Last reviewed: 17 May 2026
TL;DR: The 1978 US-UK estate and gift tax treaty allocates primary taxing rights between the two countries for cross-border estates and provides credit mechanisms to avoid double taxation. For US citizens in the UK and UK residents with US assets, the treaty interacts with the post-April 2025 UK residence-based IHT rules and US worldwide-citizenship taxation in highly specific ways.
Key facts
- The US-UK Estate and Gift Tax Treaty of 1978 is the operative bilateral instrument allocating taxing rights between the two countries for cross-border estates.
- US citizens are subject to US federal estate tax on worldwide assets regardless of where they live, including in the UK; the federal exemption is currently set at a high lifetime amount that is indexed annually.
- The treaty's tie-breaker rules determine domicile (for treaty purposes) for individuals connected to both countries, using a defined hierarchy.
- From 6 April 2025, the UK switched to a residence-based IHT regime; the treaty continues to operate alongside, with adaptations for the new test.
- US citizens in the UK frequently use a US bypass trust structure on first death to maximise the use of US exemptions; the structure interacts with UK IHT rules and benefits from coordinated planning.
For US citizens living in the UK, and for UK residents with substantial US assets, the US-UK Estate and Gift Tax Treaty of 1978 is the central instrument that determines how each country taxes the cross-border estate. The treaty is one of nine bilateral estate or inheritance tax treaties the UK maintains, but it is the most important in practice because the US is one of the few major jurisdictions that taxes its citizens on worldwide assets regardless of residence. The reform of the UK IHT regime from 6 April 2025 changed the UK side of the equation; the treaty continues to operate but its application requires fresh analysis.
This article is for migrants between the UK and US: US citizens working in the UK on Skilled Worker, Health and Care Worker, or Global Talent visas, US citizens with ILR or British citizenship who remain US citizens by birth, and UK residents who own US-situated assets. It starts with the status question that the treaty itself starts with.
Why the treaty matters for US-UK migrants
The US taxes its citizens on worldwide income and on worldwide assets at death, regardless of where they live. A US citizen working in the UK on a Skilled Worker visa is exposed to US federal estate tax on their worldwide estate at death, including UK-situated assets. Without treaty relief, the same asset could be taxed by both the UK and the US.
UK residents with US-situated assets (notably US real estate, US-incorporated company shares held directly, and US dollar bank accounts in some structures) are exposed to US federal estate tax on those US assets at death even where they have no other US connection. The federal exemption available to non-US persons is much lower than the exemption available to US citizens; the treaty provides a route to access a more favourable exemption in certain circumstances.
What the treaty does
The treaty allocates primary taxing rights between the UK and the US for assets of an estate based on the connection of the deceased and the situs of the asset. Three main mechanisms operate.
Tie-breaker rules for domicile
For individuals whose connection to both countries would otherwise make them taxable in both, the treaty contains a hierarchy of tie-breaker rules to determine domicile for treaty purposes. The rules consider permanent home, centre of vital interests, habitual abode, and citizenship in that order. The treaty's domicile concept is distinct from the historical UK domestic domicile concept and from the post-April 2025 UK long-term resident test.
Allocation of taxing rights by asset type
Certain asset classes are taxable primarily by the country where the asset is situated; others are taxable primarily by the country of domicile. The treaty's allocation matrix is specific and benefits from careful review for any cross-border estate.
Credit relief
Where both countries are entitled to tax the same asset, the treaty (and the parties' domestic credit rules) provide a credit for tax paid in the other country, reducing or eliminating the double taxation outcome.
The post-April 2025 UK residence-based regime
The UK abolished its domicile-based IHT framework on 6 April 2025 and replaced it with a residence-based regime. A person is now a long-term UK resident, and exposed to UK IHT on worldwide assets, once they have been UK-resident for 10 of the previous 20 tax years.
The treaty was drafted around the old domicile concept. HMRC guidance and the Finance Act 2025 specify how the new long-term resident concept interacts with the treaty. The general position is that the treaty continues to apply but with the new long-term resident test substituting for the historical UK deemed domicile rules in the treaty's mechanics. Migrants approaching or past the 10-year threshold should obtain specialist advice on how their treaty position has changed.
US citizens in the UK: the worldwide overlap
A US citizen who has been UK-resident for at least 10 of the previous 20 tax years is, from 6 April 2025, a long-term UK resident for UK IHT and remains a US citizen for US federal estate tax. Worldwide assets are within both regimes.
The treaty mechanism for this overlap is credit relief: each country gives credit for tax paid in the other country on the same asset. Because UK IHT is charged at 40 percent above the nil-rate band and US federal estate tax is charged at up to 40 percent above the lifetime exemption (which is materially higher than the UK nil-rate band), the practical outcome for a typical estate is that the UK tax is the effective rate and the US tax is largely absorbed by the credit, although the precise calculation depends on the asset mix.
