What UK Inheritance Tax changes mean for US citizens
18 July 2025
Caught in the tax trap: US expats in the UK could face steep Inheritance Tax (IHT) penalties.
A key provision in the recently enacted U.S. tax reform, signed into law on 4 July, has significantly increased the Federal estate and gift tax exemption to $15 million per individual (or $30 million per married couple). This change, part of what has been dubbed the “Big Beautiful Bill,” means that most US citizens will now fall outside the scope of US estate and gift taxes (at least at the Federal level).
For the growing number of U.S. citizens living in the UK, the threat of Inheritance Tax remains.
How US citizens are impacted by UK Inheritance Tax
The UK’s IHT exemption remains at just £325,000, a figure that has been frozen for over a decade and is not expected to rise in the near future. This stark contrast potentially creates a significant tax exposure for US citizens living in the UK.
Under rules introduced in April 2025, for their first 10 years of UK residency, US citizens are only subject to IHT on their UK assets. However, once they have been UK resident for more than 10 years (referred to as being ‘Long-Term Resident’), they become liable to IHT on their worldwide assets, regardless of when those assets were acquired.
Even after leaving the UK, US Citizens can remain within the UK Inheritance Tax net for up to 10 years.
Consider a married US couple who have moved to the UK for work. They own assets in the US worth £5 million and equity in a UK home of £300,000. For their first 10 years in the UK, they have no exposure to IHT as their equity in their UK home is below the £325,000 threshold. If they remain in the UK longer than 10 years, their exposure to IHT increases to over £1.8 million overnight.
Managing UK IHT impact for US individuals
Historically, U.S. citizens could protect their non-UK assets from IHT by transferring them to a trust. However, changes to the non-dom regime mean this is no longer an option.
Despite this, there are still options available for US citizens who want to remain in the UK in the long term:
- Gifting: Gifts of non-UK assets made before becoming a Long-Term Resident are exempt from IHT. This contrasts with gifts made after becoming a Long-Term Resident, which are subject to IHT unless they survive at least seven years.
- Life insurance: For those planning to stay beyond 10 years but not indefinitely, life insurance can be used to cover potential IHT liabilities.
- U.S.-UK Estate Tax Treaty: The treaty is complex, but in the right circumstances, it can:
- Provide exemptions from UK IHT on death or lifetime gifts.
- Override the 10-year long-term residency rule, reducing the exposure period to just three years.
- Protect trust assets from UK IHT, even if the settlor becomes a long-term resident.
If you are a US citizen based in the UK, it's important to act early
The current IHT regime presents a strong disincentive for U.S. citizens to remain in the UK beyond 10 years, especially when combined with announced changes to IHT exemptions on businesses, farms and pensions.
Get in touch with our international tax specialists
With timely and tailored advice, it is possible to manage the impact of the UK’s IHT charge on worldwide assets. The key is to seek professional guidance well before reaching the 10-year residency threshold. Please get in touch if you would like to know more.
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14 Jul 2025
The temporary repatriation facility
The rules introduced by the Finance Act 2025 fundamentally changed how non-UK domiciled individuals (non-doms) are taxed, mainly for the worse. However, the Temporary Repatriation Facility (TRF) was one of the few changes likely to be positive for many non-doms.