UK Inheritance Tax for Americans: The Long-Term Resident Test After the 2025 Reforms

UK Inheritance Tax applies to Americans in two ways: on UK assets from the day they own them, and on worldwide assets once they have been UK resident for 10 of the previous 20 tax years. That long-term resident test replaced domicile on 6 April 2025, and the charge is 40% above a £325,000 threshold. The US estate tax rarely bites at the same level, so for most Americans in Britain the UK is the tax that matters.

Before April 2025, an American living in the UK could often say that they remained domiciled in their home state and that their US assets were outside UK Inheritance Tax. That argument no longer decides the question. The test is now a count of tax years, and it applies whatever your citizenship, your intentions or the place you call home. This guide explains the test, the tail after you leave, how the UK charge sits next to US estate tax, and what to review. It follows on from our overview of the non-dom changes for Americans in the UK.

When does UK Inheritance Tax apply to Americans?

UK Inheritance Tax applies to Americans on two different bases, and it helps to keep them apart. The first is the location of the asset. The second is the residence history of the owner.

Your position	Assets within UK Inheritance Tax
Not a long-term UK resident	UK assets only: UK land and buildings, UK bank accounts, shares in UK companies and other property situated in the UK.
Long-term UK resident	Worldwide assets: everything above, plus US real estate, US brokerage and retirement accounts, and assets held anywhere else.
Former long-term UK resident, within the tail	Worldwide assets, until the tail period ends.

GOV.UK gives the standard Inheritance Tax rate as 40%, charged only on the part of the estate above the £325,000 threshold. The threshold can rise to £500,000 where a home passes to children or grandchildren, and any unused threshold can pass to a surviving spouse or civil partner. HMRC's thresholds guidance confirms that the £325,000 nil rate band and the £175,000 residence nil rate band are fixed until the end of the 2030 to 2031 tax year, and that the residence band is tapered away for estates above £2 million.

A London home alone can exceed those figures. An American couple who have owned a UK property for two years and have no other UK ties are already inside the UK charge on that property.

What is the long-term UK resident test?

The long-term UK resident test asks one question: for how many of the last 20 tax years were you UK resident? GOV.UK guidance says you are a long-term UK resident in a tax year if you were UK resident for the previous 10 consecutive tax years, or for a total of 10 or more of the previous 20.

Three points follow from the way the test is written.

• Residence is decided year by year. Each tax year is tested under the Statutory Residence Test. A year of split-year treatment is still a year of UK residence for this count, so the clock usually starts in the tax year you arrive.
• Domicile no longer protects you. An American who intends to retire to Florida and has never planned to stay in Britain is a long-term UK resident after ten years all the same.
• Trusts are caught too. GOV.UK says Inheritance Tax will be charged on overseas assets in a trust you have set up or added to. A US revocable living trust, which is routine estate planning in the US, needs a UK review before the ten-year point and ideally before you arrive.

There are transitional rules for people who left the UK before the new rules began and for trusts settled under the old regime. They are narrow, and they depend on your status on 30 October 2024 and your residence in 2025 to 2026, so take advice before relying on one.

The tail: how long the charge follows you after you leave

Leaving the UK does not end long-term resident status straight away. GOV.UK says you can keep the status for up to 10 tax years after leaving, and that the period is shorter if you have not lived in the UK for all of the previous 20 years.

Tax years of UK residence in the previous 20	Tail after leaving
10 to 13	3 tax years
14	4 tax years
15	5 tax years
16 to 19	One further year for each extra year of residence
20	10 tax years

The first three rows are the examples GOV.UK gives; the pattern continues up to the 10-year maximum. A return to the UK after 10 consecutive years of non-residence resets the 10-out-of-20 count.

For Americans this changes the timing of a move home. Someone who has lived in the UK for 12 years and returns to the US remains within UK Inheritance Tax on worldwide assets for three more tax years. Leaving in year nine, before the test is met, produces a very different result from leaving in year eleven. If a return to the US is likely, the date belongs in the plan alongside the points in our pre-move planning checklist.

How UK Inheritance Tax and US estate tax fit together

The US taxes the worldwide estate of its citizens wherever they live, so an American who is a long-term UK resident is within both systems at once. The two taxes are built very differently.

	UK Inheritance Tax	US federal estate tax
Who is taxed on worldwide assets	Long-term UK residents	US citizens and US-domiciled individuals
Tax-free amount	£325,000 nil rate band, plus up to £175,000 where a home passes to direct descendants	$15,000,000 basic exclusion amount for deaths in 2026
Lifetime gifts	Most gifts fall out of the estate after 7 years	Taxable gifts count against the same lifetime exclusion
Non-resident, non-citizen owners	UK assets only	US-situated assets only, with a return required above $60,000

The IRS estate tax page gives the filing threshold for a death in 2026 as $15,000,000. The gap between that figure and £325,000 is the heart of the issue. An American with a UK home, a US brokerage account and an IRA can be far below the US exclusion and well above the UK threshold. For that family the estate tax planning they did in the US is largely beside the point; the exposure is in the UK.

For British spouses of Americans the position is reversed on one asset class. The IRS says a non-resident who is not a US citizen is subject to US estate tax on US-situated assets, including shares in US corporations, and that the executor must file Form 706-NA where those assets exceed $60,000. Estate tax treaties can give more favourable treatment, and the UK treaty is one of them.

