The UK government has been making adjustments to inheritance tax (IHT), sparking concerns among those with cross-border estates. While some beneficiaries might see tax relief, others could face unexpected liabilities. For Americans with UK assets, the UK inheritance tax changes introduce new challenges, but a long-standing treaty may offer some protection.
The UK-US Treaty and IHT
Under UK law, inheritance tax applies to estates worth over £325,000, with a 40% tax on anything above that threshold. However, Americans with UK-based assets may benefit from the UK-US estate tax treaty. This agreement prevents double taxation and allows some US citizens to claim exemptions based on US tax rules rather than UK ones.
Recent UK inheritance tax changes could alter how this treaty applies. The UK government has hinted at reforms that may tighten tax reliefs, potentially limiting benefits for American expats and investors. If these adjustments go through, US citizens with property or wealth in the UK may need to reconsider their estate planning strategies.
Who Will Be Affected?
High-net-worth individuals, particularly those with dual ties to the UK and the US, could be most impacted. If the UK introduces stricter residency-based taxation, some American beneficiaries might lose access to treaty protections. The Treasury is reviewing these policies, and experts predict changes in the coming years.
Planning for the Future
With UK inheritance tax changes on the horizon, seeking professional financial advice is crucial. Estate planning strategies, including trusts or tax-efficient investments, may help minimize liabilities. Expats and international investors should review their plans to ensure they remain compliant and optimized for both UK and US tax laws.
For Indians living in the UK and considering long-term solutions, looking beyond traditional inheritance planning might be worthwhile. Options like QROPS (Qualifying Recognised Overseas Pension Schemes) could provide tax-efficient benefits for expats managing UK pensions abroad. Staying informed and proactive is the best way to navigate these evolving tax rules.