The reversal by the Federal Circuit of the Bruyea and Christensen decisions has generated considerable concern among international tax practitioners. The Court based its reasoning on well-established interpretive presumptions such as the expectation that Congress acts intentionally when employing different statutory language and that it is presumed to be aware of existing federal law without recognising that these principles may be inappropriate when legislative drafting decisions influence obligations under U.S. tax treaties. The article contends that Congress was unlikely to have fully appreciated the implications of the foreign tax credit regime when it categorised the Net Investment Income Tax (NIIT) within Chapter 2A, thereby structurally isolating it from both Chapter 1 income taxes and Chapter 2 self-employment taxes.

By affirming this legislative structure, the Court essentially concludes that Congress created a new category of tax on income that falls outside the scope of existing income tax treaties and totalisation agreements. The article cautions that this statutory delineation risks undermining treaty provisions intended to provide relief from “substantially similar” taxes enacted after a treaty has been signed. For cross-border taxpayers, this may result in a troubling gap in treaty coverage regarding the NIIT and raises broader questions about how Congress and the judiciary should approach the development of new taxes that intersect with longstanding international agreements.

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:

New York City has issued Pied à Terre surcharge assessment notices via regular mail to owners of high-value residential properties. These notices were dispatched without verifying whether the property is a primary residence, potentially resulting in some owners receiving notices despite qualifying for exemptions.

Homeowners are advised to respond promptly through the online portal provided in the notice, using the personalised PIN. Those claiming exemption such as primary residence status, occupation by a family member, or rental to an NYC-based tenant must submit supporting documentation (e.g., a driver’s licence or recent tax return).

Filing deadlines are as follows:

Co-op owners should contact their managing agent immediately to ensure the exemption paperwork is processed by the board in a timely manner, as additional documentation may be required.

New York City has introduced a temporary five-year annual surcharge on non-primary residence co-operatives and condominiums valued above certain thresholds. The surcharge will be applicable from 1 July 2026 to 30 June 2031 and will be reflected directly on the owner’s New York City property tax bill.

Two Phases with Different Valuation Methods

Phase One (2026–2028)

The valuation in the beginning will utilise the Department of Finance (DOF) assessed market value, which may be lower than the actual market value.

Non-primary residences valued at $1 million or more will be fully subject to the surcharge:

Phase Two (2028–2031)

Valuations will switch to comparable market sales, with higher thresholds and lower rates.

Non-primary residences valued at $5 million or more will be fully subject to:

Primary Residence Exemption

A property is exempt if it was used as the owner’s primary residence as of 5 January prior to the relevant fiscal year. The DOF will review tax records and may consider occupancy patterns.

The exemption applies if the property is occupied by:

Generally, non-UK residents will not qualify, as meeting the residence criteria may trigger US tax residency under the substantial presence rules.

Ownership Structures and Eligibility

Multi-tier ownership arrangements (e.g., LLC-owned LLCs, trust-owned LLCs) currently do not qualify for the primary residence exemption, even if the individual resides in the unit.

Non-UK owners utilising corporate structures for US estate tax purposes may need to reassess their eligibility for exemption.

DOF Notices and Required Actions

The Department of Finance has issued notices to all properties with assessed values of $1 million or more, including co-operatives (via boards or managing agents). Some owners have challenged these notices in court, though the legislation itself remains unchallenged.

Important Deadlines

Owners are required to upload supporting documentation, such as tax returns, leases, utility bills, entity agreements, or trust affidavits. Valuation disputes must be filed with the New York City Tax Commission.

Officials anticipate that fewer than 12,000 properties will ultimately be subject to the surcharge, generating approximately $350 million annually. The funds are intended to support public initiatives including enhanced safety, cleaner parks, and free bus services. Other jurisdictions are also considering implementing similar higher-occupancy surcharges on second homes.

HMRC has implemented significant amendments to the Trust Registration Service (TRS) effective from 30 June 2026, aimed at enhancing transparency whilst minimising administrative burden for lower-risk trusts. These modifications impact both UK and non-UK trustees and may alter the requirement to register or update trust information on the TRS.

