UK Inheritance Tax vs US Estate Tax: 2026 Guide for Families

Death taxes are where the UK and US systems diverge most dramatically. The UK taxes relatively modest estates at a high rate; the US exempts very large estates but taxes non-residents harshly on US assets. Neither system makes much sense viewed through the other's assumptions - and a transatlantic family sits in the overlap, where both can apply. Understanding the two side by side is the starting point for any cross-border estate planning.

This article is for transatlantic families and individuals with assets, heirs, or residence connections in both the UK and the US. It explains each regime in neutral terms and how they interact.

UK inheritance tax, in outline

UK inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate band of £325,000. A separate residence nil-rate band of up to £175,000 can apply where a home passes to direct descendants, but it tapers away by £1 for every £2 once an estate exceeds £2 million. Both bands are frozen until April 2031. Transfers between spouses and civil partners are generally exempt. Crucially, from 6 April 2025the UK moved from a domicile-based system to a residence-based one: a 'long-term resident' - broadly, someone UK-resident for at least 10 of the previous 20 tax years — is exposed to IHT on worldwide assets, while others are exposed only on their UK assets, with a 'tail' of continued exposure for several years after leaving the UK.

US estate tax, in outline

US estate tax works from the opposite direction. For US citizens and domiciliaries, a large lifetime exemption - $15million per person in 2026, made permanent and indexed under 2025 legislation, and effectively doubled for married couples - means most estates pay nothing, with a 40% rate above it and 'portability' allowing a surviving spouse to use a deceased spouse's unused exemption. But for a non-domiciliary, the picture is harsh: only the first $60,000 of US-situated assets is exempt, with 40% above that. Whether you are a US 'domiciliary' for estate-tax purposes turns on domicile, not citizenship or income-tax residence.

Where the two systems collide

A transatlantic estate can fall within both systems at once - UK IHT because the individual is a UK long-term resident or holds UK assets, and US estate tax because they are a US citizen or domiciliary, or hold US-situated assets. Left unmanaged, that raises the spectre of the same assets being taxed by both countries. This is exactly the situation the 1980 US–UK Estate and Gift Tax Treaty was written to address.

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How the treaty helps

The estate and gift tax treaty allocates primary taxing rights between the two countries based largely on domicile, and provides credits so that tax paid in one country can offset tax in the other. One particularly valuable feature for non-domiciliaries with US assets is the pro-rata unified credit: instead of being limited to the $60,000 exemption, a qualifying individual can claim a share of the much larger US exemption, in proportion to their US assets relative to their worldwide estate. Claiming a treaty position requires disclosure - typically on Form 8833 with the US estate or gift tax return - and is fact-specific, but it can transform the US exposure on US-situated assets.

Situs: which assets are exposed where

Because non-residents are taxed on assets located in a country, 'situs' - where an asset is treated as located — matters enormously. US-situated assets such as US real estate and shares in US companies can be exposed to US estate tax for a non-domiciliary; UK-situated assets such as UK property are within UK IHT regardless of residence. Cross-border families often hold a mix, which is why mapping where each asset sits is a core part of understanding the exposure.

An illustrative example

Consider a hypothetical couple: one a US citizen, one a UK national, long resident in London with worldwide assets including a UK home and a portfolio of US shares. UK IHT may reach their worldwide estate as long-term residents; US estate tax may reach the US citizen's worldwide estate and the US-situated shares. Without the treaty, parts of the estate could face both. With the treaty's allocation rules and the pro-rata credit, the exposures are coordinated rather than duplicated. This example is hypothetical and for illustration only.