The US/UK estate and gift tax convention

The UK and the US have a separate treaty for estates and gifts, distinct from the income tax treaty. GOV.UK lists it as in force since 11 November 1979 and explains the basic mechanism: where overseas tax has been paid on the same assets, HMRC gives a credit against the UK Inheritance Tax, limited to the overseas tax actually paid on those assets.

The convention was written around domicile, and it still uses that concept to decide which country has the main taxing right. HMRC's manual, at IHTM47001, explains that domicile remains relevant in some cases, including for treaties, even though the domestic test is now long-term residence. Working out which country taxes first, and which gives the credit, is therefore a treaty question that should be answered for your facts rather than assumed.

Illustrative example: Daniel is a US citizen who moved to London in the 2014 to 2015 tax year and has been UK resident ever since. By 2026 to 2027 he has more than 10 years of UK residence, so he is a long-term UK resident. He owns a half share of a UK home worth £600,000, a US brokerage account worth £500,000 and an IRA worth £400,000, a total of £1,500,000. Before April 2025 he might have argued that the US assets were outside UK Inheritance Tax because he was domiciled in New York. Now, assuming the IRA forms part of his estate for UK purposes, all £1,500,000 is in scope. If he left everything to his children, with the £325,000 nil rate band and the £175,000 residence nil rate band available, £1,000,000 would be taxed at 40%, a UK charge of £400,000. His estate is far below the $15,000,000 US exclusion, so no US estate tax would be due and there would be no US tax to credit.

The spouse exemption trap for mixed couples

Transfers between spouses and civil partners are normally exempt from UK Inheritance Tax without limit. There is one exception, and it falls squarely on couples where one partner has been in the UK much longer than the other.

HMRC's Inheritance Tax Manual at IHTM47038 gives the example of a long-term UK resident making a transfer to a spouse who is not a long-term UK resident. The transfer is exempt only to the extent of the nil rate band, currently £325,000. Anything above that is treated like a gift to anyone else.

The spouse who is not a long-term resident can elect to be treated as one. The manual sets out the consequences:

• The election makes the transfer fully exempt, as a transfer between two long-term UK residents.
• The electing spouse is treated as a long-term UK resident for all Inheritance Tax purposes, so their own worldwide assets come into the UK net.
• Once made, the election cannot be revoked. It lapses only after 10 consecutive years of non-UK residence.

A British spouse with 25 years of UK residence, married to an American who arrived four years ago, is the typical case. If the British spouse dies first and leaves everything to the American spouse, the unlimited exemption is not automatically available. Whether to elect depends on the size of the American spouse's own estate outside the UK. The US has its own restriction on the marital deduction where the surviving spouse is not a US citizen, so a mixed couple can meet a spouse limit on both sides. We look at the wider picture in tax planning for US/UK mixed couples.

Gifts, pensions and what changes in 2027

GOV.UK says no Inheritance Tax is due on gifts if you live for 7 years after making them, unless the gift is into a trust. Gifts made in the 3 years before death are taxed at 40%, and gifts made 3 to 7 years before death are taxed on a sliding scale where the total given in those 7 years is above £325,000. You can also give away £3,000 each tax year under the annual exemption.

For a US citizen, a gift that works for UK purposes must also be tested against US gift tax, which has its own annual exclusion and reporting on Form 709. A gift that is ignored by HMRC after seven years may still need to be reported to the IRS in the year it is made.

Pensions are the next change. GOV.UK guidance confirms that from 6 April 2027 most unused pension funds and death benefits will be included in the estate for Inheritance Tax, with personal representatives responsible for reporting and paying the tax. Death in service benefits are excluded, and benefits passing to a surviving spouse or civil partner remain exempt. Americans who have treated a SIPP or workplace pension as the asset to leave untouched should revisit that assumption before 2027.

What Americans in the UK should review now

1. Count your years. List each UK tax year since you arrived and mark whether you were UK resident. Know the tax year in which you reach 10 out of 20.
2. Value the worldwide estate in pounds. Include US property, brokerage accounts, IRAs and 401(k)s, life insurance and any interest in a trust.
3. Check both wills. A US will and a UK will must not revoke each other by accident, and each should work with the spouse exemption rules in both countries.
4. Review any US trust. A revocable living trust can create UK Inheritance Tax charges of its own once you are a long-term UK resident.
5. Decide on the spouse election in advance. The election is irrevocable, so model it before it is needed.
6. Plan the departure date. If you expect to return to the US, the number of years you have been resident sets the length of the tail.
7. Revisit pension nominations before April 2027.

How we help with UK Inheritance Tax for Americans

UK Inheritance Tax for Americans is a two-system problem. A plan that is efficient under the US estate tax can be costly under the UK rules, and the reverse is also true. The long-term resident test has made the UK side unavoidable for anyone who stays a decade.

US/UK Cross Border Tax is a team of US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco. We model the UK and US exposure together, review wills and trusts against both systems, and work alongside your solicitors and US attorneys. Our US UK trust and estate tax planning service covers the long-term resident test, the spouse election and the estate tax treaty, and our team for high net worth families handles larger estates with assets in both countries. To review your own position, contact us.