UK Inheritance Tax for Americans: How It Works With the U.S. Estate Tax
UK Inheritance Tax is charged on a deceased person’s estate at 40% above a £325,000 tax-free threshold, and it can reach Americans connected to the UK, but the U.S.-UK estate tax treaty usually stops the same assets from being taxed twice. The UK taxes the estate before money passes to heirs; the U.S. has no federal inheritance tax and only charges estate tax on estates above $13.99 million (2025), rising to $15 million in 2026. Where both countries have a claim, the treaty determines which country taxes what and provides a credit for the other country’s tax.
A few things to know upfront:
- The UK taxes the estate, not the heir. Inheritance Tax is paid out of the estate before you receive anything.
- Residence now drives UK exposure. Since April 2025, being a long-term UK resident, not your domicile, determines whether your worldwide estate is in scope.
- The U.S. has no inheritance tax. Most Americans owe no U.S. estate tax because of the very high exemption amount, though a few states have their own inheritance taxes.
- Reporting is separate from tax. A U.S. heir who owes nothing may still have to file Form 3520 for a large foreign inheritance.
This guide explains how UK Inheritance Tax works, how the U.S. estate tax interacts with it, and how the treaty keeps you from paying twice.
UK Inheritance Tax and the U.S. estate tax rarely line up.
How UK Inheritance Tax Works
UK Inheritance Tax (IHT) is a tax on the value of an estate when someone dies, paid by the estate itself. The standard rate is 40%, charged only on the value above the tax-free thresholds. You can confirm the current figures on the UK government’s Inheritance Tax pages.
| Threshold or relief | Amount (2025-26) | How it works |
|---|---|---|
| Nil-rate band | £325,000 | The value taxed at 0%; frozen through April 2030 |
| Residence nil-rate band | £175,000 | Extra band when a home passes to direct descendants; tapers away above a £2 million estate |
| Standard rate | 40% | Charged on the estate value above the available bands |
| Reduced charity rate | 36% | Applies if 10% or more of the net estate is left to charity |
Two reliefs matter most for couples and families:
- Spouse and civil partner exemption. Anything left to a UK spouse or civil partner is generally exempt with no limit, and any unused nil-rate band transfers to the survivor, so a married couple can often pass on up to £1 million between the two bands.
- The seven-year rule on gifts. A gift made more than seven years before death falls outside the estate, while a gift made three to seven years before death is taxed on a sliding taper that drops from 32% to 8%. Each person also has a £3,000 annual gift allowance on top.
The Shift From Domicile to Long-Term Residence
The biggest recent change is who the UK can tax. Before 6 April 2025, UK IHT exposure on worldwide assets turned on domicile, a slippery common-law concept. From 6 April 2025, the UK replaced it with a residence test, explained in the government’s guidance for long-term UK residents.
Here is what changed for Americans:
- You are a long-term UK resident once you have been a UK resident for at least 10 of the previous 20 tax years. At that point, your worldwide estate, not just your UK assets, is within the scope of UK IHT.
- Before you hit that 10-year mark, only your UK-situated assets (a UK home, UK bank accounts) are exposed.
- After you leave the UK, a tail keeps you in scope for between 3 and 10 years, depending on how long you were resident.
For an American who has lived in Britain for years, this means your U.S. brokerage accounts, your U.S. home, and your worldwide wealth can fall within UK IHT once you cross the long-term-resident line. That is exactly where the treaty becomes important.
The U.S. Side: Estate Tax, Not Inheritance Tax
The U.S. does not have a federal inheritance tax. Instead, it has an estate tax on the worldwide estate of U.S. citizens and domiciliaries, and the exemption is very high. Estates below the exemption owe no U.S. estate tax at all.
| U.S. estate tax | 2025 | 2026 |
|---|---|---|
| Basic exclusion amount | $13.99 million | $15 million |
| Top rate above the exclusion | 40% | 40% |
The 2026 figure of $15 million comes from the IRS inflation adjustments that incorporated the One Big Beautiful Bill. Because of this exemption, the large majority of Americans, including those living in the UK, owe no U.S. estate tax. A handful of U.S. states levy their own inheritance or estate tax with much lower thresholds, so your state of residence still matters, but at the federal level, most estates are well under the line.
The picture flips for a UK person who is not a U.S. citizen or resident but owns U.S. assets.
The U.S. taxes its U.S.-situated property, such as U.S. real estate or shares in U.S. companies, and the estate-tax filing threshold for a non-resident non-citizen is just $60,000, far below the citizen exemption.
So the mismatch runs both ways:
- UK estates: taxed at 40% above the £325,000 threshold.
- U.S. citizens and residents: exempt on the first $13.99 million.
- UK nationals with U.S. assets are subject to the U.S. estate tax only on amounts above $60,000.
That is why the treaty matters in both directions.
How the U.S.-UK Estate and Gift Tax Treaty Prevents Double Taxation
The U.S. and the UK have a dedicated estate and gift tax treaty, the 1979 Convention on estates, inheritances, and gifts, which is separate from the income tax treaty and is listed among the IRS estate and gift tax treaties. When both countries can tax the same estate, the treaty determines which country has the primary claim and requires the other to grant a credit, so the same assets are not taxed twice.
