Inheritance and Estate Tax for UK Expats in the USA (2026)

British people who move to the United States face two separate death tax systems that work in very different ways. The US levies a federal estate tax on the estate of the person who has died, while the UK charges inheritance tax (IHT) on a similar basis. The amounts at stake, the thresholds and the way the two countries divide up taxing rights are set out in the UK-US estate and gift tax treaty.

This guide explains how the US federal estate tax differs from UK IHT, the federal exemption for 2026, how the treaty allocates taxing rights, and the state-level taxes that sit on top of the federal charge.

• The US federal estate tax exemption is $15 million per person for deaths in 2026, made permanent by the One Big Beautiful Bill Act, which removed the planned 2026 sunset.
• The top federal estate tax rate is 40% on the amount above the exemption.
• Non-domiciled, non-resident individuals get only a $60,000 exemption against US-situated assets, though the treaty can change this.
• UK IHT uses a £325,000 nil-rate band, a 40% rate, and from 6 April 2025 a residence-based regime built around the long-term resident test.
• The UK-US treaty decides treaty domicile, gives one country primary taxing rights, and provides credit relief to prevent double taxation.
• Several US states levy their own estate or inheritance tax with much lower thresholds than the federal level.

US federal estate tax versus UK inheritance tax

Both taxes are charged on the estate rather than on the person receiving the money, and both apply a headline rate of 40%. The size of the tax-free amount is where they part company. For deaths in 2026 the US federal exemption is $15 million per individual, with married couples able to shelter up to $30 million between them. That figure was made permanent from 1 January 2026 under the One Big Beautiful Bill Act, which removed the earlier scheduled reduction back towards roughly $7 million. From 2027 the exemption is indexed for inflation.

The UK figure is far smaller. The IHT nil-rate band is £325,000, and a residence nil-rate band can lift the combined threshold to £500,000 where a main home passes to direct descendants. Anything above the relevant threshold is taxed at 40%. The practical effect is that a moderately wealthy British family can sit comfortably below the US federal exemption while still being exposed to UK IHT.

Which system applies depends on status, not nationality

A British citizen living in the US does not simply escape UK IHT by moving. From 6 April 2025 the UK replaced the old domicile-based system with a residence-based regime. A person is a long-term UK resident, and therefore within IHT on their worldwide assets, if they have been UK tax resident for at least 10 of the previous 20 tax years. After leaving the UK, worldwide assets stay within the IHT net for a tail of three to ten years depending on the length of prior residence.

On the US side, someone treated as US domiciled is taxed on their worldwide estate with the full $15 million exemption. Someone who is not US domiciled is taxed only on US-situated assets, such as US real estate and US company shares, and the standalone exemption for that group is just $60,000. That low figure, unchanged for decades, is a common trap for those who hold US assets without being US domiciled.

How the UK-US estate and gift tax treaty allocates taxing rights

The treaty exists to stop the same asset being taxed in full by both countries. It first decides where a person is treaty domiciled using tie-breaker rules based on permanent home, centre of vital interests, habitual abode and nationality. The country of treaty domicile generally taxes the worldwide estate, while the United States typically limits its reach to US-situated property. Where both countries tax the same asset, a credit is given for tax already paid on the overlapping property.

Real estate is treated differently. The country where land or buildings sit normally has primary taxing rights over that property, regardless of treaty domicile. So a UK-resident person who owns a property in New York can expect US tax on that property, with the UK giving credit relief. The treaty can also lift the $60,000 figure for treaty residents and offers protection for certain other US-situated assets held by a UK domiciliary.

State-level estate and inheritance taxes

The federal charge is not the whole picture. Around a dozen states plus the District of Columbia impose their own estate tax, and a small number of states levy an inheritance tax charged on the recipient. State thresholds are often far below the federal exemption, so an estate that owes nothing federally can still face a state bill. The table below shows how the two state-level taxes differ.

Maryland is the only state that applies both an estate tax and an inheritance tax. Because state rules and thresholds change and depend on where assets are located and where the person is resident, the position needs checking against the relevant state authority rather than assumed from the federal rules.

This article is for general information only and does not constitute financial, tax or regulatory advice. Kaeltripton.com is not authorised or regulated by the FCA. Pension and tax rules differ by country of residence and change over time. Verify any figure with official sources such as GOV.UK, HMRC or the FCA, and take advice from a suitably authorised adviser in your country of residence before acting.

FAQ

What is the US federal estate tax exemption for 2026?

For deaths in 2026 the federal estate tax exemption is $15 million per person, or up to $30 million for a married couple. This level was made permanent by the One Big Beautiful Bill Act, which removed the previously scheduled 2026 reduction.

Does a British expat in the US still pay UK inheritance tax?

Possibly. From 6 April 2025 the UK uses a residence-based regime. A person who has been UK tax resident for at least 10 of the previous 20 tax years is a long-term resident and remains within UK IHT on worldwide assets, with a tail of three to ten years after leaving.

How does the UK-US treaty stop double taxation?

The treaty decides treaty domicile using tie-breaker rules, gives the country of domicile taxing rights over the worldwide estate, and provides a credit for tax already paid on overlapping property. Real estate is generally taxed first by the country where it is located.

What is the exemption for non-domiciled individuals with US assets?

A person who is not US domiciled is taxed only on US-situated assets and receives a standalone exemption of just $60,000, which is not indexed for inflation. The treaty can increase the relief available to treaty residents.

Do US states charge their own death taxes?

Yes. Around a dozen states plus Washington DC charge an estate tax, and a small number of states charge an inheritance tax on the recipient. Thresholds are often well below the federal exemption, and Maryland applies both.