Does UK inheritance tax now apply to my worldwide assets?

It does if you are a long-term resident, meaning you have been UK resident for at least ten of the previous twenty tax years. From 6 April 2025 that residence test replaced domicile as the connecting factor for inheritance tax. If you have not reached the ten-year threshold, only your UK situated assets are within the charge, together with UK residential property held through offshore structures. Check each tax year against the Statutory Residence Test before assuming your status.

How long does UK inheritance tax follow me after I leave the UK?

Long-term resident status does not end when you cease to be UK resident. A trailing period continues after departure, and its length depends on how many years you were resident, ranging from a few years for those who only just crossed the threshold up to a maximum of ten years for the longest-staying residents. The exact tail applicable to you is set out in the legislation and should be confirmed against current GOV.UK guidance before you rely on it.

Do US citizens living in the UK face inheritance tax twice?

Potentially, because the United States taxes citizens on worldwide assets regardless of where they live, and the UK now taxes long-term residents on worldwide assets. The US-UK estate and gift tax treaty prevents true double taxation by allocating primary taxing rights by asset class and requiring the other country to give credit. Relief is not automatic. It must be claimed, within time limits, on the relevant UK and US returns, with consistent valuations on both sides.

Is my offshore excluded property trust still protected from UK IHT?

Not necessarily. Before April 2025, non-UK assets settled by a non-UK domiciled settlor were excluded property permanently. Under the current rules, excluded property status is tested by reference to whether the settlor is a long-term resident at the relevant time, so protection can be lost while the settlor is long-term resident and regained afterwards. Trusts caught by the relevant property regime face ten-year anniversary and exit charges. Have every offshore structure reviewed.

What US assets are taxable in a non-US person's estate?

Only assets with a US situs. For estate tax that generally includes US real property, tangible personal property physically located in the United States, and shares in US corporations wherever the shares are held or registered. Certain bank deposits and portfolio debt are excluded. The exemption available to a non-US domiciliary is only a $60,000 equivalent unless the estate and gift tax treaty gives more. Reporting is on Form 706-NA.

Can I claim credit for UK inheritance tax against US estate tax?

Yes, in appropriate cases. A credit for foreign death taxes is available to estates of US citizens and US domiciliaries under Internal Revenue Code section 2014, and the US-UK estate and gift tax treaty may provide broader relief. Credit is limited by reference to the tax attributable to the same property, so the two estates must be reconciled asset by asset. Different due dates and valuation elections make sequencing important, so plan the filings together.

UK Long-Term Residence IHT and US Estate Tax Exposure

The UK long-term residence IHT regime, which took effect on 6 April 2025, replaced domicile with a residence test as the basis for inheritance tax. If you have been resident in the United Kingdom for at least ten out of the previous twenty tax years, you are a long-term resident and your worldwide estate falls within the scope of UK inheritance tax. If you have not, only your UK situated assets are exposed. For American families in Britain this sits alongside the US federal estate and gift tax, which follows citizenship and US domicile rather than residence, so the same assets can be taxed twice. The US-UK estate and gift tax treaty allocates taxing rights and provides credit relief, but it has to be applied deliberately rather than assumed.

What changed for UK inheritance tax on 6 April 2025?

For decades the scope of UK inheritance tax depended on domicile: your domicile of origin, any domicile of choice you had acquired, and the deemed domicile rules that applied once you had been resident for long enough. From 6 April 2025 that architecture was replaced. Domicile no longer determines whether your non-UK assets are within the charge; residence does. The legislation delivering the change was carried in the Finance Act 2025, and HMRC has updated its Inheritance Tax Manual and its guidance on GOV.UK to reflect the new connecting factor. Domicile continues to matter for succession law, for matrimonial questions and, importantly, for the estate and gift tax treaty with the United States.

The practical difference is the move from a subjective test to a mechanical one. Domicile turned on intention, on where you regarded your permanent home to be, and on evidence that could be argued either way for years after a death. Long-term residence turns on counted tax years determined under the Statutory Residence Test. That brings welcome certainty, but it removes the flexibility that internationally mobile families had relied upon. Arguments about a retained domicile of origin in Connecticut or California no longer protect a non-UK portfolio once the residence threshold has been crossed, however strong the evidence of an intention to return.

How does the long-term residence test actually work?

You are a long-term resident for inheritance tax purposes if you have been resident in the United Kingdom for at least ten out of the previous twenty tax years. Residence for each year is determined under the Statutory Residence Test, explained in HMRC's guidance note RDR3, with the earlier case law tests applying to years before that regime began. The test is applied at the moment of the chargeable event, whether that is a death, a lifetime gift into a trust or a ten-year anniversary charge on settled property, so status can turn over from one tax year to the next as older years drop out of the twenty-year window.

