UK Inheritance Tax for Americans: The Residence-Based Rules

UK inheritance tax for Americans: an introduction

UK inheritance tax for Americans now depends on how long you have lived in Britain, not on your domicile. From 6 April 2025, you are taxed on your worldwide assets once you are a long-term UK resident. That means UK-resident for at least ten of the previous twenty tax years. Before that point, the UK generally taxes only your UK assets.

This article explains the new test, what it reaches and how it sits beside US estate tax. It covers the rules and the filings, not estate planning. Our full guide to the US-UK double taxation treaty explains the wider treaty framework between the two countries.

Why UK inheritance tax for Americans changed in 2025

Domicile is a common law idea of where your permanent home is. For decades it decided whether the UK taxed your worldwide estate. Many Americans in London kept a US domicile for years and paid UK tax only on UK assets. However, HMRC's guidance on inheritance tax for long-term UK residents confirms that the domicile and deemed domicile rules were replaced from 6 April 2025. Consequently, UK inheritance tax for Americans is now a count of tax years.

Two taxes on one estate

The US taxes its citizens' estates wherever they live. Meanwhile, the UK now taxes long-term residents on everything they own. Therefore, an American who settles in Britain can fall within both systems at once. The treaty and the credit rules then decide how much of each tax is actually paid.

What is the long-term residence test?

You are a long-term UK resident if you were UK-resident in at least ten of the twenty tax years before the year of the death or gift. A UK tax year runs from 6 April to 5 April.

Ten out of twenty tax years

The test is set out in section 6A of the Inheritance Tax Act 1984, and HMRC explains it in its Inheritance Tax Manual at IHTM47020. You look back over the twenty tax years before the year in question. If ten or more were years of UK residence, you are a long-term resident. The years do not need to be consecutive.

How residence years are counted

Each year's residence comes from the statutory residence test used for income tax. Notably, HMRC says a split year counts as a full year of UK residence for inheritance tax. So the year you arrive and the year you leave can both count. In our experience, this point of UK inheritance tax for Americans catches people who assume a part year is ignored.

The tail after you leave

The tail is the period you stay in scope after leaving the UK. HMRC's table gives three years for thirteen or fewer years of residence. It then adds one year for each further year, up to ten years for twenty years of residence. For example, fifteen years in Britain gives a five-year tail. Furthermore, ten consecutive years of non-residence reset the test completely.

Transitional rules for recent leavers

Special rules apply to people who were not UK-resident in 2025-26. If you were neither domiciled nor deemed domiciled on 30 October 2024, you are not a long-term resident while you stay away. If you were deemed domiciled then, you leave scope after three years of non-residence. These rules turn on exact dates, so they need checking against your own history.

Which assets does UK inheritance tax reach?

Long-term residents are taxed on worldwide assets. Everyone else is generally taxed only on assets situated in the UK. This is the core of UK inheritance tax for Americans.

Worldwide assets for long-term residents

Once you are a long-term resident, the UK counts everything you own. That includes a US brokerage account, a house in Florida, US bank deposits and shares in a US company. HMRC asks executors to list these on the IHT417 foreign assets schedule. As a result, UK inheritance tax for Americans can reach an estate that looked small in UK terms.

UK assets only for everyone else

If you have lived in Britain for less than ten of the last twenty years, the rule is narrower. GOV.UK's page on when someone based outside the UK dies says tax is paid only on UK assets. Examples include a London flat and UK bank accounts. In addition, it lists certain excluded assets, such as overseas pensions and holdings in authorised unit trusts.

Trusts and excluded property

Excluded property is property that falls outside inheritance tax altogether. Trusts follow their own rules under the new system. HMRC's guidance says overseas trust assets can come into charge where the settlor is a long-term resident. However, protections apply to some assets settled while the settlor was not UK-domiciled. Trust cases need the trust deed, the dates and the treaty read together.

How much is UK inheritance tax?

Inheritance tax is charged at 40% on the value above the nil-rate band of £325,000. A further allowance can apply where a home passes to children or grandchildren.

The nil-rate band and the 40% rate

The nil-rate band is the amount you can leave without inheritance tax. GOV.UK's inheritance tax overview sets it at £325,000, with tax at 40% above it. A reduced rate of 36% can apply where you leave 10% or more of the net estate to charity. Additionally, unused nil-rate band can pass to a surviving spouse or civil partner.

The residence nil-rate band

The residence nil-rate band is an extra allowance for a home left to direct descendants. Its maximum is £175,000. HMRC's residence nil-rate band guidance says it falls by £1 for every £2 the estate exceeds £2 million. For a long-term resident, the home can be anywhere in the world.

Bands frozen until 2031

Neither band rises with inflation for now. At Budget 2025, the government fixed the nil-rate band at £325,000 and the residence band at £175,000 until 5 April 2031. The taper threshold also stays at £2 million. Therefore, UK inheritance tax for Americans catches more estates each year as values rise.

Pensions and payment dates

From 6 April 2027, most unused pension funds and death benefits will come into the estate, according to the same Budget document. Meanwhile, the GOV.UK payment guidance says tax is due by the end of the sixth month after death. Interest runs after that date. Consequently, executors with assets in two countries need to start early.

How are spouses and lifetime gifts treated?

Transfers between spouses are usually exempt. However, the exemption is capped where only the giving spouse is a long-term resident, and gifts made within seven years of death can still be taxed.

