US Estate Tax Exemption 2026 & UK Inheritance Tax Planning
US estate tax exemption 2026 UK inheritance tax planning for dual-nationality couples: avoid double exposure on the same assets. Book a confidential review.
Two regimes, one estate, both taxing
From 2026 the US federal estate and gift tax exemption sits at $15 million per person, while the UK nil-rate band remains frozen at £325,000. Dual-nationality couples are therefore planning against two regimes that are roughly forty-six times apart in generosity — and the same asset can fall inside both.
The $15 million window and the £325,000 floor
The One Big Beautiful Bill Act made the elevated US transfer tax exemption permanent and reset it to $15 million per individual from 1 January 2026, indexed for inflation thereafter. A married US-citizen couple with proper portability elections can therefore shelter roughly $30 million from federal estate tax. That is a genuinely wide window, and for the first time in a decade it is not scheduled to slam shut at a known sunset date.
The UK has moved in precisely the opposite direction. The nil-rate band has been £325,000 since April 2009 and is frozen into the 2030s. The residence nil-rate band of up to £175,000 is available only where a qualifying residence passes to direct descendants, and it tapers away by £1 for every £2 by which the estate exceeds £2 million — which means most of the readers of this guide will never see a penny of it. Above the available bands, UK inheritance tax bites at 40%.
The consequence is structural. A couple who take comfort from the US number and assume they are "well within the exemption" may be sitting on an estate that is almost entirely exposed on the UK side. The reverse mistake — UK-centred planning that ignores US citizenship — is just as common and considerably more expensive, because the US taxes its citizens on worldwide assets regardless of where they live or die.
How do the two regimes actually compare?
| Feature | United States (IRS) | United Kingdom (HMRC) |
|---|---|---|
| Headline exemption / threshold | $15m per person from 2026, inflation-indexed | £325,000 nil-rate band, frozen; up to £175,000 residence nil-rate band |
| Top rate | 40% on the taxable estate above the exemption | 40% above available bands (36% where 10%+ of the net estate passes to charity) |
| Connecting factor | Citizenship and domicile — worldwide assets for citizens | Long-term UK residence (from April 2025) — worldwide assets once within scope |
| Spousal transfer | Unlimited marital deduction, but only to a US-citizen spouse | Unlimited spouse exemption, capped where the recipient spouse is outside the UK IHT net |
| Transfer of unused allowance | Portability of the deceased spousal unused exclusion, election required | Transferable nil-rate band, claimed on the second death |
| Lifetime gifts | Unified with the estate exemption; annual per-donee exclusion available | Potentially exempt transfers, generally free of IHT after seven years |
| Basis / CGT interaction | Step-up in basis at death for assets in the taxable estate | Capital gains tax uplift to probate value; no CGT on death |
| Non-residents / non-domiciliaries | Exemption of only $60,000 against US-situs assets | UK-situs assets always in scope, including UK residential property held offshore |
Why does the same asset get taxed twice?
Double exposure is not an exotic edge case. It arises whenever the two regimes claim the same estate through different doors. The US claims through citizenship. The UK claims through long-term residence, and additionally through situs — UK land and buildings are within the UK net irrespective of who owns them or through what structure.
Consider a familiar profile. An American executive has lived in London for fifteen years. Her husband is a British citizen who has never held a green card. They own a Kensington house, a portfolio of US brokerage assets, UK pensions, and a share of a family business. On her death, the US taxes her worldwide estate as a citizen. The UK taxes her worldwide estate because she is a long-term resident. The house is in scope twice over. The portfolio is in scope twice over. And because her husband is not a US citizen, the unlimited US marital deduction that most American couples take for granted simply is not available to her.
The non-citizen spouse problem
US law permits an unlimited marital deduction only for transfers to a US-citizen surviving spouse. Where the survivor is not a citizen, an outright bequest is a taxable transfer. The statutory answer is a qualified domestic trust, which defers the estate tax until distributions of principal are made or the survivor dies. A QDOT works, but it is a drafting exercise that must be completed properly — with a US trustee, security arrangements for larger trusts, and an election made on the estate tax return. Retrofitting one after death is possible in limited circumstances and is never the cheaper route. We deal with this in detail in our guide to trusts and estate planning for cross-border families.
