The US UK Estate Tax Treaty Explained for Families on Both Sides

US UK estate tax treaty: an introduction

The US UK estate tax treaty is the 1978 convention that decides which country may tax an estate or a lifetime gift when someone has ties to both the United States and Britain. It gives first taxing rights to the country of domicile, with exceptions for land and business assets. Where both countries still tax, it requires a credit so the same property is not taxed twice in full. For American families in Britain, it often decides how much inheritance tax and estate tax apply.

This article explains how the treaty works and how recent changes on both sides affect it. It stays on the rules and the filings, not on estate planning. Our full guide to the US-UK double taxation treaty covers the income tax treaty that sits alongside it.

What the US UK estate tax treaty covers

The convention was signed in London on 19 October 1978. In the UK, it has effect through Statutory Instrument 1979/1454, which sets out its full text. On the US side, it covers federal estate and gift tax. On the UK side, it originally covered capital transfer tax, which inheritance tax has since replaced. The IRS lists the UK among its estate and gift tax treaties.

Why it matters more than the income tax treaty here

The US taxes the estates of its citizens wherever they live. Meanwhile, the UK taxes the worldwide estates of people it treats as long-term residents. Consequently, an American who has lived in Britain for many years can face both taxes on the same assets. Without the treaty, relief would depend on each country's domestic credit rules alone.

How does the treaty decide where you are domiciled?

Article 4 first applies each country's own test, then uses tie-breakers for anyone who counts as domiciled in both. The answer decides which country has the primary right to tax everything you own.

Each country's own test

For the US, you are domiciled there if you are a US resident, or a US national who was a US resident at any time in the previous three years. For the UK, you are domiciled there under UK law, or if you are treated as domiciled. HMRC explains in its Inheritance Tax Manual that a long-term UK resident now counts as UK-domiciled for this treaty. Therefore, the UK's new residence rules feed straight into the treaty.

The seven-in-ten-years tie-breakers

Two special rules come first. A UK national who is not a US national is treated as UK-domiciled unless they were US-resident in seven or more of the last ten years. Likewise, a US national who is not a UK national is treated as US-domiciled unless they were UK-resident in seven or more of the last ten UK tax years. These rules matter for Americans who have lived in Britain for less than a decade.

The general tie-breakers

If the special rules do not settle it, the treaty looks at where you have a permanent home, then your centre of vital interests, then your habitual abode and then your nationality. As a last resort, the two tax authorities agree the answer between them. In practice, dual nationals with homes in both countries can reach the later tests. Therefore, the facts about where you live and work need recording carefully.

Recording your residence history

Every test in the US UK estate tax treaty turns on dates. Executors need to know when you arrived, when you left and which UK tax years counted as resident years. Those facts are hard to rebuild after a death. In our experience, a simple record kept with your will saves months of work later. It also makes the UK long-term residence test far easier to apply.

Which country taxes which assets?

Under Article 5, the country of domicile may tax everything. The other country is generally excluded, unless the person was one of its nationals. Articles 6 and 7 then let the country where land or business assets sit tax them as well.

Domicile country first

Article 5 gives the country of domicile the right to tax the whole estate. The other country can only tax property covered by Articles 6 and 7, unless the person was its national. Notably, that nationality exception is why the US can still tax its citizens living in Britain. The US UK estate tax treaty does not switch off US citizenship-based taxation; it manages the overlap through credits.

Land and business property

Article 6 lets the country where immovable property is situated tax it. A Florida condominium owned by a UK-domiciled person can therefore be taxed in the US. Debts secured on the property are not treated as real property. Similarly, Article 7 lets a country tax business assets of a permanent establishment there. Shares and bank accounts, by contrast, generally fall under the domicile country's primary right.

Trusts set up by Americans

Article 5(4) protects some trusts from UK tax. Where the settlor was US-domiciled and not a UK national when the trust was made, the UK generally cannot tax that settled property. HMRC confirms this holds even if the settlor later becomes a long-term UK resident. However, the trust still has US reporting duties, so the filings continue.

How do credits stop double tax?

Article 9 sets the order. The country where property is situated taxes it first, and the other country gives a credit for that tax. Claims have time limits, so they need tracking.

The order of credits

For land and business property, the situs country taxes first and the domicile country credits it. For other property both countries can tax, the treaty sets its own order. HMRC sets out its practice in the Inheritance Tax Manual. As a result, executors often need figures from one country's return before they can finish the other.

Time limits for claims

Article 9(5) requires credit claims within six years of the death or gift, or within one year of the last due date for tax, if that is later. Because estates in two countries can take years to settle, those dates are easy to miss. Consequently, the timetable for both returns should be set at the start.

Executors in two countries also need the same values. A US estate return and the UK IHT400 account should value each asset at the same date and on a consistent basis. Otherwise, the credit one country allows may not match the tax the other charged. Under the US UK estate tax treaty, that mismatch can delay both estates.

