Trust and Inheritance Planning for HNW Americans in the UK Effective trust planning for Americans in the UK means satisfying two tax authorities at once: the IRS taxes you on worldwide assets as a US person, while HMRC now taxes you on residence rather than domicile. A structure that saves tax in one country can […]
Effective trust planning for Americans in the UK means satisfying two tax authorities at once: the IRS taxes you on worldwide assets as a US person, while HMRC now taxes you on residence rather than domicile. A structure that saves tax in one country can create a liability in the other, so every trust and estate decision must be tested against both systems before you act.
By the Jungle Tax Cross-Border Tax Team — reviewed by a US-UK dual-qualified adviser (CPA / Enrolled Agent).
You face two systems because citizenship and residence pull in different directions. The United States taxes its citizens and green card holders on worldwide income and assets regardless of where they live. The United Kingdom taxes you on your connection to the country, which, since April 2025, means how long you have been resident here.
This overlap creates friction. A trust that the IRS treats as tax-neutral may trigger UK charges, and a UK-efficient structure may create US reporting nightmares. Successful trust planning for Americans in the UK begins by mapping how each jurisdiction views the same vehicle.
As a US person, you report your global income every year and remain within the US estate and gift tax system for life. The federal estate and gift tax rate reaches 40%. For 2025, the lifetime exclusion is $13.99 million per person, rising to $15 million in 2026 under the One Big Beautiful Bill Act, which made the higher figure permanent and indexed to inflation.
Full details of the US estate tax appear on the IRS website. Our guide to the US-UK estate tax treaty explains how the two regimes interact.
From 6 April 2025, the UK abolished domicile as the test for inheritance tax and replaced it with a residence-based system. You become a “long-term UK resident” once you have been UK tax resident for at least 10 of the previous 20 tax years. At that point, your worldwide estate falls within UK inheritance tax, charged at 40% above the £325,000 nil-rate band plus the £175,000 residence nil-rate band.
The government’s non-dom reform paper explains the change in full, and our overview of the UK non-dom FIG regime sets out what replaced it.
The US divides trusts into grantor and non-grantor types, and the distinction drives who pays the tax. Non-US decedents report US-situs assets on Form 706-NA. A grantor trust is transparent for US income tax purposes, so you, as the settlor, report its income personally. A non-grantor trust is a separate taxpayer that files its own return.
For estate planning, the goal is usually to move assets outside your taxable estate while managing income tax and control. Irrevocable trusts can achieve this, yet each carries UK consequences that must be checked in parallel.
Grantor trusts keep income taxation with you, which can be efficient while you are alive but may leave assets inside your US estate. Non-grantor trusts remove income from your personal return, though they face compressed US trust tax brackets that reach the top rate quickly. Choosing between them requires modeling both US income tax and UK charges together, as the AICPA guidance on fiduciary taxation makes clear.
Spousal Lifetime Access Trusts (SLATs) let you use your exclusion while your spouse retains indirect access. Irrevocable Life Insurance Trusts (ILITs) hold life cover outside your estate so the payout escapes the 40% estate tax. Both are powerful in a purely US context, yet a UK-resident settlor must weigh the UK relevant-property regime before funding them.
UK inheritance tax applies to your worldwide estate once you are a long-term resident and to your UK assets from day one. The rate is 40% above your available nil-rate bands, and those bands are frozen until April 2030, which quietly pulls more estates into charge each year, as bodies such as the Chartered Institute of Taxation have highlighted.
The core rules sit on the government’s Inheritance Tax pages, with further detail in HMRC’s guidance on trusts and Inheritance Tax.
Most trusts you create as a UK resident fall into the relevant property regime. This regime applies an entry charge of up to 20% on assets above the nil-rate band, a periodic charge of up to 6% every 10 years, and an exit charge when capital leaves the trust. Sound trust planning for Americans in the UK must forecast these charges across decades, not just at the outset.
Before April 2025, non-UK assets settled by a non-domiciled settlor could sit in an excluded-property trust outside UK inheritance tax. The reform ties excluded-property status to whether the settlor is a long-term resident on the date of each charge. If you cross the 10-year threshold, trusts you thought were protected can be dragged into the UK net, so existing structures need urgent review, as we set out in our guide to excluded-property trusts after reform.
The systems clash most sharply where a US beneficiary receives from a foreign (non-US) trust. The IRS applies throwback rules that tax accumulated income at punitive rates, and it demands detailed reporting on Forms 3520 and 3520-A. A UK trust that looks efficient locally can therefore create a heavy US bill for American beneficiaries.
The IRS publishes guidance on Form 3520, and we cover the practicalities in our note on foreign trust reporting under Form 3520.