Lifetime gifting between spouses is also asymmetric. Gifts to a non-citizen spouse do not enjoy the unlimited exclusion; instead an enhanced annual exclusion applies, indexed each year. Couples who casually equalise assets between them — a very sensible UK planning instinct — can therefore be making reportable US gifts without realising it.
The mirror-image UK cap
The UK has its own version of the same asymmetry. Transfers between spouses are exempt from IHT, but where the transferor is within the UK net and the recipient spouse is not, the exemption is limited to an amount equivalent to the nil-rate band, unless the recipient elects to be treated as within scope for IHT purposes. That election is irrevocable in practice for a period and brings the electing spouse's worldwide estate into UK charge. It is sometimes exactly right and sometimes catastrophic; it should never be made without modelling both regimes together.
What replaced domicile in the UK from April 2025?
The abolition of the non-domiciled regime was the most significant change to UK private client taxation in a generation. For inheritance tax, common-law domicile was replaced by a residence-based test: an individual becomes a long-term resident, and therefore within the scope of UK IHT on worldwide assets, once they have been UK resident for at least ten of the previous twenty tax years. On leaving, a tail period keeps the estate in scope for a number of years depending on the length of prior residence.
For Americans in London this changed the arithmetic materially. The old planning — remain non-domiciled, keep offshore assets outside the UK net indefinitely — no longer holds. The ten-year clock is objective, countable, and for many long-term residents it has already run. Excluded property trusts settled before the individual became long-term resident retain considerable value, but the protections are narrower than they once were, and the settlor's own residence status now matters on an ongoing basis rather than being fixed at the date of settlement.
Layered on top, unused pension funds and death benefits are being drawn into the UK IHT net from April 2027. For executives whose accumulated UK pension provision runs to seven figures, that single change can add several hundred thousand pounds of IHT to an estate that was previously modelled as safe. Anyone who last reviewed their position before these reforms should treat their existing plan as out of date — see our overview of cross-border tax planning for how the pieces interact.
Does the US-UK estate tax treaty prevent double taxation?
Partly, and less completely than most people assume. The US-UK estate, gift and generation-skipping transfer tax treaty allocates primary taxing rights and provides credit relief, generally giving the situs country the first claim on real property and business assets and the domicile country the residual claim, with a credit for tax paid in the other jurisdiction. Where it applies cleanly, the couple pays the higher of the two effective rates rather than the sum of them.
The difficulties are practical. Credits operate at the level of specific assets, not at the level of the estate as a whole, so mismatches in asset characterisation, valuation dates and timing of payment can leave real tax stranded. The UK requires IHT to be paid before probate in many cases; the US federal return is due nine months after death with extensions available. A credit that cannot be claimed until the other return is filed creates cash-flow strain at the worst possible moment. The treaty also does not harmonise trust taxation, which is where most cross-border estate planning actually lives — a structure that is a grantor trust for the IRS may be a relevant property trust for HMRC, attracting entry, ten-year and exit charges that have no US analogue. HMRC explains the UK mechanics in its Inheritance Tax Manual guidance on double taxation conventions.
The honest summary: the treaty is a relief mechanism, not a shield. It rewards estates that were structured with both regimes in view and offers thin comfort to those that were not. The IRS publishes the operative texts in its collection of estate and gift tax treaties.
What is the 40% cliff, and who falls off it?
Both regimes charge 40% at the top, but the shape of the charge differs. The US exemption is a large plateau followed by a rate that reaches 40% relatively quickly above it. The UK threshold is a low ledge with 40% immediately beyond. The cliff is the point at which an estate that felt comfortably planned becomes exposed to a marginal rate that most clients have never modelled against their actual balance sheet.
Three groups fall off it most often:
- Americans who became long-term UK residents without noticing. The ten-year test is mechanical. Assets that were never in UK scope now are, and the US exemption provides no protection against a UK charge.
- British spouses of Americans holding illiquid wealth. Private company shares, partnership interests and a single high-value London property produce a large taxable estate with no cash to pay either revenue authority.
