simple.
Ask better questions early. Get advisers on both sides for treaty claims, trust and entity reviews, wills aligned to spousal relief, and pre‑arrival restructuring. That saves time and money later.
Key UK estate planning fundamentals: estate, wills and powers of attorney
We begin by laying out what legally forms your estate in the UK and why ownership matters when someone dies.
What counts includes property, bank balances, shareholdings and certain pension pots. Jointly owned assets can pass straight to the survivor. Sole assets usually form part of the estate that an executor must deal with.
Wills and executors
A will names who inherits and who acts as executor. Executors collect assets, pay debts and apply for probate when needed.
Probate is often required for substantial estates. Smaller estates or jointly held items can avoid it. Intestacy rules apply if no valid will exists and can harm blended families.
Lasting Power of Attorney (LPA)
An LPA lets someone act while you are alive. There are two types: health & welfare, and property & financial affairs. Both protect day-to-day finances and medical choices if you lose capacity.
- Cross-border issues: US accounts and foreign institutions often demand clear authority documents.
- Common oversights: outdated wills after a move, missing beneficiary nominations and impractical executor choices.
Simple steps early — up-to-date wills, LPAs and clear ownership records — reduce stress and cost for those left behind.
UK inheritance tax after April 2025: long-term residence replaces domicile
From 6 April 2025 long‑term resident status decides IHT exposure. The old focus on domicile gives way to a simple counting test based on years of UK tax residence.
The basic test: you are generally a long‑term resident if you were UK tax resident in 10 of the last 20 UK tax years.
How the 10-out-of-20 years test works in practice
Partial tax years can count. So can short returns and split years. Keep a clear record of each tax year.
- Count each UK tax year where HMRC would treat you as resident.
- Reach 10 years and you become a long‑term resident for IHT.
- Stay below 10 years if your aim is to avoid worldwide exposure.
The residence “tail” and why timing matters
Leaving the UK does not always end worldwide exposure. Long‑term residents face a residence tail that can run between 3 and 10 years.
“A move abroad may not stop worldwide inheritance tax overnight — timing can make a big difference.”
This tail affects retirement moves, second‑home sales and gift timing. Plan years ahead to avoid an unexpected tax shadow.
UK-situs assets versus worldwide assets
Non‑long‑term residents are usually subject only on UK‑situated assets. Long‑term residents are subject on worldwide assets.
Examples: UK property stays within the UK‑situ test. Overseas brokerage accounts and foreign property fall inside worldwide coverage if you are an LTR.
| Residency status | Typical IHT exposure | Planning focus |
|---|---|---|
| Non‑LTR (under 10 years) | UK‑situated assets only | Manage UK asset ownership and timing of gifts |
| LTR (10+ years) | Worldwide assets, plus residence tail | Consider trust, gifting timing and departure strategy |
| Leaving LTR (residence tail) | 3–10 years of continued coverage | Map past and future years before moves |
For a practical walkthrough of the April 2025 change and how residence tests affect IHT, see our detailed guide on UK inheritance tax in 2025.
US estate tax basics that still apply to Brits holding US investments
We summarise the key US federal rules so you can see where tax and paperwork fall. The headline numbers matter because they often exceed UK thresholds.
Headline figures: the federal estate tax exemption is $13,990,000 per person in 2025 ($27,980,000 for married couples). From 2026 the figure rises to $15,000,000 per person ($30,000,000 married).
How the US allowance compares to UK thresholds
The UK nil‑rate band is £325,000 and the standard IHT rate above that is 40%. That means families can feel safe under American limits yet face a binding UK charge.
Why ownership and location change outcomes
Where assets sit and how they are held alters both tax and reporting. Personal accounts, joint holdings and entities can be treated differently across the two systems.
- Administrative impact: even if no estate tax is due, valuation and filing still apply.
- Ownership surprises: a foreign entity may shield value for one tax system but not the other.
- Simple example: a UK resident with a US brokerage account and a UK home may owe no US tax yet trigger UK IHT on worldwide value once long‑term residence rules apply.
Using the US-UK estate tax treaty to reduce double taxation risk
When both tax systems reach into the same pot, the treaty is the first line of defence.
What the treaty does: it aims to prevent being taxed twice on the same assets. It does not wipe out all charges. Instead, it offers mechanisms to claim relief and offset tax paid in one country against liability in the other.
How relief works and why timing matters
Treaty relief applies when both jurisdictions claim an overlapping right to levy estate tax. Good records on valuations and dates are critical when making a claim.
Timing trap: if one country taxes at first death while the other defers tax until a later event, the credit can be blocked. That mismatch can leave families worse off despite treaty wording.
