The estate of UK expats living in the US or holding US assets may be subject to estate tax upon death. Understanding the potential exposure to estate tax and its impact on the estate you want to pass down to your beneficiaries helps ensure asset protection and minimise unnecessary tax burden.
In this guide, we’ll discuss the estate tax in the US and explain whether, and to what extent, UK expats are subject to it. Additionally, we’ll emphasise the importance of estate tax planning and offer strategies for minimising this tax liability.
What You Will Learn
- What is the estate tax in the US, and how does it work?
- Are UK expats liable for estate tax in the US?
- What are the types of estate tax in the US, and what are their rates and thresholds?
- Why is estate tax planning important?
- What are the key estate tax planning strategies for minimising tax burden?
What Is Estate Tax?
According to the Internal Revenue Service (IRS), the estate tax is “a tax on your right to transfer property at your death.“ The tax is levied on one’s taxable estate when they pass away, and it must be settled before the assets are distributed to the beneficiaries.
Taxable estate includes everything one owns at the time of death, such as cash, property, shares, insurance, or annuities. Any outstanding financial obligations, such as mortgages, debt, and estate administration expenses, are subtracted from the total value to determine the exact taxable estate.
In the US, there are two types of estate tax that UK expats may be liable for:
- Federal: This tax is nationwide and is the same for everyone, regardless of the US state they live in.
- State: This tax applies in 12 US states and the District of Columbia. Each state regulates its estate tax rules, rates, and exemptions.
Since the UK government does not levy an estate tax but rather an inheritance tax (IHT), UK expats living in the US or holding US assets may be unfamiliar with the details of the US inheritance tax system.
The US does not impose a federal inheritance tax, but six US states do levy inheritance tax at the state level.
Unlike estate tax, which is paid by the estate before distribution, inheritance tax is paid by the individual beneficiary, and the rate often depends on their relationship to the deceased. Inheritance tax in the UK is contextually more similar to the US estate tax:
- Both are imposed on the value of the estate.
- Both offer tax exemptions in specific circumstances.
In contrast, inheritance tax in the US is levied at the state level and represents a tax on the privilege of receiving property; the beneficiary receiving assets from a deceased individual is liable for this tax in the US.
How Does Estate Tax Work?
The federal estate tax return and associated payments are due within nine months of the decedent’s time of death, but the executor or trustee can request a six-month filing extension. In addition to federal requirements, states that impose an estate tax on their residents have distinct rules governing filing requirements and payment deadlines, which must be adhered to independently.
The estate’s executor or trustee is responsible for filing the appropriate federal or state tax returns within the required time frame and ensuring the payment. Upon confirming there are no additional tax liabilities, the executor or trustee will distribute the remaining assets to the heirs. Note that the IRS can take up to three years to review the documentation and notify the executor or trustee about the outcome. It can:
- Accept the return as filed: The IRS has reviewed the return and found no mistakes or need for additional clarification.
- Schedule an audit: The IRS may require more information or may need to perform an additional assessment.
Why Is Estate Tax Planning Important?
Estate tax planning can help you:
- Minimise estate tax liability: The primary goal of estate planning is to develop a strategy for reducing the taxable value of your estate.
- Financially secure your heirs: Efficient estate tax planning can help increase the benefits inherited by your beneficiaries, contributing to their long-term financial stability.
- Achieve charitable goals: Supporting charitable organisations that align with your values can help you lower your estate tax exposure and leave a lasting legacy.
Are UK Expats Liable for Estate Tax?
To be liable for the US estate tax, UK expats must be one of the following:
- US citizens
- US residents for estate and gift tax purposes, which depends on one’s domicile status
A person is a US domicile if they:
- Have US citizenship (at the federal level, all US citizens are typically considered US domiciles)
- Live in the US and have no intent of leaving
Determining physical presence in the US is straightforward since it’s based on the number of days spent in the country. However, proving the intent to remain in the US is far more challenging, as there are no tests or formal checklists to demonstrate such intent. The IRS or relevant court may consider the following factors:
- Statement of intent (in estate planning documents, tax returns, visa applications, or other personal correspondence)
- Green card status
- Residential property and lifestyle in the US
- Location of business interests
- Motivation for being in the US
- Time spent in the US
- Ties to the UK
- Community affiliations
- Driver’s license or voter registration
- Vehicle registration
- Bank accounts
Estate tax rules that apply to US citizens also apply to US domiciles—if you’re a US domicile at the time of your death, your worldwide assets will be subject to US estate tax.
If you’re a non-US citizen and aren’t domiciled in the US but own US property at death, you’ll be liable for estate tax on US-situated assets, such as:
- Real estate
- Tangible personal property
- Stocks of corporations organised in or under US law
Residency for estate and gift tax purposes differs from residency for income tax purposes, which requires one of the following:
- Being a US lawful permanent resident
- Passing the substantial presence test
Meeting these criteria means you’ll be subject to tax on your worldwide income, but it doesn’t determine your estate and gift tax liability.
