US Estate and Gift Tax

The Basics

The 2025 gift and estate tax exemption for US citizens is $13.99 million per person. The applicable tax rate for anything in excess of the exemption is taxed at 40%.

Tax free transfers between US spouses are available. In the case of a non-US citizen spouse, transfers are slightly more complicated with an annual tax free allowance of $190,000 (2025). Planning is available that may allow the tax free allowance to pass to the non US spouse annually.

Gifts of less than $19,000 (2025) are excluded from gift tax. Any amount in excess of this reduces the $13.99 million estate tax exemption and triggers a filing obligation with the IRS even if there is no additional tax due.

UK inheritance issues affecting US citizens residing in the UK

US citizens residing in the UK for less than 15 out of 20 years will likely be considered non-domiciled for Inheritance tax purposes. Non domiciled individuals are subject to inheritance tax on UK situs assets only.

Once resident for 15 out of 20 years, individuals will be subject to inheritance tax on their worldwide assets.

The Inheritance Tax threshold (or ‘nil rate band’) is the amount up to which an estate will have no Inheritance Tax to pay. For 2024/25 the nil rate band is £325,000 per person.

If the estate – including any assets held in trust and gifts made within seven years of death – is more than the threshold, Inheritance Tax will be due at 40 per cent on the amount over the nil rate band.

Points to note

The UK non-dom rules will cease from 6 April 2025. Instead, the UK will move to a residence-based system from 6 April 2025 that will see IHT being charged on worldwide assets for individuals who have been UK resident in ten out of the last twenty tax years. Such individuals will remain within the scope of IHT for up to ten years following exit from the UK, and the IHT ‘tail’ will depend on how long they were resident in the UK.

Planning can be done to protect assets from inheritance tax exposure.

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