US UK Trust and Estate Tax Planning: The Basics Every Cross-Border Family Needs

US UK trust and estate tax planning starts from one fact: the two countries tax death on different bases. The US taxes the worldwide estate of its citizens. The UK taxes the worldwide estate of long-term residents. A family with a foot in each country can be inside both systems, and a will or trust built for one can trigger tax in the other. This guide sets out the rules that matter, the traps for mixed-nationality couples, and what to review first.

Estate planning is usually done locally. A UK solicitor writes a UK will with a discretionary trust. A US attorney sets up a revocable living trust. Each is standard practice at home. Neither adviser is usually asked what the other country will make of the document, and that gap is where most cross-border estate problems start.

Who is caught by US estate tax and UK Inheritance Tax?

The US reaches a person's worldwide estate through citizenship or US domicile, and the UK reaches it through long-term residence. Everyone else is taxed only on assets located in the country concerned. The table shows where the main groups stand.

Person	US estate tax	UK Inheritance Tax
US citizen, long-term UK resident	Worldwide estate	Worldwide estate
US citizen, recently arrived in the UK	Worldwide estate	UK assets only, until the long-term resident test is met
British citizen living in the UK, not a US citizen	US-situated assets only	Worldwide estate
British citizen settled permanently in the US	Worldwide estate once US domiciled	UK assets, plus worldwide assets while still within the long-term resident tail

The US side

The IRS estate tax page gives a filing threshold of $15,000,000 for deaths in 2026, up from $13,990,000 for 2025. An estate tax return is required where the gross estate, plus adjusted taxable gifts, exceeds the threshold. Lifetime gifts are reported separately: the annual gift tax exclusion is $19,000 per recipient for 2025 and 2026.

A person who is neither a US citizen nor domiciled in the US is treated very differently. The IRS explains that nonresidents with US assets are subject to estate tax on US-situated assets, which include US real estate, tangible property in the US and stock in US corporations, even when the share certificates are held abroad. The executor must file Form 706-NA if those assets are worth more than $60,000 at death. The same page notes that estate tax treaties can change which assets are caught.

The UK side

UK Inheritance Tax is charged at a standard rate of 40% on the part of an 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.

Since 6 April 2025 the test for worldwide exposure has been residence, not domicile. HMRC's guidance on Inheritance Tax for long-term UK residents says you are a long-term UK resident if you were UK tax resident for the previous 10 consecutive years, or for a total of 10 years or more within the previous 20. Once that test is met, non-UK assets come within Inheritance Tax. The status can continue for up to 10 tax years after you leave. Our guide to UK Inheritance Tax for Americans covers the test and the tail in detail.

The practical effect for an American in the UK is a reversal of the usual assumption. With a US threshold of $15,000,000 and a UK threshold of £325,000, the tax that most cross-border families actually pay on death is the British one, and it applies to the US brokerage account and the house in Florida as well as the home in Surrey.

How does US UK trust and estate tax planning change when one spouse is not a US citizen?

A mixed-nationality marriage removes the assumption that everything can pass to the survivor tax free. Both countries normally exempt transfers between spouses, and both restrict that exemption when the receiving spouse is outside their tax net.

• US: no unlimited marital deduction for a non-citizen spouse. Where the surviving spouse is not a US citizen, the estate tax marital deduction is generally allowed only if the assets pass into a qualified domestic trust, known as a QDOT, which keeps the assets within reach of US estate tax on the survivor's death.
• US: lifetime gifts to a non-citizen spouse are capped. The Instructions for Form 709 give an annual exclusion of $190,000 for gifts to a spouse who is not a US citizen for 2025. Gifts above the annual figure use up the giver's lifetime exemption and need a gift tax return.
• UK: the spouse exemption can be restricted. Where the spouse making the transfer is within worldwide Inheritance Tax and the spouse receiving it is not a long-term UK resident, the UK exemption is limited. An election is available for the receiving spouse to be treated as within the UK net, at the cost of bringing their own worldwide estate into Inheritance Tax.

The combination matters most where wealth sits mainly with one spouse. An American married to a British citizen, with most assets in the American's name, may find that the simple will leaving everything to the survivor works for the UK and fails the US test, or the reverse. This is the point at which a general will needs replacing with one drafted for both systems.

Why do trusts cause so much trouble across the two systems?

Trusts cause trouble because the US and the UK start from opposite positions. The US looks through many trusts and taxes the person behind them, while reporting foreign trusts heavily. The UK treats most trusts as separate taxable settlements with their own Inheritance Tax charges. A structure that is tax-neutral in one country is rarely neutral in the other.

Structure	How its home country sees it	How the other country sees it
UK discretionary will trust, UK trustees	Standard UK planning; a relevant property trust for Inheritance Tax	US: a foreign trust. US beneficiaries report distributions on Form 3520 and are taxed on trust income distributed to them
UK life insurance policy written in trust	Routine; keeps the payout outside the UK estate	US: can be a foreign trust with a US owner, requiring Form 3520 and Form 3520-A
US revocable living trust	Ignored for US tax; avoids probate	UK: can be a settlement, with an Inheritance Tax charge when funded by a long-term UK resident
US irrevocable trust for children	Common US estate planning	UK: a relevant property trust, with entry, ten-year and exit charges if the settlor is within worldwide Inheritance Tax

UK trusts in American hands

The IRS page on foreign trust reporting explains that a trust is a US person only if a US court exercises primary supervision over its administration and US persons control all substantial decisions. A trust run by UK trustees under English law meets neither condition, so it is a foreign trust.

