Private Wealth: Inheritance Tax Protection for US Persons Moving to the UK

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Excluded Property Trusts

Since 6 April 2025, it is no longer possible to permanently shield non-UK assets from inheritance tax (“IHT”) via an excluded property trust under general domestic law. That is because, since 6 April 2025, the IHT treatment of trusts follows the settlor’s long-term residence status (defined as being UK resident for 10 out of the previous 20 years), rather than locking in the IHT status of the trust on creation, subject to certain transitional provisions for trusts set up before 30 October 2024. If a long-term resident leaves the UK, he retains an IHT “tail” for 3 to 10 years after leaving, during which his global assets remain subject to IHT on death. If he later loses his IHT tail, assets owned by him personally and via trust structures become excluded property for IHT purposes; however, there will be an IHT exit charge on trust assets.

Treaty Protected Trusts

Fortunately, the US/UK IHT Treaty offers the unique opportunity for US domiciliaries who have recently moved to the UK, and who are not British nationals, to set up trusts which permanently shelter assets from IHT, even if they later become long-term resident in the UK for IHT (known as a“Treaty protected trust”). A Treaty protected trust offers IHT protection from the ongoing 6% IHT periodic charges within the trust and, crucially, the 40% IHT charge on death where he has reserved a benefit in the trust fund. The IHT shelter does not apply to UK real estate or business assets. The Treaty may also in certain circumstances curtail the IHT tail.

Unique Opportunity for US Domiciliaries

In conclusion, the Treaty offers an unparalleled planning opportunity for US domiciliaries, who are not British nationals, to set up Treaty protected trusts for certain assets, offering a permanent shelter from IHT. If you would like to discuss how these rules may apply to your circumstances, please contact Katherine, who would be pleased to advise on the most appropriate inheritance tax planning strategies for your situation.