Americans Living in the UK: Why the New $15 Million US Estate Tax Exemption May Not Matter

Why The 2026 Headline Is Not The Whole Story

If you are an American living in London, Edinburgh, or Manchester, both the United States and the United Kingdom may have a claim on your estate. The 2026 US rule changes have shifted that calculation in ways worth understanding.

This article explains how the One Big Beautiful Bill Act (OBBBA) changed the US estate and gift tax regime for American families in the UK, how UK inheritance tax works alongside it, and, for families with assets between $1 million and $10 million, where the real planning questions now sit.

What Actually Changed

The One Big Beautiful Bill Act (OBBBA),signed into law in 2025, permanently sets the federal estate, gift, and GST tax exemption at $15 million per individual for deaths and gifts occurring on or after January 1, 2026. A married couple, using portability, can shelter $30million combined. The figure is indexed for inflation from 2027. The top federal estate tax rate remains 40%.

For US citizens and US-domiciled individuals, the critical point is that OBBBA applies regardless of where a person lives. A US citizen in London or Manchester is taxed on worldwide assets at death, just as a US citizen in Florida is. OBBBA changed the size of the exemption, not whether it applies to Americans abroad.

What OBBBA did not change is the rest of the system: state-level estate taxes are untouched, the $60,000 US-situs exemption for non-resident aliens remains, and every non-US regime, including the UK's, operates on its own rules and its own timetable.

How the UK Taxes Wealth at Death

The UK's estate-at-death tax is called inheritance tax (IHT). It is charged at a flat 40% on the value of an estate above a threshold known as the nil-rate band. Three features of the regime matter in practice.

First, the nil-rate band sits at a modestlevel relative to the US exemption. A separate residence nil-rate band addsfurther headroom where a primary residence passes to direct descendants. Both bands are transferable between spouses, but the combined total is stillmaterially below the US exemption. Live figures are published by HMRC.

Second, lifetime gifts are not free. Mostbecome fully exempt only if the donor survives seven years, the potentiallyexempt transfer rule. Gifts within that window can come back into the IHT calculation if the donor dies, with tapered relief from year three.

Third, reliefs are not automatic. Business relief, agricultural relief, the charity exemption, and the spousal exemption each require the estate to meet defined tests and make the correct claims.

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Long-termresidence, the 2025 reform

Until April 2025, UK inheritance tax turnedon the concept of domicile, a common-law status broadly following a person'spermanent home. A US citizen could live in the UK for many years without becoming UK-domiciled, and only UK-situs assets were within scope.

The 2025 reform replaced that test with astatutory long-term residence test. A person UK-resident in 10 of the previous20 UK tax years is treated as a long-term UK resident, and IHT is then charged on their worldwide assets, including US retirement accounts, US brokerageaccounts, and non-UK property. A 10-year “tail” applies after a person ceasesto be a long-term resident, during which worldwide exposure continues on a sliding scale before dropping away.

For American families in the UK, particularly those approaching or past the ten-year mark, this is the single most significant change in the landscape. The US-UK treaty addresses double-taxation mechanics; it does not neutralize the fact that the UK's scope has widened.

How the US and UK Rules Interact

The US and the UK have had an estate and gift tax convention in force since 1980. Three of its features matter most for American families in the UK.

It allocates primary taxing rights using a domicile-style test: a person domiciled in the US is primarily taxed by the US on worldwide assets; the equivalent applies in reverse for the UK; each country retains the right to tax assets within its own territory regardless. Under thepost-2025 UK regime, treaty treatment is assessed alongside the new long-term residence test.

It contains a credit mechanism: tax paid in one country on an asset situated there can be credited against the other country's tax on the same asset. That is how double taxation is prevented. It also includes tie-breaker rules for individuals who would otherwise be treated as domiciled in both countries.

The treaty does not eliminate either country's charge. Both systems can apply; the treaty adjusts how they combine. For a long-term UK resident who is also a US citizen, both regimes are in scope, and coordination is the planning work.

What This Means for American Families with $1Mto $10M in the UK

For most American families in the UK in this bracket, OBBBA's $15 million federal exemption means US estate tax is unlikely to be the primary concern. The planning questions move elsewhere.

UK inheritance tax is the first place they move. For a long-term UK resident, the full worldwide estate sits in scope at40% above the combined nil-rate bands, regardless of the US exemption headline. This is the issue that most often catches American families in the UK off-guard.

Where the family is not yet a long-term UK resident, only UK-situs assets are within IHT scope, and non-UK assets are governed by the US system and the treaty. The approach to the 10-year clock therefore becomes a live planning consideration.

The non-US-citizen spouse adds another layer. In the US system, the unlimited marital deduction applies only where the surviving spouse is a US citizen; otherwise the standard route is a QDOT. In the UK system, the spousal exemption is now a long-term residence question. Mixed-nationality couples face two frameworks that do not map cleanly onto one another.

What I observe most often with American families in the UK is that the $15 million headline gets read as an all-clear. It is not. For this bracket, the UK regime is usually the planning story.

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UK Inheritance Tax and US Estate Tax at a Glance

Illustrative comparison of the core features of the US federal estate tax regime and the UK inheritance tax regime for an American family in the UK. The table names the mechanism rather than fixed figures; live thresholds are published by the IRS and HMRC and change periodically.

Source: Skybound 2026

Questions To Raise With A Qualified Adviser

For a US citizen or dual national in the UK with assets between $1 million and $10 million, a short list of questions for a qualified tax or estate professional and a cross-border financial planner includes:

• Have I been UK-resident in 10of the previous 20 tax years, or am I approaching that point, and how does the long-term residence test apply to my circumstances?
• Are my UK-situs assets, primary residence, UK bank accounts, UK-held investments, identified and valued for a clear IHT calculation at death?
• If my spouse is not a US citizen, how is our estate structured to address both the US marital-deduction rules (including any QDOT) and the UK spousal exemption?
• Have my US revocable trust, US will, and any UK will been reviewed together for consistency across jurisdictions?
• If I am considering a move back to the US or to a third country, how would the 10-year UK long-term-residence “tail” affect its timing and tax?

The US exemption change is significant. For most American families in the UK in this bracket, what it really does is move the center of the planning conversation from the US side to the UK side, and to the coordination between them.