A notable change involves the expanded registration obligations for certain non-UK trusts holding UK land or property. Even in cases where no UK tax liability arises, non-UK trusts that acquired UK property prior to 6 October 2020 and continue to hold it may now be required to register, with a transitional deadline set for 1 September 2027. HMRC has also introduced a new de minimis exemption for low-value, low-risk trusts, removing the need to register where the trust’s assets fall below specified thresholds, including UK property ownership, asset value (£10,000), annual income (£5,000), and significant non-financial assets (£2,000). Additionally, the two-year registration exemption for trusts that arise on death has been extended, reducing administrative demands during estate administration.

Furthermore, HMRC has revised the TRS information sharing protocols, permitting certain organisations with a legitimate interest in preventing financial crime to request trust information under specific circumstances. While trust data remains non-public, trustees should be aware that information submitted to HMRC may be shared where legally permitted. Trustees are advised to review their current arrangements to determine whether registration is now required, whether an exemption applies, or whether existing TRS entries require updating particularly for trusts holding non-UK property, trusts established on death, and trusts potentially covered by the new de minimis exemption.

HMRC has initiated a consultation concerning the modernisation of the UK tax framework for company distributions and capital returns. The primary proposal aims to harmonise the income tax treatment of distributions made by both UK and non-UK resident companies. Currently, many distributions from non-UK companies such as those based in Luxembourg or Jersey are subject to the capital gains regime, whereas comparable transactions involving UK companies are taxed as income. HMRC intends to address these discrepancies by incorporating distributions from non-UK companies into the statutory distributions regime, thereby creating a unified, consistent system that taxes similar transactions in a uniform manner.

The consultation also considers extending the application of the loans to participators rules to non-UK resident close companies. Since overseas entities are outside the scope of UK corporation tax, HMRC is examining the possibility of implementing an income tax charge on UK participators where loans remain outstanding. Additionally, HMRC seeks input on better aligning the regimes for loans and distributions, reforming the tax treatment of share buybacks, reviewing rules relating to returns of capital, abolishing the capital reduction demerger route, and potentially updating the Transactions in Securities anti-avoidance framework.

Overall, these proposals could signify a significant shift for private equity firms, family offices, owner-managed businesses, and arrangements involving non-UK holding companies. Should these reforms be implemented, they may impact future distribution planning, capital extraction strategies, shareholder exit processes, and broader transaction structuring. The consultation will be open until 14 September 2026, and organisations with interests in non-UK entities are advised to assess whether their current or planned transactions might be affected as HMRC progresses with these reforms.

The Autumn Budget on 28 October 2026 is anticipated to introduce considerable reforms to Capital Gains Tax, particularly as the government has committed not to increase income tax, VAT, or national insurance. Consequently, CGT is likely to become a key revenue source. The article examines potential reforms, including the possibility of raising CGT rates further, potentially aligning them with income tax bands, and reintroducing indexation allowance or taper relief to mitigate inflation effects. It also discusses proposals to remove the uplift on death, which risks resulting in double taxation alongside inheritance tax. As noted in the article, “the absence of any inflation adjustment is one of the fundamental design flaws of the current CGT system” (IFS report).

The government may also consider tightening reliefs such as Business Asset Disposal Relief (BADR), the main residence exemption, wasting asset exemption, and holdover relief. BADR could be adjusted to align with increased CGT rates, or its £1 million lifetime limit could be reduced. The article explains that “abolishing BADR would raise about £1.5 billion in tax revenue,” although this would disproportionately impact SME owners. Other reliefs, including those for gifts into trust or high-value main residences, could also be targeted, though the anticipated revenue impacts vary. The timing of these changes remains uncertain: they could be implemented from 6 April 2027, but immediate mid-year adjustments are also possible, as seen in the October 2024 Budget.

Given this uncertainty, the article outlines proactive strategies individuals may consider locking in current CGT rates. These include crystallising gains through disposals, transferring assets into trust, employing sale and buyback strategies for quoted shares, gifting assets into trust without holdover relief, and maximising tax-efficient wrappers such as ISAs and pensions. It also mentions that becoming non-resident might reduce CGT liabilities, although with significant caveats. Ultimately, the article emphasises that any planning should be undertaken with caution, as “any potential tax changes remain a matter of speculation,” and individuals are advised to seek personalised advice before acting.

he UK’s Inheritance Tax (IHT) regime differs significantly from the US estate tax system and can have important implications for US citizens with UK connections. Individuals who become long-term UK residents may find that their worldwide estate falls within the scope of UK IHT, making early estate planning essential.