Federal Estate Tax Rates and Thresholds
The current federal estate tax threshold for US-domiciled individuals is $13.99 million; only the portion of an estate exceeding this amount is liable for estate tax. Decedents’ unused exemption can be transferred to their surviving spouse, which would allow them to distribute up to $27.98 million of their estate’s value without tax liability.
This high threshold is the result of the 2017 Tax Cuts and Jobs Act (TCJA). This legislation raised the estate tax exemption, providing significant benefits for high-net-worth individuals.
However, the TCJA provisions are scheduled to expire on 31 December 2025. For individuals who die on or after 1 January 2026, the federal estate tax exemption is expected to revert to approximately $7 million, adjusted for inflation, unless further legislation is enacted.
The estate tax threshold for non-residents, not citizens is significantly higher—their US assets will be subject to estate tax if they’re worth over $60,000.
Federal estate tax rates range from 18% to 40% and apply to US citizens, domiciliaries, and non-US domiciliaries with US-based assets. The tax is applied on a marginal basis, increasing progressively as the estate value surpasses the $13.99 million exemption.
In most cases, you’ll need to pay a base tax and an additional tax at the marginal rate on the portion exceeding the bracket’s threshold:
| Taxable Amount (Amount That Exceeds the Threshold) | Estate Tax Rate | Taxes Due |
|---|---|---|
| $1–$10,000 | 18% | $0 base tax 18% on the taxable amount |
| $10,001–$20,000 | 20% | $1,800 base tax 20% on the taxable amount |
| $20,001–$40,000 | 22% | $3,800 base tax 22% on the taxable amount |
| $40,001–$60,000 | 24% | $8,200 base tax 24% on the taxable amount |
| $60,001–$80,000 | 26% | $13,000 base tax 26% on the taxable amount |
| $80,001–$100,000 | 28% | $18,200 base tax 28% on the taxable amount |
| $100,001–$150,000 | 30% | $23,800 base tax 30% on the taxable amount |
| $150,001–$250,000 | 32% | $38,800 base tax 32% on the taxable amount |
| $250,001–$500,000 | 34% | $70,800 base tax 34% on the taxable amount |
| $500,001–$750,000 | 37% | $155,800 base tax 37% on the taxable amount |
| $750,001–$1,000,000 | 39% | $248,300 base tax 39% on the taxable amount |
| Over $1,000,001 | 40% | $345,800 base tax 40% on the taxable amount |
Under the unlimited marital deduction, individuals can transfer an unlimited amount of assets to a spouse without triggering the federal estate tax. This deduction is generally available only to US citizens.
However, a qualified domestic trust (QDOT) allows surviving spouses who are not US citizens to utilise the marital deduction on assets placed in the trust. While placing assets in a QDOT reduces the tax burden on the surviving spouse, the tax liability is not eliminated but only deferred. After the surviving spouse’s death, assets in a QDOT will be liable for estate tax.
State Estate Tax Rates and Thresholds
Twelve US states and the District of Columbia impose a state estate tax on the estates of their residents or, in some cases, estates located within their borders. Each state has unique rates and thresholds:
| State | Tax Rate | Exemption |
|---|---|---|
| Connecticut | 12% | $13,990,000 |
| District of Columbia | 11.2%–16% | $4,873,200 |
| Hawaii | 10%–20% | $5,490,000 |
| Illinois | 0.8%–16% | $4,000,000 |
| Maine | 8%–12% | $7,000,000 |
| Maryland | 0.8%–16% | $5,000,000 |
| Massachusetts | 0.8%–16% | $2,000,000 |
| Minnesota | 13%–16% | $3,000,000 |
| New York | 3.06%–16% | $7,160,000 |
| Oregon | 10%–16% | $1,000,000 |
| Rhode Island | 0.8%–16% | $1,802,431 |
| Vermont | 16% | $5,000,000 |
| Washington | 10%–20% | $2,193,000 |
The state tax imposed by New York is a cliff tax—if the estate’s value exceeds the threshold by 5%, only the excess will be taxed. If the total value surpasses the allowed 5%, the exemption isn’t available, and the tax is due on the total value of the estate.
The US–UK Estate and Gift Tax Treaty
Estates of UK expats who live or own assets in the US may be at risk of double taxation by both the US and the UK. To avoid this, the two countries have signed the US–UK Estate and Gift Tax Treaty.
The treaty offers provisions that help determine which assets will be taxed in which jurisdiction, offering UK expats clarity on available tax relief options.
Depending on one’s domicile, the treaty’s provisions can help non-US domiciles increase the estate tax exemption from the statutory $60,000 and reduce their taxable estate.
Tie-Breaker Provisions
If you are considered a tax resident of both the UK and the US, the US–UK treaty uses tie-breaker rules to determine your treaty domicile.