The Treaty Tie-Breaker That Decides Who Taxes Your Estate
When you could be treated as belonging to both countries, the treaty applies these tests in order:
- Where the person had a permanent home
- Where their personal and economic ties were closer (the center of vital interests)
- Where they had a habitual abode
- Their citizenship
Whichever country wins the tie-breaker generally taxes the worldwide estate; the other taxes only assets located within its own borders and credits the overlap. The table below shows how this plays out for the three most common situations:
| Your situation | UK Inheritance Tax | U.S. estate tax |
|---|---|---|
| American, U.S. resident, fewer than 10 UK years | UK-situated assets only | Worldwide estate, but exempt below $13.99 million |
| American, long-term UK resident (10 of last 20 years) | Worldwide estate at 40% above the bands | Worldwide estate, usually exempt; treaty credits any overlap |
| UK national, not U.S. resident, owns U.S. assets | Worldwide estate (UK rules) | U.S.-situated assets above $60,000; treaty raises the effective exemption |
The mechanics get technical quickly, and the right structure depends on the facts, so this is an area where coordinated U.S. and UK advice pays for itself.
What U.S. Heirs Must Report
Reporting and tax are not the same thing. Even when no U.S. tax is due, a U.S. person who receives a large inheritance from the UK has filing obligations:
- Form 3520 for large foreign inheritances. If you receive more than $100,000 from a non-U.S. person or estate in a year, you report it on Form 3520. It is informational, not a tax, but the penalties for missing it are steep. The details are in our guide to Form 3520 for foreign gifts and inheritances and our overview of U.S. tax on a foreign inheritance.
- A step-up in cost basis. Inherited assets generally take a new cost basis at the date-of-death value, which reduces your future capital gains, as covered in our answer on the step-up in basis for inherited foreign property.
- Spouse and trust planning. If your spouse is not a U.S. citizen, a qualified domestic trust (QDOT) may be needed to defer U.S. estate tax, and lifetime gifts have their own foreign gift tax rules.
A Real-World Example
James is a U.S. citizen who has lived in London for 15 years and owns a £1.2 million home plus U.S. investments. Because he is a long-term UK resident, his worldwide estate is within UK IHT. On his death, the UK applies its bands and charges 40% above them. His U.S. estate is far below the $13.99 million exemption, so no U.S. estate tax is due, and there is no double tax to reconcile. His U.S. heirs owe no U.S. tax on what they receive, but because the amount exceeds $100,000, they file Form 3520 to report it and take a stepped-up basis in the assets.
Frequently Asked Questions about the UK inheritance tax
Yes, in some cases. UK Inheritance Tax applies to UK-situated assets owned by anyone, and to the worldwide estate of a long-term UK resident, meaning someone UK-resident for at least 10 of the previous 20 tax years. If you are below that threshold, only your UK assets are exposed.
The U.S. does not tax you for receiving an inheritance. There is no federal inheritance tax, and the estate tax applies to estates exceeding $13.99 million (2025) or $15 million (2026). You may still need to report a large foreign inheritance on Form 3520, and a few U.S. states impose their own inheritance tax.
The 1979 estate and gift tax treaty decides which country has the primary right to tax an estate when both could, using a tie-breaker based on permanent home, center of vital interests, habitual abode, and citizenship. The other country limits its tax to assets within its borders and credits the overlapping tax, preventing full double taxation.
The nil-rate band is £325,000, taxed at 0%, with an additional £175,000 residence nil-rate band when a home passes to direct descendants. Unused bands transfer to a surviving spouse, so a married couple can often pass on up to £1 million before the 40% rate applies. The bands are frozen through April 2030.
If you receive more than $100,000 from a non-U.S. person or estate during the year, you report it on Form 3520. It is an informational filing, not a tax, but missing it carries significant penalties, so it is worth filing on time even when no tax is owed.
How Greenback Can Help
Estate questions sit at the intersection of two tax systems, and the UK side and the U.S. side rarely line up. Greenback’s U.S. CPAs and Enrolled Agents work alongside in-house UK Chartered Accountants on a single account, so your UK and U.S. positions are coordinated, the estate tax treaty is applied correctly, and your heirs know exactly what to report.
If you are managing an estate or planning ahead as an American in the UK, you can have both sides handled by one team that sees the whole picture. Learn more about how we help Americans living in the UK.
Get both your UK and U.S. returns handled by one team.
This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Estate and inheritance rules are complex, depend on your specific circumstances, and change frequently. Consult a qualified tax professional about your situation before taking any action.
Related Resources
- U.S. Tax on a Foreign Inheritance: IRS Rules
- Form 3520: Foreign Gift, Inheritance, and Trust Reporting
- Estate Taxes for U.S. Expats
- Step-Up in Basis for Inherited Foreign Property
- Qualified Domestic Trusts and Non-Citizen Spouses
- U.S. Gift Tax for Americans Abroad
- Capital Gains Tax on UK Property
- U.S.-UK Tax Treaty
- U.S. Expat Tax Guide for Living in the UK
- UK Tax Services for U.S. Expats