Spousal deferral and QDOTs
UK spousal exemptions and the US marital deduction do not always align for mixed‑citizens couples. A qualified domestic trust (QDOT) in a will can be the practical bridge.
| Issue | Why it matters | Practical step |
|---|---|---|
| Double taxation | Both countries claim tax on same assets | File treaty claim; keep valuation proof |
| Timing difference | Tax charged at different times | Consider QDOT or aligned deferral |
| Spousal deferral | Exemptions don’t always match | Draft will and beneficiary forms to match strategy |
Questions to take to advisers: who survives, what citizenship they hold, where they will live and where assets sit. For a deeper walkthrough of cross‑border scenarios see our guide on handling overseas assets.
estate planning for brits with us investments uk: residency, tax years and the April 2025 regime shift
Residency status and the way tax years count now decide how much of your global wealth can be taxed after April 2025.
UK tax residency, the importance of tax years and the 183-day benchmark
How many tax years you have as a tax resident matters more than ever. The new regime turns a years‑count into a planning hinge.
The 183‑day concept is a handy practical test used across rules. It is not the only test, but it is a simple day‑count many advisers watch closely.
The four-year special regime for new UK residents and planning opportunities
New residents can get a four‑year breathing space after 6 April 2025. That window can allow restructuring and cautious timing of disposals.
Use the period to plan cash needs, review holdings that trigger inward tax on income gains, and sequence sales to limit charges.
Onshoring and remitting funds: avoiding unintended UK tax charges
Bringing money to the UK can trigger tax consequences. Think of remitting as opening a cupboard — do it in the right order.
Practical checklist:
- Record arrival dates and first tax year.
- Note expected length of stay and planned large sales.
- Sequence remittances to match the four‑year window and transitional phasing through 2028.
Optimising US investment holdings while UK resident
Cross-border holdings can turn a low-cost fund into a heavy reporting burden overnight.
We explain the everyday risks so you can choose the right route. Simple funds can create complex tax and reporting outcomes. A small mistake costs time and value later.
Collective funds and PFIC risk
Many non‑US ETFs and funds fall under PFIC rules for American taxpayers. That creates punitive tax charges and extra filings.
Even plain‑looking index funds can be toxic if PFIC rules apply. Consider holding individual securities or US‑domiciled funds where possible.
Non‑reporting funds and offshore income and gains
Some US mutual funds lack UK reporting status. Gains then move into offshore income and gains (OIG) rules.
OIG treatment can convert what feels like a capital gain into taxable income at higher rates.
Aligning CGT and foreign tax credits
- Keep clear cost‑basis records to match UK CGT to foreign tax credits.
- Document dividend classification and withholding to support credit claims.
- Where possible, pay UK capital gains tax in a way that the US will recognise for credit.
Decide whether to keep taxable holdings in the US, hold individual securities, or restructure based on residency horizon and family needs. Good documentation and prompt professional advice protect your long‑term value. For practical next steps see protect your family’s future.
Pensions and retirement accounts across borders
Pensions often work quietly in the background until withdrawals or rule changes force them into the frontline.
The treaty can matter. A recognised 401(k) or IRA may remain tax-deferred under the UK–US tax treaty if the scheme qualifies. Confirm scheme status early to avoid an unwelcome charge when you become resident.
Drawing benefits and timing
In the US RMDs start at age 73. That creates a firm date when income must be taken and taxed.
The UK side is more flexible. Many plans allow a tax-free portion then flexible withdrawals. The same withdrawal can sit in different tax years and attract different rates. Coordinate draws to avoid higher-rate outcomes.
Pensions as part of legacy design
Beneficiary nominations are as important as any will. On death a pension may bypass probate, but proposed change from 6 April 2027 could bring unused funds into inheritance tax scope.
| Feature | US | UK |
|---|---|---|
| Mandatory draw age | RMDs at 73 | Greater flexibility |
| Tax treatment | Taxed as income on distribution | Often taxed as income; tax-free lump possible |
| Post-death risk | Beneficiaries taxed on withdrawals | April 2027 rule may include pensions in inheritance tax |
- Practical questions: which pot should fund living costs, when to trigger RMDs, and who is nominated to receive benefits?
- Keep clear records and check treaty status to protect deferral and reduce cross-border reporting.
Buying, owning and selling a UK home when you have US tax exposure
Owning a home while you have cross-border tax ties brings four distinct tax moments you must plan for.
First, the purchase. Stamp Duty Land Tax can carry a 2% non-resident surcharge plus a 5% additional property charge. These rates can stack so a non-resident buyer may face much higher upfront cost. The 2% non-resident charge is often reclaimable if the buyer spends 183 or more days in the UK in one of the years either side of purchase.
Selling and capital gains
The UK may give full main residence relief and remove UK CGT on a main home. By contrast, the US limits main-home relief to $250,000 (single) or $500,000 (married), calculated in USD. That mismatch can leave a US tax bill even where UK tax is nil. Keep purchase price and major cost records in sterling and in USD equivalents.
