US-UK Estate & Gift Tax Treaty Guide

An exhaustive legal and statutory analysis of the 1978 US-UK Estate and Gift Tax Convention—coordinating UK 40% Inheritance Tax (IHT) and US Federal Estate Tax for transatlantic families.

Statutory Treaty Structure (SI 1979 No. 1454)

Convention Between the UK & US on Estates & Gifts

The bilateral estate tax treaty (enacted in the UK via Statutory Instrument 1979 No. 1454) governs death duties and lifetime gift taxes for cross-border estates.

Under Article 5 (Domicile), primary taxing rights over worldwide assets are assigned to the state of domicile. Under Article 8, non-domiciled individuals owning real estate or business assets in the other state receive pro-rata marital deductions and credit allowances to eliminate double taxation.

Statutory Key Parameters:

UK Treaty Order	SI 1979/1454
UK IHT Rate	40% Above £325,000
US Estate Exemption	$13.61 Million (IRC § 2010)
US Non-Resident Cap	$60,000 Statutory Limit
Treaty Pro-Rata Credit	Article 8 Unified Credit

UK Inheritance Tax (IHTA 1984 Rules)

Worldwide Tax Scope: UK taxes worldwide estate assets for individuals domiciled or deemed-domiciled in the UK.
Nil-Rate Band: £325,000 tax-free allowance per individual (£500,000 with Residence Nil-Rate Band).
Spousal Exemption: 100% tax-free transfers to a UK-domiciled spouse (capped at £325k for non-domiciled spouse without election).

US Federal Estate Tax (IRC § 2010 Rules)

Worldwide Tax Scope: US taxes worldwide estate assets of US citizens and US-domiciled individuals.
Lifetime Exemption: $13.61 Million per individual ($27.22 Million for married US citizens).
Treaty Relief (Article 8): Allows UK-domiciled non-US citizens owning US real estate to claim a pro-rata portion of the $13.61m US exemption based on the ratio of US assets to worldwide assets.

Frequently Asked Questions (FAQ)

Under Article 5 of the 1978 US-UK Estate and Gift Tax Convention, primary taxing rights over worldwide estate assets belong to the country of domicile. Tie-breaker rules evaluate permanent home, center of vital interests, and citizenship.

Without treaty relief, non-resident aliens (UK citizens without US domicile) face a tiny $60,000 statutory exemption before US Federal Estate Tax (up to 40%) applies to US real estate. However, Article 8 of the US-UK Treaty grants UK domiciled individuals a pro-rata unified credit based on their global estate.

Under Inheritance Tax Act 1984 (IHTA 1984), the UK nil-rate band is £325,000 per individual (plus up to £175,000 main residence nil-rate band), with amounts above taxed at a flat 40%.