Long-Term Residence and IHT Exposure

An individual generally becomes a long-term resident for IHT purposes after being UK tax resident for at least ten of the previous twenty tax years. Once this threshold is met, their worldwide estate may become subject to UK IHT, with long-term resident status potentially continuing for up to ten years after leaving the UK.

The UK’s nil-rate band remains £325,000, significantly lower than the current US estate tax exemption, with IHT generally charged at 40% on assets above the available thresholds. An additional residence nil-rate band may also be available in certain circumstances.

Trusts and Estate Planning

Trusts are subject to a separate IHT regime, with potential tax charges arising when assets are settled into trust, on ten-year anniversaries, on certain distributions, and in some cases on the settlor’s death. The applicable rules depend on factors including the settlor’s residence status and the type of trust involved.

Careful estate planning can help mitigate potential tax liabilities. Tax-efficient wills, appropriately structured life insurance policies, and the provisions of the UK-US Estate and Gift Tax Treaty can all play an important role in reducing the risk of double taxation and preserving wealth for future generations.

Practical Takeaways

US citizens living in, or planning to move to, the UK should review their estate planning arrangements at an early stage. Understanding the UK’s long-term residence rules, the treatment of trusts, and the interaction between the UK and US tax systems can help minimise inheritance tax exposure and avoid unexpected tax consequences.

The IRS is increasingly challenging claims for reasonable cause relief related to late international information returns, focusing particularly on taxpayers’ reliance on tax preparation software like TurboTax.

In a notable case, Zhang v. IRS, the government contends that taxpayer Zhang cannot claim reasonable cause for her late Form 3520 filing because TurboTax did not provide guidance on it. Despite Zhang’s background as a CPA and her reliance on the software, the IRS argues that she should have independently verified her reporting obligations.

In 2017, Zhang received significant foreign gifts but only realized she missed the Form 3520 deadline in 2018 after reading an article on the topic. After filing the form, she faced a $71,777 penalty, which was partially reduced after an appeal. The IRS’s position leans on the Supreme Court’s Boyle decision, suggesting blind reliance on tax software does not constitute reasonable cause. Critics argue this stance fails to reflect the realities faced by new U.S. residents unfamiliar with complex filing requirements.

Overall, Zhang’s case highlights the difficulties taxpayers encounter when trying to comply with international reporting obligations, as the IRS aims to enforce penalties strictly, potentially discouraging voluntary compliance from others who might miss deadlines.

Taxpayers in similar situations are advised to submit strong reasonable cause statements to improve chances of penalty relief.

HMRC’s consultation in June 2026 proposes amending the treatment of U.S. LLCs and other reverse hybrid entities for individuals who are resident in the UK, by recognising them as transparent for UK income tax and capital gains tax purposes. This initiative aims to resolve longstanding discrepancies between US and UK tax treatments, which currently result in exceptionally high effective tax rates sometimes exceeding 75% due to individuals being taxed on underlying US profits and subsequently subject to UK tax on distributions. HMRC also notes ongoing uncertainties following the Anson case, which conflicted with its published guidance that LLCs are generally considered opaque entities.

Under the proposed approach, individuals would be taxed on the underlying profits and gains of the LLC, with distributions no longer subject to UK income tax. This would enable appropriate double taxation relief, as the tax liability would be aligned with the underlying profits. For UK purposes, the activities of the LLC would be treated similarly to a partnership. The new regime might apply automatically; however, HMRC is also considering the possibility of an irrevocable election. It should be noted that these rules would not apply where the entity is UK-resident or trading through a UK permanent establishment. Consequently, certain structures particularly US LLCs controlled from the UK may continue to face high effective tax rates.

The consultation confirms that corporate entities will not benefit from equivalent transparency treatment, leaving unresolved issues related to financing, group tracing, and share capital testing. Additionally, mixed-member LLCs could become complex, with individuals potentially treating such entities as transparent, while corporations regard them as opaque. The consultation period remains open until 31 July 2026, with no indication at this stage as to when any new regime might come into force.