Ownership and gifts
Holding title in a non‑US spouse’s name can help shield value from US probate rules. But if a US spouse contributes funds, that can count as a gift. In 2025 the annual exclusion for gifts to a non‑US spouse is $190,000. Use this allowance to rebalance ownership gradually and avoid large immediate gifts.
Sterling mortgages and phantom gains
Repaying a sterling mortgage can create foreign-exchange “phantom gains” in USD. A repayment may look like a gain to the US tax system if sterling weakens. Track exchange rates at purchase, mortgage drawdown and each large repayment.
| Moment | Key risk | Quick action |
|---|---|---|
| Buying | Stacked SDLT surcharges up to 19% | Check non‑resident reclaim rules and timing |
| Selling | UK relief may not match US $250k/$500k limits | Keep USD records; model both systems |
| Owning | Gifts when funding title changes | Use $190,000 annual gift exclusion where applicable |
| Repayments | FX “phantom” gains in USD | Document FX rates and consult tax advisor |
Checklist before you commit: confirm SDLT position, agree how title will sit, record costs in USD, and ask your conveyancer and tax adviser about the 183‑day reclaim route. For guidance on home purchases for American individuals see this practical guide.
Trusts, entities and family structures that can create estate and income tax issues
Trusts and company wrappers are where small errors become long tax headaches. We map the common traps and practical next steps.
Foreign trust pitfalls
Foreign trusts can trigger UK anti‑avoidance rules. Income or gains built up before you moved may still be taxed after arrival. Reporting and registration can start once a trustee or beneficiary has UK residence.
Excluded property and lost protection
Excluded property trusts help non‑long‑term residents. But protection can vanish if long‑term resident status is reached or regained. Keep a clear year‑count and review deeds before a move.
US living trusts, LLCs and corporate mismatch
Revocable living trusts may become relevant when trustees live here. An LLC can look transparent in one system and opaque in another. That two‑lens mismatch often causes unexpected tax and credit failures.
Children’s accounts and practical choices
Junior ISAs and some savings can create foreign‑tax and PFIC issues for dual‑status children. Junior SIPPs, 529 plans or carefully drafted bare trusts may be better options depending on family facts.
| Structure | Main UK risk | Practical action |
|---|---|---|
| Foreign trust | Attributed income, register trigger | Check trustee residence; file early |
| Excluded property trust | Loss of protection on LTR | Model year counts; revise strategy |
| LLC / US entity | Opacity mismatch; double tax | Reassess classification; seek credits |
| Junior ISA / 529 | PFIC and reporting risks | Use child‑suitable tax vehicles; document |
Keep family structures simple where possible. Simplicity reduces reporting, lowers long‑term costs and cuts the chance of nasty surprises.
Working with cross-border professionals to implement a durable plan
Small timing slips and missing documents often cause the biggest headaches in cross-border matters.
We act as the hub. We bring tax advisers, private client lawyers and wealth managers into one clear process. This reduces repeated work and prevents contradictory actions.
What to bring to your advisers
- Complete asset inventory and recent statements.
- Cost bases, account numbers and any trust or entity deeds.
- Residency timeline and prior tax returns.
- Existing wills and beneficiary forms.
How we coordinate to avoid gaps
We set a clear lead. That person signs off on timing and filing responsibilities.
Typical gaps we close include mismatched beneficiary forms, an investment shift creating PFIC or OIG exposure, or a property sale that triggers an unforeseen tax charge.
| Role | Main task | When they act |
|---|---|---|
| Accountant | File cross-border returns; claim treaty relief | Before and after liquidity events |
| Lawyer | Draft wills, trusts and QDOTs | At document reviews and pre-move |
| Wealth manager | Implement asset moves; flag PFIC risks | When reallocating holdings |
Start early. Treaty work and entity clean‑ups take time. For guidance on moves and timing see our article on moving abroad for retirement. Good co‑ordination saves time, reduces tax risk and gives you a plan that works when life changes.
Conclusion
Good cross‑border legacy work is less about clever tricks and more about clear timing, ownership and joined‑up advice.
Three drivers decide most outcomes: where you are resident and how many years that counts as, what assets you own and how, and whether treaty relief will actually apply in the available time.
Remember April 2025: the long‑term residence test makes residence history a planning asset. A residence tail and seven‑year gift survival can keep value subject IHT. UK IHT sits at 40% above the nil‑rate band and pensions face a potential April 2027 shift.
Next steps: update wills and LPAs, review holdings for PFIC/OIG risk, map exposure under LTR rules and build a co‑ordinated adviser team. Document decisions so family and executors can act with confidence.