UK residents with US-situated assets
A UK resident who is not a US citizen and not a US green card holder is treated for US federal estate tax purposes as a non-resident alien (NRA). NRAs are subject to US federal estate tax on US-situated assets at death, with a much lower exemption than US citizens (the NRA exemption is set at 60,000 US dollars).
The treaty provides a more favourable position for UK residents in some circumstances, in particular by allowing access to a portion of the US citizen exemption proportionate to the US-situated share of the worldwide estate. The mechanism is complex and depends on accurate valuation of the worldwide estate and careful claim under the treaty. Specialist US tax advice is essential.
Common structures for US-UK migrant estates
Bypass trust on first death
US citizen couples in the UK commonly use a US-style bypass trust on first death to maximise the use of the deceased spouse's US lifetime exemption. The trust holds assets up to the exemption amount and removes them from the surviving spouse's estate for both US and (with care) UK purposes. The structure's interaction with UK IHT requires careful coordination because UK rules treat trusts differently from US rules.
QDOT for non-US-citizen spouse
Where the surviving spouse is not a US citizen, the US marital deduction is restricted unless assets pass through a Qualified Domestic Trust (QDOT) that satisfies specific US requirements. The QDOT route is common for US-UK couples where one spouse is a US citizen and the other is a UK national. The structure has separate UK IHT implications.
US life insurance held by non-US-situs trust
Owning US-issued life insurance through a non-US-situs irrevocable trust can keep the death benefit outside the US estate while providing liquidity for both US and UK tax liabilities. The structure benefits from coordinated drafting in both jurisdictions.
Reporting and disclosure obligations
US citizens in the UK have ongoing US tax reporting obligations regardless of UK status: annual federal income tax returns (Form 1040), FBAR for foreign financial accounts over the threshold, Form 8938 for foreign financial assets, Form 3520 for gifts and trusts in some circumstances, and (at death) Form 706 estate tax return where the estate exceeds the filing threshold.
UK residents with US assets have UK reporting obligations on those assets in the usual way: UK self-assessment for income and gains, IHT returns at death. The interaction between the two reporting systems is a recurring source of friction in cross-border migrant planning.
Common pitfalls in US-UK migrant estates
The most common pitfall is the assumption that one country's structures work seamlessly in the other. A UK-drafted will, UK ISAs, UK pensions, and UK trusts all have specific US tax treatment that often differs from their UK treatment. Conversely, US 401(k)s, IRAs, US trusts, and US life insurance have specific UK treatment that often differs from the US treatment.
A second common pitfall is the failure to claim treaty relief properly. The treaty's mechanisms must be invoked through specific filings on both sides; default treatment can be worse than the treaty's best outcome. A third pitfall is the post-April 2025 reform: structures and assumptions that worked under the old non-dom regime may not under the new long-term resident regime.
Important: This article is for general information and does not constitute regulated financial advice or legal advice. US-UK cross-border estate planning is complex and involves UK and US tax law, the bilateral treaty, and the post-6 April 2025 UK IHT reform. Advice from a US tax adviser and a UK tax adviser experienced in cross-border estates is essential. Treaty interpretations and US exemption thresholds change; verify the current position before acting.
Frequently asked questions
Does the US-UK estate tax treaty still apply after the April 2025 UK reform?
Yes. The treaty continues to operate alongside the new UK residence-based IHT regime. HMRC guidance and the Finance Act 2025 specify how the new long-term UK resident concept interacts with the treaty's mechanics. The general position is that the treaty applies with the long-term resident test substituting for the old deemed domicile rules.
Am I exposed to US estate tax if I am a US citizen living in the UK?
Yes. US citizens are subject to US federal estate tax on worldwide assets regardless of where they live. UK residence does not remove the US exposure. The treaty provides credit relief mechanisms to avoid double taxation where the UK also taxes the same asset under the long-term UK resident rules.
I am a UK resident with a US holiday home. How is it taxed at my death?
US-situated real estate is subject to US federal estate tax at death even where the owner is not a US person. The exemption for non-US persons is much lower than for US citizens. The US-UK treaty can provide access to a more favourable exemption in some circumstances. Specialist advice is essential.
Does the treaty cover gifts as well as estates?
Yes. The 1978 treaty covers both estate tax and gift tax. Lifetime gifts between the US and UK can trigger US gift tax (on the donor) and UK IHT consequences (on the donor's estate within the seven-year clock). The treaty allocates taxing rights and provides credit relief.
What is a QDOT and when is it needed?
A Qualified Domestic Trust (QDOT) is a US trust structure used to access the US marital deduction where the surviving spouse is not a US citizen. Without a QDOT, transfers to a non-US-citizen surviving spouse do not qualify for the unlimited marital deduction. QDOTs are common in US-UK couples where one spouse is a US citizen and the other is a UK national.
Where can I check the current US exemptions and treaty mechanics?
The Internal Revenue Service publishes the federal estate tax exemption and current rules; the US Treasury and IRS technical explanations of the treaty are the authoritative US-side source. On the UK side, HMRC's Inheritance Tax Manual sets out the UK's interpretation of treaty interactions with the post-April 2025 regime.