The Instructions for Form 3520 require a US person to report transfers to a foreign trust, ownership of one under the grantor trust rules, and distributions received from one. A foreign trust with a US owner also files Form 3520-A, due by the 15th day of the third month after the end of the trust's tax year. The penalties are out of proportion to the forms: the initial penalty is the greater of $10,000 or 35% of the amount transferred or distributed, or 5% of the trust assets for an owner's reporting failure.

The cases we see most often are not exotic. They are a US citizen named as a beneficiary of a British parent's will trust, a US citizen who is a trustee of a family trust, and a UK life policy or pension death benefit placed in trust on an adviser's standard form.

US trusts in British hands

HMRC's guidance on trusts and Inheritance Tax sets out the UK regime. A transfer into a trust above the £325,000 threshold is charged at 20% if the trustees pay. Relevant property is then charged at each ten-year anniversary, and when it leaves the trust an exit charge of up to a maximum of 6% applies. From 6 April 2025, whether foreign assets in a trust are outside these charges depends on whether the settlor is a long-term UK resident.

For an American who has lived in the UK long enough to meet that test, funding a US trust is therefore a UK event. A revocable living trust set up on a US attorney's advice, and funded with a US investment account, can be treated as a settlement for Inheritance Tax even though the US ignores it. The order of events matters: a trust funded before the settlor became a long-term UK resident is in a different position from one funded after.

What the US/UK estate and gift tax convention does

The US and the UK have a separate convention for estate, gift and inheritance taxes, distinct from the income tax treaty. HMRC's page on Inheritance Tax double taxation relief lists the USA convention with a date of entry into force of 11 November 1979, and states that relief is given in accordance with the terms of the convention.

In broad terms the convention does three things. It sets rules for deciding which country a person belongs to where both claim them. It generally gives the country where land and business property are located the first right to tax them, and limits the other country's right to tax other assets of someone who belongs to the first. And it requires the country of nationality or domicile to give credit for tax the other has charged on the same property.

Illustrative example, with invented figures: Sarah is a US citizen who has lived in London for 18 years. Her husband is British and not a US citizen. She owns a London home worth £900,000, a US brokerage account worth $1,200,000 and a holiday flat in Florida worth $500,000. For the UK she is a long-term resident, so all three assets are within Inheritance Tax at 40% above the available thresholds, subject to the spouse exemption. For the US her worldwide estate is far below the $15,000,000 filing threshold for 2026, so no US estate tax is due. Her planning questions are British ones: how the UK spouse exemption applies, whether her US accounts pass under a US will or a UK one, and whether the revocable trust her US adviser suggested would be a UK settlement.

Reverse the facts and the answer changes. If her British husband owned the Florida flat and the US shares in his own name, the US would treat him as a nonresident non-citizen with US-situated assets well over $60,000, and his executor would need to consider Form 706-NA and the convention.

What should a cross-border family review first?

A first review for a US/UK family is a fact-gathering exercise before it is a planning one. Work through these steps in order.

1. Establish each person's status. US citizen or green card holder? UK resident for how many of the last 20 tax years? The answers decide which systems apply.
2. List assets by owner and by country. Include pensions, life policies and anything already in trust.
3. Read the existing wills together. Check that a later will has not revoked an earlier one for another country, and that executors can act in both places.
4. Test the spouse position. If one spouse is not a US citizen, or not a long-term UK resident, the standard everything-to-my-spouse will needs checking against both sets of rules.
5. Identify every trust. For each one, ask who settled it, who the trustees are, who can benefit and whether any of them is a US person.
6. Check lifetime gifts. The UK looks back seven years on gifts; the US requires a gift tax return above the annual exclusion; a US person receiving more than $100,000 from a foreign person files Form 3520.
7. Review when circumstances change. Reaching ten years of UK residence, moving country, marriage, divorce and receiving an inheritance all change the analysis. Our guide to an inheritance from the UK for a US citizen covers the reporting when you are the one receiving.

What cross-border families get wrong

• Assuming the US exemption solves everything. A $15,000,000 threshold removes US estate tax for most families. It does nothing about UK Inheritance Tax at 40% above £325,000.
• Importing a US living trust into a UK life. What avoids probate in the US can create an Inheritance Tax charge in the UK.
• Ignoring US reporting on UK trusts. No US tax may be due, and the Form 3520 penalty still applies.
• Forgetting the non-citizen spouse rules. Large transfers between spouses are not automatically exempt in either country.
• Leaving US assets in a British spouse's sole name. US shares and US property held by a nonresident non-citizen are exposed to US estate tax above $60,000, subject to the convention.
• Treating the plan as finished. The UK rules changed fundamentally on 6 April 2025, and the US threshold changed for 2026. A plan written before either date needs rereading.

Getting advice that covers both countries

Estate planning for a US/UK family is not more complicated than either country's rules alone so much as easier to get wrong, because each adviser sees half of it. The useful step is to have one team look at the wills, trusts, gifts and asset ownership against both systems at once, and then instruct the lawyers in each country with a single brief.

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 provide US UK trust and estate tax planning alongside the annual filings, including Form 3520 and Form 3520-A for UK trusts and US gift tax returns. If you are part of a cross-border family or a high net worth individual with assets in both countries, contact us for a fixed fee quote.