Once you meet the test, your worldwide estate is within the charge. Death rates apply above whatever nil rate band and residence nil rate band are available to you, with the balance taxed at forty per cent, and lifetime transfers into relevant property trusts are chargeable at twenty per cent. The seven-year rule for potentially exempt transfers continues to apply as before. If you have not met the test, only assets situated in the United Kingdom are exposed, together with UK residential property held through offshore companies and partnerships under the rules in Schedule A1 to the Inheritance Tax Act 1984.

Which tax years you were UK resident, established year by year under the Statutory Residence Test rather than by impression
Whether any year was a split year, and how that year is treated for the purposes of the ten-year count
Days spent in the UK under exceptional circumstances, and whether HMRC would accept the claim
Whether an income tax treaty residence tie-breaker affected your position in a particular year
Evidence you can still produce years later: travel records, employment contracts, tenancy agreements and utility records

What is the trailing tail period after you leave the UK?

Long-term resident status does not stop the moment you board the plane. The legislation imposes a trailing period during which you remain within the worldwide charge even though you are no longer UK resident. The length of that tail depends on how many years of residence you accumulated: those who only just crossed the ten-year threshold face a short tail of a few years, while those with a long UK history face a tail running up to a maximum of ten years. The precise period applicable to you is set out in the legislation and should be confirmed against current GOV.UK guidance before any plan depends on it.

The consequence for planning is significant. Departure alone does not release non-UK assets from the charge, so a death during the tail is still a worldwide event. Families who leave the United Kingdom on the assumption that their offshore portfolio is immediately outside the net can find that the estate of a parent who dies in year two of an eight-year tail is assessed on everything. Life cover arranged to run for the length of the tail is often the most straightforward answer while the risk is live.

The tail also interacts with the seven-year rule. A lifetime gift of non-UK assets made while you remain within the trailing period is a transfer of value on worldwide property, and it remains in your cumulative total for seven years afterwards. In other words the effective exposure window is the tail plus the survivorship period on any gift made inside it. Sequencing matters, and gifts made shortly before the tail expires can achieve much less than the same gifts made shortly afterwards.

What happened to excluded property trusts?

Historically, non-UK assets settled into trust by a settlor who was neither domiciled nor deemed domiciled in the United Kingdom were excluded property, and that status was fixed permanently at the moment of settlement. The trust remained outside UK inheritance tax even after the settlor later became deemed domiciled. That permanence is gone. Under the current rules, excluded property status is tested by reference to whether the settlor is a long-term resident at the relevant time, which means protection can be lost when the settlor crosses the threshold and regained when the settlor and the trailing period fall away.

Where protection is lost, the trust fund is relevant property. That brings ten-year anniversary charges of up to six per cent and proportionate exit charges when capital leaves the settlement. Separately, where the settlor can benefit from the trust, the gift with reservation of benefit rules can bring the settled property back into the death estate, subject to transitional protection for structures established before the reform was announced in the Autumn Budget of 2024. The interaction between those two regimes is technical, and STEP, the CIOT and ICAEW have all published commentary on the points that remain unsettled.

Confirm the settlor's residence history and projected long-term resident status for each anniversary date
Identify whether the trust was created before the announcement date and whether any transitional protection applies
Check whether the settlor or spouse is a beneficiary, and whether exclusion from benefit is worth considering
Value the fund and model the anniversary and exit charges against the cost of restructuring
Confirm how the trust is characterised for US purposes, including grantor status and reporting on Forms 3520 and 3520-A

Who is caught by the US federal estate and gift tax?

The United States taxes the worldwide estates of its citizens and of individuals domiciled in the United States, wherever they live and whatever their UK status. Domicile for US transfer tax purposes is a facts and circumstances question turning on physical presence combined with an intention to remain indefinitely, and it is deliberately different from the residence tests used for income tax. A green card holder living in London may well be treated as US domiciled. The relevant guidance is set out in the instructions to Form 706 and in IRS Publication 559.

For US citizens and domiciliaries the estate and gift taxes are unified, with a single basic exclusion amount applied across lifetime gifts and the death estate, and a top rate of forty per cent. The reduction that had been scheduled to take effect did not happen, because legislation enacted in 2025 raised the exclusion and made it permanent with indexation. Because the figure is indexed and politically sensitive, confirm the current amount on IRS.gov rather than relying on any secondary source. Portability of a deceased spouse's unused exclusion must be elected on a timely filed Form 706.

An individual who is neither a US citizen nor US domiciled is taxed only on US situated assets, and the credit available is equivalent to an exclusion of just sixty thousand dollars unless the estate and gift tax treaty provides something better. That is a very small allowance against a portfolio of US equities or a Manhattan apartment. The estate reports on Form 706-NA. Many families first encounter this exposure when a bank or transfer agent refuses to release US securities without a transfer certificate on Form 5173.

