Covered Expatriate Gift Tax: What Your US Family Pays After You Renounce

Covered expatriate gift tax: an introduction

The covered expatriate gift tax is a 40% US tax paid by a US citizen or resident who receives a gift or bequest from a covered expatriate. The person who gave up US citizenship pays nothing. Instead, their American children, grandchildren or other US relatives carry the cost. Since January 2026 there has been a live form to report and pay it.

This article supports our guide to IRS Streamlined Filing, because the cleanest way to avoid covered status often starts with catching up on old returns before renouncing. It also links to our expatriation service. We focus on a UK-resident parent who has renounced, with children living in the US.

Where the covered expatriate gift tax comes from

The rule sits in section 2801 of the Internal Revenue Code. It applies to gifts and bequests from people who expatriated on or after 17 June 2008. For years it had no working machinery. Final regulations arrived in January 2025, and the IRS released Form 708 a year later.

Who this article is for

We write for two readers. The first is a former American living in Britain who wants to support family in the US. The second is that family member, who may never have heard of section 2801. Both need the same facts, because the donor holds the information and the recipient holds the liability.

Who counts as a covered expatriate?

You are a covered expatriate if, when you renounced, you met a wealth test, an income tax test, or failed to certify five years of US tax compliance. Any one of the three is enough. Some dual citizens from birth and some minors are excepted from the first two tests only.

The three tests

The IRS expatriation tax page sets out the tests. The net worth test is $2 million or more on the date of expatriation. The tax liability test looks at your average annual net income tax for the five prior years. That threshold is indexed: the Form 708 instructions give $206,000 for 2025 and $211,000 for 2026.

The certification trap

The third test catches people of modest means. You certify five years of compliance on Form 8854, the expatriation statement. If you cannot, you are covered regardless of wealth. Our article on Form 8854 explains the certification, and our piece on the US exit tax covers the other consequences.

Why status lasts for life

Covered status is fixed at the date you expatriate. It does not wear off with time, and it attaches to every later gift and bequest to a US person. Therefore, a covered expatriate gift tax question can arise decades after the renunciation, often when the donor dies. A lump sum from an estate is treated the same way as a lifetime gift.

How is the covered expatriate gift tax worked out?

The recipient pays tax at the highest US estate tax rate on covered gifts and bequests received in a year, above the annual exclusion. Foreign gift or estate tax paid on the same transfer reduces the bill. The donor's age, residence or relationship to the recipient does not change the rate.

The rate and the exclusion

Section 2801 uses the top rate in the estate tax table, which the Form 708 instructions confirm is 40%. The tax applies only to the amount that exceeds the annual gift tax exclusion for that year. The IRS's 2026 inflation adjustments set that exclusion at $19,000, the same as for 2025.

What is excluded

Some transfers are not covered at all. A gift shown on a timely filed US gift tax return is excluded, as is property in the donor's US estate shown on a timely estate tax return. Transfers that would qualify for the marital or charitable deduction, if the donor were a US person, are also excluded. The instructions add qualified disclaimers to the list.

Trusts

A US trust that receives a covered gift is treated as a US citizen and pays the tax itself. A foreign trust works differently. When it later distributes amounts attributable to a covered gift, the US beneficiary pays the tax at that point. A foreign trust can elect to be treated as domestic, which moves the tax forward to the trust.

When is Form 708 due, and who files it?

The US recipient files Form 708 by the 15th day of the 18th month after the year of receipt. For 2025 receipts that is 15 June 2027. The donor files nothing under this rule.

The form and its timing

The IRS posted Form 708 and its instructions in January 2026. The due date rule is in regulation 28.6071-1. For gifts received in 2026, the same rule points to 15 June 2028. An extension to file is available, but it does not extend the time to pay.

Which gifts the regulations reach

The final rules were published as Treasury Decision 10027 in January 2025. Regulation 28.2801-1 applies them to covered gifts and bequests received on or after 1 January 2025. Gifts received between 2008 and 2024 are an open question. The statute reaches back to 2008, but no regulation sets a due date for those years. We treat them as unresolved rather than safe.

When no form is needed

No Form 708 is required where your covered receipts for the year do not exceed the annual exclusion. Special rules apply to some trusts. Even so, keep a record of each gift, because receipts are added together across the year.

How does the US recipient know if the donor is covered?

The recipient must find out, and the burden is on them. If a living donor will not let the IRS confirm their status, the donor is presumed to be covered. That presumption can be rebutted, but only with evidence.

The disclosure route

The regulations let a recipient ask the IRS to disclose whether the donor is covered. The donor authorises this, and the Form 708 instructions point to Form 8821 for that purpose. However, the recipient cannot rely on the answer if they know, or have reason to know, that it is wrong. Treasury rejected calls for a simple reasonable-belief safe harbour.

