The final IHT planning strategy: How US residents can continue to securely safeguard trust assets permanently
In April 2025, reforms to non-domiciled status have eliminated most methods for internationally mobile families to hold non-UK assets outside the scope of UK inheritance tax. However, for US nationals relocating to the UK, a significant planning strategy remains available offering potential long-term protection.
Under the revised regulations, establishing long-term UK residence (spending 10 out of 20 tax years in the UK) results in existing non-UK assets entering the UK inheritance tax regime, even if they were placed within a trust many years prior. This effectively terminates the previous regime based on excluded property trusts.
It is important to note that the US-UK Estate Tax Treaty remains unchanged. Consequently, US-domiciled individuals who do not hold UK nationality can still create trusts that remain permanently outside the scope of UK inheritance tax, provided they do not contain UK-situs assets. Such arrangements, known as treaty-protected trusts, are now among the few remaining options to secure long-term inheritance tax protection for non-UK assets.
Key considerations for clients include:
| • | The concept of treaty domicile is complex and requires specialised advice. |
| • | Timing is critical: the trust must be established whilst the individual is still considered US-domiciled for treaty purposes and prior to acquiring UK nationality. |
| • | If the individual is already a UK resident, establishing the trust may potentially trigger UK capital gains tax. |
| • | While the trust does not mitigate UK income tax or capital gains tax, it can be structured to minimise double taxation between the UK and the US. |