How do the US situs rules decide what America can tax?

For estate tax purposes, US situs generally includes real property located in the United States, tangible personal property physically located there such as art, jewellery and cars, and shares in US corporations regardless of where the certificates are held or where the account is maintained. Certain bank deposits and portfolio debt obligations are excluded by statute. The proceeds of a life policy on the life of a non-resident non-citizen are not US situs. Partnership interests remain an area where the analysis is unsettled and should be examined case by case.

The gift tax situs rules are narrower and this asymmetry is the single most useful planning point in the area. A non-US domiciliary is subject to US gift tax only on transfers of US real property and of tangible property located in the United States. Intangibles, including shares in US corporations, are outside the gift tax net. A lifetime transfer of a US securities portfolio by a non-domiciliary can therefore fall outside US gift tax even though holding the same portfolio until death would expose it. Reporting obligations on Form 709 still need to be considered.

Directly held US shares and American depositary receipts, including those inside a UK investment account
US domiciled exchange traded funds and mutual funds, as distinct from Irish or Luxembourg domiciled equivalents
US real estate held personally or through a structure that does not achieve the intended blocking effect
Art and other valuables physically located in the United States, including works on loan to a US institution
US retirement accounts and deferred compensation with a US payer

How does the US-UK estate and gift tax treaty prevent double taxation?

The relevant instrument is the 1978 convention between the United Kingdom and the United States on estates, gifts and generation-skipping transfers. It is entirely separate from the income tax treaty and must be read on its own terms. It performs three functions: it determines fiscal domicile where each country would otherwise claim a person, it allocates primary taxing rights by category of asset, and it requires the country with the secondary claim to give credit for the tax charged by the other. It is one of a small number of transfer tax treaties the United States maintains.

In broad terms, immovable property and business property forming part of a permanent establishment are taxable primarily where they are situated. Other property is generally taxable only in the country of the deceased's treaty domicile. The convention preserves the ability of the United States to tax its citizens, which means an American in London does not escape US estate tax by virtue of being treaty-domiciled in the United Kingdom; instead the treaty reorders the credits so that the correct country collects first. Understanding the order of taxation is what makes the arithmetic work.

What does the treaty's domicile tie-breaker mean after the reform?

Article 4 of the convention defines fiscal domicile and contains tie-breaker rules for individuals who would otherwise be domiciled in both countries. It also contains a provision under which a national of one country who is present in the other for fewer than seven of the preceding ten years may not be treated as domiciled there. That rule was written against a domicile-based UK regime, and how it engages with long-term resident status is a genuine technical question rather than a settled one.

The CIOT and STEP have both raised the point that the treaty's language refers to domicile, including deemed domicile, while UK law now uses a different concept. HMRC's stated approach is that long-term residence stands in the place of the former deemed domicile rules for these purposes, but the analysis is fact-sensitive and the outcome can differ between an American who has been in London for six years and one who has been there for twelve. Do not assume the treaty automatically displaces long-term resident status. Take advice specific to your residence history.

How does double tax relief work in practice?

On the UK side, relief flows either from the treaty under section 158 of the Inheritance Tax Act 1984 or, where no treaty applies, from unilateral relief under section 159. Credit is broadly limited to the lower of the UK and foreign tax attributable to the same property, so the relief is asset by asset rather than a simple offset of one total against another. HMRC's Inheritance Tax Manual sets out how the calculation is performed and the evidence expected in support of a claim.

On the US side, estates of citizens and domiciliaries may claim a credit for foreign death taxes under Internal Revenue Code section 2014, and the treaty may deliver a more favourable result. Timing creates practical difficulty. UK inheritance tax is due six months after the end of the month of death, whereas the federal estate tax return is due nine months after death with an extension available. Personal representatives frequently have to pay one tax before the other is quantified, and interest can accrue while a credit claim is being agreed.

Valuation and currency mismatches erode relief more often than families expect. The United States permits an alternate valuation date election under section 2032, while the UK has no direct equivalent and its own rules on sales of quoted shares and land after death. Different discount conventions for minority interests and different treatment of debts and liabilities can leave the same asset carrying different values in each estate. Where the values diverge, the credit is calculated on the smaller measure and part of the double charge is simply unrelieved.

How are spouses treated under each system?

The UK spouse exemption is unlimited where both spouses share the same status. Where the transferor is a long-term resident and the recipient spouse is not, the exemption is capped, with an election available for the recipient to be treated as long-term resident. That election buys an unlimited exemption at the price of bringing the electing spouse's worldwide assets into the UK charge, and it carries a trailing effect of its own. It is a genuine decision, not a formality, and it should be modelled before it is signed.