A protective filing

Where the answer is unclear, a recipient can file a protective Form 708. This starts the limitation period running, so the IRS cannot raise the question indefinitely. It is a filing step, not a tax payment, and it suits families where the donor's records are incomplete.

Talking about it as a family

Consequently, the conversation has to happen before the money moves. The donor knows whether they certified compliance and what their net worth was. The recipient needs that answer in writing. In our experience, families who discuss it early avoid both the presumption and the surprise.

What does a covered expatriate gift cost in practice?

A gift of $119,000 from a covered expatriate to a US child costs the child $40,000 in US tax. The figures below show how quickly the bill builds, and how UK rules sit alongside it.

A worked example

Consider a typical case. Margaret, a fictional British-born former American, renounced her US citizenship in 2021 while living in Surrey. Her net worth then was above $2 million, so she is a covered expatriate. In 2026 she gives her son Daniel, who lives in Boston, $119,000 towards a flat. Daniel is a US citizen.

The first $19,000 is covered by the 2026 annual exclusion. The remaining $100,000 is taxed at 40%, so Daniel owes $40,000. He reports it on Form 708 for 2026, due by 15 June 2028. Because Margaret is no longer a US person, the gift also exceeds the $100,000 Form 3520 reporting level in the Form 3520 instructions. So Daniel has two US filings for one gift.

The UK side of the same gift

In Britain, Margaret's gift is outside inheritance tax if she lives seven more years. GOV.UK's guidance on gifts explains the seven-year rule and taper relief. If she dies within seven years and inheritance tax becomes due on the gift, section 2801 reduces the US tax by foreign gift or estate tax paid on the same transfer. Timing can make that credit hard to use in practice.

If Margaret had not been covered

Suppose instead that Margaret had passed all three tests when she renounced. Then the same $119,000 would not be a covered gift at all. Daniel would still report it on Form 3520, because it exceeds $100,000 from a foreign individual. But he would owe no US tax on it, and no Form 708 would be needed. The difference between the two outcomes is $40,000.

Spreading gifts over years

By contrast, smaller gifts each year use the exclusion each time. A gift of $19,000 a year to each US child creates no covered expatriate gift tax at all. Margaret's choices are her own, but the arithmetic is worth seeing before any large transfer.

What should a donor do before renouncing?

A donor who has not yet renounced can still change the outcome. The two levers are the five-year compliance certification and the timing of large gifts. Both decisions belong to the donor, and both are worth making with the figures in front of you.

Getting compliant first

Failing to certify is the one covered status test that you can usually fix before you renounce. If you have missed US returns or FBARs, catching up first may let you sign Form 8854 truthfully. The IRS Streamlined Filing Compliance Procedures are designed for non-wilful taxpayers abroad. That route is central to our Streamlined Filing guide.

Gifts made while still a US citizen

Gifts made before you expatriate are not covered gifts. They fall under the ordinary US gift tax rules instead, which have their own return and exclusions. Consequently, the order of events can matter a great deal to the family. We set out the figures both ways, and the choice stays with you.

Records for the family

Finally, give your US family a copy of your Form 8854, or at least a signed note of your status. Without it, they may face the presumption that you are covered. A short letter now can save a covered expatriate gift tax dispute many years later.

How does UK inheritance tax interact for a UK-resident donor?

A UK-resident donor faces inheritance tax on lifetime gifts if they die within seven years, and on their estate at death. The US recipient may face section 2801 on the same money. Credit for foreign tax helps only where UK tax is actually paid.

The long-term residence test

From 6 April 2025, UK inheritance tax on worldwide assets turns on long-term UK residence, not domicile. GOV.UK's long-term resident guidance generally applies the test to people resident for 10 of the previous 20 tax years. A former American who has lived in Britain for many years will usually meet it.

Bequests at death

A bequest from a covered expatriate is also covered, so the same 40% applies to inheritances. Our article on UK inheritance tax for Americans explains the UK estate side. The two taxes can stack on the same pound, with only partial relief between them.

How US UK Tax Experts can help

US UK Tax Experts prepares the US and UK returns from one file, so that the two agree. For covered expatriate gift tax, we work out whether the donor is covered, prepare Form 708 and Form 3520 for the US recipient, and match any UK inheritance tax paid. Before renunciation, we prepare streamlined catch-up returns and Form 8854. Read also our article on taxes after renouncing US citizenship.

Conclusion

The covered expatriate gift tax turns a family gift into a 40% bill for the person receiving it. Since Form 708 arrived, the rule is no longer theoretical for receipts from 2025 onwards. Donors should know their status, and recipients should ask before the money moves. Above all, anyone planning to renounce should make sure the five-year certification can be signed truthfully.

Contact us

If you have received a gift from a former American, or plan to renounce, email hello@usuktaxexperts.com or use our contact page. Tell us the renunciation date and the gifts involved. We reply within one working day.