The spouse exemption cap

Under section 18 of the Inheritance Tax Act 1984, the cap applies when you are a long-term resident and your spouse is not. The exempt amount cannot exceed the exemption limit, which is the nil-rate band. HMRC's manual gives that limit as £325,000. For UK inheritance tax for Americans, this often matters where one spouse arrived years before the other.

The long-term residence election

A spouse who is not a long-term resident can elect to be treated as one. Under section 267ZD, an election after a death must normally be made within two years. The election cannot be revoked. It lapses only after ten successive tax years of non-residence. Importantly, it brings the electing spouse's own worldwide assets into UK scope, so the effect needs working out both ways.

Gifts and the seven-year rule

A potentially exempt transfer is a lifetime gift that becomes tax-free if you survive seven years. GOV.UK's page on gifts and inheritance tax explains the rule and taper relief. Where gifts in the seven years before death exceed the nil-rate band, taper relief cuts the rate. It falls from 40% for gifts under three years before death to 8% between six and seven years.

Annual exemptions

Some gifts never enter the calculation. You can give £3,000 each tax year, and carry unused allowance forward one year. In addition, gifts of up to £250 per person are exempt, as are regular gifts from surplus income. On the US side, the annual gift exclusion is $19,000 per recipient for 2026. Therefore, a gift may need records for both countries.

How does the estate tax treaty fit the new rules?

The US-UK estate and gift tax treaty still uses domicile. UK law now treats long-term residents as UK-domiciled for treaty purposes. However, how that interacts with the treaty's own tests is still settling.

The treaty still speaks of domicile

The 1978 convention has effect in UK law through Statutory Instrument 1979/1454. Article 4 treats you as UK-domiciled if you are domiciled under UK law or "treated as so domiciled" for UK tax. Section 267ZF now treats long-term residents as UK-domiciled for these treaties. HMRC states the same view at IHTM47071. Our article on the US UK estate tax treaty explains each article in detail.

The seven-in-ten rule for Americans

Article 4(3) helps some US nationals who are not also British. If you count as domiciled in both countries, you are treated as US-domiciled unless you were UK-resident in seven or more of the last ten UK tax years. Then the UK can generally tax only UK land and UK business property. This can matter for Americans in their tail after leaving Britain.

Where practice is still settling

The UK changed its law, but the treaty text did not change. HMRC's position is clear, but we have not seen published IRS guidance on it. Moreover, we know of no court decision on the interaction yet. As a cautious approach, we work out the UK charge under domestic law first. Then we apply the treaty to UK inheritance tax for Americans and record the reasoning, rather than assuming relief.

Credits and time limits

Where both countries tax the same property, Article 9 requires a credit. Claims must be made within six years of the death, or within one year of the last due date if later. Accordingly, the timetable for both estates should be set at the start.

What does US estate tax add?

US citizens are taxed on worldwide estates, wherever they live. For 2026, the basic exclusion amount is $15 million, so most American families in Britain owe UK tax but no US tax.

The 2026 exclusion

The IRS sets the basic exclusion amount at $15,000,000 for 2026 on its estate and gift tax updates page. Its estate tax page gives the same figure as the 2026 filing threshold for Form 706. That threshold includes adjusted taxable gifts as well as the gross estate. Consequently, UK inheritance tax for Americans is usually the larger bill.

Non-citizen spouses

The unlimited US marital deduction does not apply where the surviving spouse is not a US citizen. Section 2056(d) sets out that rule, with an exception for a qualified domestic trust. For a couple below the exclusion, this rarely creates tax. Nevertheless, it shapes the US side of larger estates.

An example: a couple who arrived years apart

Consider a typical case. Megan is a US citizen who has been UK-resident since 2014-15. By 2026-27, she has twelve resident years in the previous twenty, so she is a long-term resident. Her husband Tom is also American but arrived in 2021-22, so he is not.

Megan owns half of a London flat, a US brokerage account and a US retirement account. Because she is a long-term resident, all of these fall within UK inheritance tax. If she leaves everything to Tom, only £325,000 is spouse-exempt. Tom could elect within two years of her death to lift the cap. However, that would bring his own US assets into UK scope. On the US side, her estate is well below $15 million.

What the example shows

The cap, the election and the treaty all turn on a few dates. Therefore, Megan's executors need her residence history year by year. In this example, the figures would be worked out with and without Tom's election before anyone decides.

How US UK Tax Experts can help

We prepare and file the US and UK returns around an estate from one set of records. That includes the final income tax returns in both countries, Form 3520 for inheritances from British relatives and Form 709 for US gifts. We also work out your residence history, year by year, so the long-term residence test can be applied. Our treaty relief service covers the income tax claims that sit alongside an estate.

We do not give estate planning, legal or investment advice. Instead, we supply the tax figures your estate lawyer needs, modelled both ways where an election is open. For larger estates, our article on US UK high net worth tax services explains what we prepare.

Conclusion

In summary, UK inheritance tax for Americans now turns on long-term residence. Ten of the last twenty tax years brings your worldwide estate into scope, and a tail of three to ten years follows you after you leave. The bands of £325,000 and £175,000 are frozen until 5 April 2031. Above all, keep a clear record of your UK resident years, because every rule depends on it.

Contact us

Do you need your US and UK returns prepared around an estate or a large gift? Email us at hello@usuktaxexperts.com, or tell us about your situation through our contact page. We reply within one working day with what we would need from you.