- Families relying on portability alone. The deceased spousal unused exclusion must be elected on a timely-filed US estate tax return, even where no tax is due. Missing that filing forfeits a nine-figure planning asset for the cost of a return that nobody thought was necessary.
What should dual-nationality couples do now?
The elevated US exemption creates a window, not a solution. The planning that matters is the planning that treats both regimes as a single problem.
- Model the two estates side by side. Prepare a schedule of every asset with its situs, its US treatment and its UK treatment. Most couples discover at this stage that their wills were drafted for one country and read badly in the other.
- Fix the wills and the spousal provisions. Mirror wills that leave everything to the survivor are frequently the worst possible outcome where one spouse is not a US citizen. QDOT provisions, nil-rate band legacies and situs-specific wills need to be coordinated rather than layered.
- Use lifetime gifting deliberately. UK potentially exempt transfers fall out of the IHT net after seven years and can be made without a US gift tax cost while the exemption is elevated, provided the donor's US position is tracked and returns are filed.
- Review every existing trust. Structures created under the old non-dom rules should be tested against the long-term residence regime. Excluded property status is no longer permanent by default.
- Address liquidity. Life assurance written in trust, correctly structured so it is outside both estates, remains the most efficient way to fund a charge that is otherwise payable out of assets nobody wants to sell.
- Consider citizenship deliberately. Whether a non-citizen spouse naturalises, and whether an American considers expatriation, are decisions with permanent transfer tax consequences in both directions. They belong in the estate plan, not adjacent to it.
What about compliance history?
Estate planning is unforgiving of a weak compliance record. Executors of a US citizen's estate must file, and unfiled returns, unreported foreign accounts and undeclared foreign trusts surface at exactly the point when the family is least equipped to deal with them. Where prior years are incomplete, the IRS streamlined filing procedures remain the cleanest remediation route for non-wilful taxpayers, and they should be completed before, not after, a structure is put in place. Our high-net-worth advisory team routinely runs remediation and estate structuring as a single sequenced project for precisely this reason.
Frequently misunderstood mechanics
Situs is not the same as location of the account. US-situs assets for estate tax purposes include shares in US corporations wherever held and US real property, but generally exclude US bank deposits not connected with a trade or business and, on the usual analysis, certain debt obligations. The classification drives the entire non-resident calculation.
The $60,000 exemption is real and brutal. A non-US citizen who is not US-domiciled has an exemption of only $60,000 against US-situs assets. A British spouse holding a US brokerage account of meaningful size can therefore face a US estate tax charge on death even with no other American connection, subject to treaty relief. The IRS confirms the position in its FAQs on estate taxes for nonresidents who are not US citizens.
Basis step-up and CGT uplift are not equivalent. The US step-up applies to assets included in the taxable estate. The UK gives an uplift to probate value with no CGT on death. Planning that removes an asset from the US estate to save estate tax may forfeit a step-up that was worth more than the tax saved.
Reporting obligations survive the planning. Foreign trusts, foreign gifts and inheritances received by US persons carry their own reporting regimes with penalties that are assessed independently of any tax due. A clean structure with missed forms is not a clean structure.
A note on timing
The US exemption is permanent in the sense that no sunset is currently legislated. It is not permanent in the sense that legislation cannot change, and the last decade has demonstrated how quickly transfer tax policy moves. Wealth transferred while an exemption is elevated is generally not clawed back if the exemption later falls, which is the strongest argument for acting inside the window rather than admiring it. On the UK side, the frozen nil-rate band, the tapering residence nil-rate band, the residence-based IHT test and the inclusion of pensions from 2027 all point the same way: exposure is rising, and it is rising for people who have not changed anything about their own affairs.
Couples with assets and family in both countries should be reviewing their position on a defined cycle rather than in response to events. Our private client tax services are built around exactly this kind of standing review, and our US-UK tax accountants work with your existing solicitors and investment managers rather than replacing them.
Speak to us in confidence
If you hold assets on both sides of the Atlantic, or you are married to someone who does, the question is not whether your estate is exposed but by how much and to which authority first. Jungle Tax advises founders, executives and families whose wealth does not respect national borders, and we model the US and UK positions together rather than sequentially. Contact us for a confidential, no-obligation consultation, and we will tell you plainly where your current plan holds and where it does not.