Under these provisions, you’ll qualify as treaty domiciled in the US if both apply:
- You’re a US citizen but not a UK national.
- You haven’t been a UK income tax resident for at least seven of the previous ten years.
In this case, only your UK real estate and “business property” of a UK permanent establishment will be exposed to UK IHT. Still, you may be able to reduce or avoid the UK IHT liability by using a treaty-protected trust. Under the treaty, UK IHT isn’t levied on property in a trust if the settlor was a US treaty domicile and not a UK national at the time of the trust’s establishment.
Those who are both US treaty domiciled and UK nationals will be subject to UK taxation on the entirety of their UK assets.
New UK IHT Regime
The UK’s inheritance tax laws underwent significant reform in April 2025, and the system has shifted from domicile-based to residency-based. Due to the scope of these reforms, understanding their impact on the treaty’s provisions is crucial for all UK expats who want to ensure compliance, utilise potential reliefs, and avoid double taxation. For this reason, it’s highly recommended to work with a cross-border tax expert.
Financial advisers at Titan Wealth International can explain the treaty’s provisions and their application to your unique circumstances. Additionally, they can help you develop personalised financial planning strategies for minimising tax exposure and preserving your estate.
Estate Tax Planning Strategies
Certain strategies can help you reduce your taxable estate if you’re a UK expat with US tax residency:
- Gifting assets to heirs
- Donating to charities
- Transferring assets to an irrevocable trust
Gifting Assets To Heirs
Developing an effective gifting strategy can result in a reduction of your taxable estate value. The strategy should take into account the US gift tax regulations, which apply to US citizens and residents.
For 2025, the annual gift tax exclusion is $19,000 per person or $38,000 for married couples. This is the maximum amount you can give to a single person. If a gift exceeds this limit, you may not be immediately liable for gift tax, but you’ll need to report the gift to the IRS.
The amount exceeding the yearly gift tax exclusion counts toward your lifetime gift tax exclusion, which is $13.99 million per person or $27.98 million per married couple. Note that the lifetime gift tax limit is shared between estate and gift taxes, which means that exceeding the annual gift tax exclusion will reduce the available exemption amount for estate tax purposes.
Non-residents, not citizens, are only subject to US gift tax on gifts of US-situated tangible assets and real estate. Gifts of intangible assets or foreign property are generally not subject to US gift tax and do not count against the unified lifetime exemption. If they’re giving a gift to their non-US citizen spouse, they can utilise the $190,000 tax-free allowance.
Considering the complexity of the rules governing gift and estate taxes, it’s essential to develop a strategy that balances gift-giving and long-term estate planning goals. Knowledgeable tax experts, such as those at Titan Wealth International, can help you successfully navigate thresholds, exemptions, and gift tax rules to reduce your taxable estate.
Donating To Charities
Charitable donations are exempt from the gift tax—assets left to a charity upon death are deducted from your gross estate before taxes, and there is no limit on the amount that can be donated.
Note that the charity you donate to must be deemed qualified under Section 501(c)(3) of the Internal Revenue Code to be tax-exempt. Some of the requirements for qualification prescribe that none of the charity’s earnings should belong to any private shareholder or individual and that the charity shouldn’t operate for the benefit of private interests.
Transferring Assets to an Irrevocable Trust
Irrevocable trusts are legal arrangements that cannot be modified or cancelled once established, and they can be powerful estate tax planning vehicles. You can utilise various types of irrevocable trusts:
- Irrevocable life insurance trust: It’s established during your lifetime to own and control your life insurance policy. After you pass away, the proceeds from the death benefit won’t count toward your taxable estate.
- Qualified personal residence trust: It allows you to remove your personal residence from your taxable estate and transfer it to your heirs while retaining the right to live on the property for a specific period. If you pass away before the trust’s expiration, the property will be included in your estate.
- Spousal lifetime access trust: It enables you to transfer your assets into a trust for the benefit of your spouse while retaining access to the assets.
Complimentary 15-Minute US Estate Tax Planning Call
Speak with Titan Wealth International’s cross-border tax specialists and:
- Understand how US estate and gift tax rules affect your UK–US estate.
- Explore QDOTs, exemptions, and treaty protections based on your residency.
- Receive bespoke strategies to reduce estate tax exposure and protect heirs.
Key Takeaway
The US imposes federal and estate taxes that can significantly reduce the amount of estate individuals can pass on to their heirs, and proper planning is crucial for minimising tax exposure.
US estate tax planning for UK expats can be challenging as they need to evaluate their residency and domicile status, understand applicable cross-border regulations, and consider all relevant thresholds, reliefs, and limitations.
To avoid tax issues and ensure compliance with both countries’ regulations, UK expats are strongly advised to work with tax experts. Financial advisers at Titan Wealth International can provide strategic estate tax planning guidance, which includes determining your status and applicable exemptions. They can develop personalised recommendations for estate tax efficiency, no matter how complex your financial circumstances.