Spouses under the treaty

Article 8 contains special rules for gifts and bequests between spouses. These can improve on the domestic rules where one spouse is not a citizen or domiciliary of a country. Because the domestic rules on both sides changed recently, the treaty and domestic positions need comparing in each case. HMRC also notes that a spousal election under UK law is ignored when applying the treaty.

What changed in the UK from April 2025?

From 6 April 2025, the UK replaced domicile with a long-term residence test for inheritance tax. That change affects who the UK taxes on worldwide assets, and therefore how the US UK estate tax treaty applies.

The long-term residence test

You are a long-term UK resident if you were UK-resident for ten or more of the previous twenty tax years, as HMRC explains in its guidance on inheritance tax for long-term UK residents. After leaving, a tail of between three and ten years applies, depending on how long you lived in the UK. An American who has spent a decade in London therefore falls within UK inheritance tax on worldwide assets.

The UK rates and bands

Inheritance tax is charged at 40% above the nil-rate band of £325,000, according to GOV.UK. A residence nil-rate band of £175,000 can apply where a home passes to direct descendants. The government announced at Budget 2025 that both bands stay fixed until 5 April 2031.

The spouse exemption cap

Gifts between spouses are usually exempt. However, where the giver is a long-term UK resident and the spouse is not, the exemption is capped at the nil-rate band under section 18 of the Inheritance Tax Act 1984. The spouse can elect to be treated as a long-term UK resident to lift the cap. That election is irrevocable while it lasts, so it needs weighing against the wider consequences.

Pensions and business relief

From 6 April 2027, most unused pension funds and death benefits will come into the estate for inheritance tax, as HMRC sets out in its pension policy paper. Separately, from 6 April 2026, 100% agricultural and business property relief is limited to a £2.5 million allowance, with 50% relief above it. These changes raise estate values on the UK side.

What are the US figures for 2026?

For 2026, the US basic exclusion amount is $15 million per person, and the annual gift exclusion is $19,000. Non-citizen spouses face special limits, which matter for many US-UK couples.

The $15 million basic exclusion

The basic exclusion amount is the value a US citizen can pass free of federal estate and gift tax. The IRS sets it at $15 million for 2026 on its estate and gift tax updates page, following legislation signed on 4 July 2025. From 2027, it is adjusted for inflation. Consequently, many American families in Britain owe no US estate tax, while UK inheritance tax still applies.

Non-citizen spouses

The unlimited US marital deduction does not apply where the surviving spouse is not a US citizen, under section 2056(d), unless property passes to a qualified domestic trust. For lifetime gifts, the annual exclusion for a non-citizen spouse is $194,000 for 2026, according to the IRS 2026 inflation release. For a couple where only one spouse is American, these limits shape every large transfer.

Gifts and inheritances from abroad

A US person who receives more than $100,000 in gifts or bequests from a non-resident alien or foreign estate must report them on Form 3520. The form reports the gift; it does not usually create a tax charge. Lifetime gifts by a US person above the annual exclusion go on Form 709. In the UK, executors report estates on the IHT400 account.

An illustrative example

Consider a typical case. Laura is a US citizen who has lived in London for fourteen years, so she is a long-term UK resident. Her husband Tom is British and has always lived in the UK. Laura owns a share of their London home, savings, a UK pension and a small apartment in Florida.

Under the US UK estate tax treaty, Laura is treated as UK-domiciled, so the UK taxes her worldwide estate. The US can still tax her as a citizen, but her estate is far below the $15 million exclusion. The Florida apartment is US real property under Article 6, so the US would tax it first if any US tax arose. Her bequest to Tom is exempt in the UK because both are long-term residents. On the US side, his non-citizen status matters only if her estate exceeds the exclusion.

How US UK Tax Experts can help

We prepare the US and UK returns that sit around cross-border gifts and inheritances. That includes Form 3520 for inheritances from British relatives, Form 709 for lifetime gifts and the final income tax returns in both countries. We also prepare the income side of an estate, such as rental income and gains while it is administered. For wider context, our article on US UK high net worth tax services explains what we prepare for larger estates.

We do not give estate planning, legal or investment advice. Instead, we work alongside your estate lawyer, supplying the tax figures and filings they need. Our treaty relief service covers income tax treaty claims, and our guide to US and UK tax returns prepared together explains the yearly filings.

Conclusion

In summary, the US UK estate tax treaty gives first taxing rights to the country of domicile, lets land and business assets be taxed where they sit, and requires credits where both countries tax. The UK's long-term residence test now drives who counts as UK-domiciled under it. Meanwhile, the US exclusion of $15 million for 2026 keeps most families out of US estate tax. Above all, executors should set the timetable for both countries early, because credit claims have time limits.

Contact us

Are you dealing with an estate or a large gift that crosses the US UK estate tax treaty? Email us at hello@usuktaxexperts.com, or tell us about the situation through our contact page. We reply within one working day with the returns and forms that apply.