When a foreign non-grantor trust accumulates income and later distributes it, US throwback rules add an interest charge that can consume much of the distribution. American beneficiaries must file Form 3520 to report gifts and distributions, while the trust may need Form 3520-A. Missing these forms triggers penalties starting at 35% of the amount involved, so accurate trust planning for Americans in the UK means tracking every distribution.
Trusts often hold non-US funds, and to the IRS, these are Passive Foreign Investment Companies (PFICs). PFICs face punitive US taxation and onerous Form 8621 reporting, as the IRS Form 8621 instructions confirm. Reviewing trust investments for PFIC exposure is a routine but critical part of protecting US beneficiaries.
The US-UK estate and gift tax treaty coordinates the two systems and can override the domestic rules on situs and domicile. It provides tie-breaker tests and credits so the same asset is not fully taxed twice at 40% by each country. For high-value estates, the treaty is often the difference between a manageable bill and double taxation, which is why trust planning for HNWI Americans in the UK should always be built around it.
The IRS lists the estate and gift tax treaties, including the UK.
The unlimited US marital deduction does not apply when your spouse is not a US citizen. A Qualified Domestic Trust (QDOT) preserves the deferral of estate tax until the surviving spouse dies or takes capital. Many cross-border couples need a QDOT to avoid an immediate 40% charge on the first death, as we explain in our guide to QDOTs for a non-citizen spouse.
The treaty allocates taxing rights and grants credit for tax paid in the other country. Getting the ordering right and claiming reliefs in the correct sequence protects your family from paying twice. This coordination is technical work that rewards early, joined-up advice.
|
Feature |
United States (IRS) |
United Kingdom (HMRC)
|
|---|---|---|
|
Basis of tax |
Citizenship / green card (worldwide) |
Residence — long-term resident from April 2025 |
|
Death tax rate |
40% estate tax |
40% inheritance tax |
|
Tax-free amount |
$13.99M (2025) / $15M (2026) |
£325,000 NRB + £175,000 RNRB |
|
Trust charges |
Compressed income brackets; throwback rules |
Up to 20% entry, 6% ten-yearly, plus exit |
|
Key reporting |
Forms 3520 / 3520-A / 8621 |
Trust Registration Service; IHT returns |
Pre-arrival planning is far more powerful than post-arrival repair. Settling certain trusts before you become a long-term UK resident, or before you arrive at all, can lock in favorable treatment. Once the clock passes 10 years, options narrow sharply.
An American technology founder, whom we will call Daniel, moved to London in 2016 and by 2026 had been a UK resident for 10 years. He held a US grantor trust holding $8 million of assets, funded before his move, and assumed it sat safely outside UK inheritance tax.
Our review found that Daniel had just crossed the long-term resident threshold, so the trust’s non-UK assets now faced periodic UK charges, while the fund holdings inside it were PFICs, creating US filing exposure. We restructured the investments to remove PFICs, coordinated the trust with the US-UK treaty, and added a QDOT for his British wife. The result protected roughly £900,000 of projected combined tax and brought every filing current.
If you hold significant wealth in the US and the UK, coordinated advice can protect your family from double taxation and penalties. Our dual-qualified team plans trusts and estates against both the IRS and HMRC in a single strategy.
Email hello@jungletax.co.uk, call 0333 880 7974, or visit jungletax.co.uk to arrange a consultation. Explore our US expat tax services, learn about our streamlined filing compliance support, read more on our cross-border tax blog, or reach us through our contact page.
When does a US citizen become liable for UK inheritance tax on worldwide assets?
You become liable once you are a long-term UK resident, meaning UK tax resident for at least 10 of the previous 20 tax years. Before that point, only your UK-situated assets fall within inheritance tax. After it, your worldwide estate is caught at 40% above the nil-rate bands.
Are US trusts recognized in the UK?
The UK recognizes US trusts but taxes them under its own rules, often within the relevant property regime. This can mean entry, 10-year, and exit charges that the US never imposes, so, for trust planning, Americans in the UK must review every US trust held by a UK resident against these charges
What is the throwback rule on foreign trusts?
The throwback rule is a US measure that taxes accumulated trust income distributed in later years, adding an interest charge that can be severe. It applies when a foreign non-grantor trust builds up income before paying it out. American beneficiaries report these distributions on Form 3520.
Do I still benefit from the non-dom regime in 2026?
No, the non-dom regime was abolished from 6 April 2025 and replaced with a residence-based system. Inheritance tax now depends on long-term residence rather than domicile. Existing excluded-property trusts must be reviewed against the new test
What is a QDOT, and do I need one?
A Qualified Domestic Trust preserves the US estate tax marital deferral when your spouse is not a US citizen. Without it, assets passing to a non-citizen spouse are subject to an immediate 40% estate tax. Many cross-border couples need one to protect the surviving partner.