The United States allows an unlimited marital deduction only where the surviving spouse is a US citizen. If the survivor is not, the usual route is a qualified domestic trust under Internal Revenue Code section 2056A, which defers rather than removes the tax and imposes trustee requirements including a US trustee. The estate and gift tax treaty can provide a limited additional deduction in some circumstances. Wills and trust deeds for mixed-nationality couples need to work in both systems simultaneously, which rarely happens by accident.

What planning windows remain open?

The most valuable window is the period before the ten-year threshold is reached. Arriving families still have a meaningful opportunity to settle non-UK assets, restructure holdings and consider lifetime transfers while only UK situated property is within the charge. That window is finite and it closes on a known date, which makes it easier to plan around than the old domicile analysis ever was. For clients who arrive with substantial offshore wealth, the first years in the United Kingdom deserve as much attention as the departure years.

On departure, the analysis reverses. The planning question becomes how to survive the tail, and the tools are insurance, careful gift sequencing, and in some cases accelerating transfers before an anniversary charge falls due. For US persons there is an additional constraint: a gift that is efficient for UK purposes may consume US exclusion or trigger a Form 709 filing, and policies where the insured holds incidents of ownership are drawn back into the US estate under section 2042. Coordination between the two sets of advisers is not optional.

Model the date on which the ten-year threshold will be crossed and work backwards from it
Review whether existing offshore trusts should be restructured, wound up or left in place with charges accepted
Consider term or whole-of-life cover written in trust to fund a quantified exposure during the tail
Check that any life policy is structured so it is not drawn into either estate
Align wills, trust deeds and beneficiary designations so that neither country's relief is wasted
Consider charitable giving, which attracts relief in both systems and can reduce the UK rate on the estate

Business owners face a separate timing question. Reliefs for trading businesses and agricultural property have been restricted, so the value of holding a company until death rather than transferring it during life has changed. Where succession was going to happen anyway, bringing the transfer forward and starting the seven-year clock may now be the better answer. That decision has to be tested against the US position, including basis step-up on death, which is often the single largest offsetting consideration for an American shareholder.

What reporting follows a death in each country?

In the United Kingdom, personal representatives complete the IHT400 suite of forms, pay the tax due within the statutory window and obtain a grant of representation. Instalment options exist for land, certain business interests and controlling shareholdings. In the United States, the estate of a citizen or domiciliary files Form 706 and a non-domiciliary estate files Form 706-NA, with transfer certificates on Form 5173 often needed before US institutions will release assets. US beneficiaries receiving foreign bequests or trust distributions have their own reporting on Form 3520.

IHT400 and supporting schedules, with valuations supported by professional evidence
Form 706 or Form 706-NA, filed on time to preserve portability and treaty credit claims
Form 5173 transfer certificates where US situated assets sit in a non-domiciliary estate
Form 3520 for US persons receiving large foreign gifts, bequests or trust distributions
Continuing FBAR filings with FinCEN and Form 8938 reporting for US beneficiaries and fiduciaries

What other UK changes should high-net-worth families watch?

Two further reforms sit alongside the residence-based regime. Full business property relief and agricultural property relief now apply only up to a capped amount of qualifying assets, with a reduced rate of relief above that cap and a lower rate for certain quoted growth market shares. The cap and rates are set out in the legislation and on GOV.UK, and should be confirmed for the relevant year before any valuation exercise is undertaken. The change materially alters succession planning for family trading companies and landed estates.

Unused pension funds and death benefits are also being brought within the inheritance tax net under measures announced by the Government, with personal representatives taking on reporting responsibilities. For American clients this compounds an already awkward area, because UK pensions interact with US taxation through the income tax treaty and are not always efficient in a cross-border estate. Anyone who has structured their estate around passing a pension outside the charge should have that plan reviewed rather than assumed to still work.

Existing wills and letters of wishes drafted around domicile language that no longer has effect
Nil rate band discretionary trusts and their interaction with the residence nil rate band
Pension death benefit nominations and the identity of the intended recipients
Offshore company structures holding UK residential property under Schedule A1
Life policies, their ownership, and whether they sit inside or outside each estate

What should you do next?

Start with facts rather than structures. Build a year-by-year residence history for each family member, establish when the ten-year threshold was or will be crossed, and identify the length of the trailing period that would apply on departure. Then produce a full asset schedule marking the situs of each holding for UK inheritance tax and for US estate and gift tax separately, because the two situs codes do not align. Only once those two documents exist can any structure be assessed sensibly.

From there, model the combined exposure under both systems, apply the treaty in the correct order, and test whether the residual liability is best met by restructuring, by lifetime giving or by insurance. Because a decision that is efficient in one country can be expensive in the other, this work should be done by a dual-qualified US-UK adviser who can hold both sets of rules in view at once, working with your solicitors on the underlying wills and trust documentation. Reviewing the position now, while the planning windows described above are still open, costs a great deal less than resolving it after a death.