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US estate tax: the UK resident's case

What the US–UK treaty changes, concretely, for a UK-domiciled holder of US-listed ETFs.

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A 1978 treaty, left as it was

The United Kingdom and the United States are bound by a 1978 estate-and-gift tax treaty, in force since 1979. Unlike the French and German treaties, it has never been modernised by protocol: the original text is what applies. A “modern” treaty in the sense of our table — it allocates the right to tax according to domicile — yet it protects through mechanisms of its own: no prorated credit here, but a singular cap described below.

The fate of ETFs: attribution to the domicile

The allocation logic is the same as in the French and German treaties: the state of the deceased's domicile taxes the whole estate; the other state keeps a right to tax only on enumerated categories — real estate located there, and the assets of a permanent establishment or fixed base operating there. Securities are not among them: the US shares, fund units and ETFs of a UK-domiciled holder who is not a US citizen are taxable only in the United Kingdom. As for the French or German resident, it is not a credit that brings the US tax down to zero: it is the treaty allocation that sets it aside from the outset.

The US-citizen exception

The treaty includes a saving clause — narrow, but real — in favour of the United States for its citizens: a US citizen domiciled in the United Kingdom remains within the scope of estate tax. Dual nationals, former green-card holders and recent expatriates are governed by rules of their own: for them, this page is not enough.

No proration, but a cap

For the assets the United States can still tax in the hands of a UK-domiciled holder — US real estate first and foremost — the 1978 treaty does not provide the prorated credit of the French and German protocols. It contains something else: a clause that limits the US tax to the amount the deceased would have paid had they been domiciled in the United States immediately before death.

The reach of this clause has changed scale with the federal exemption: at $15 million per person in 2026 (an amount made permanent and indexed), a US-domiciled person pays nothing as long as their taxable estate stays under the exemption. The treaty cap passes this result through to the UK-domiciled holder: for a worldwide estate under the federal exemption, the US tax is nil — by a different route than the Franco-German proration, but with the same practical conclusion.

The surviving spouse

The treaty also lets the UK-domiciled holder claim, for the assets the United States can tax, the marital deduction as though they had been domiciled in the United States — enough to neutralise most exposed transfers between spouses, subject to conditions. For ETFs, the question does not arise: they are already outside the US scope through attribution to the domicile.

What does not change: the procedure

The treaty allocation sets aside the tax, not the friction. At death, the US broker freezes the assets until the IRS transfer certificate; to obtain it, the estate files Form 706-NA claiming the benefit of the treaty. Nil tax, full file, delays in months: everything the general page describes remains true for the UK-domiciled holder. The heirs' survival liquidity is to be planned outside US accounts.

The UK side

What the United States gives up, the United Kingdom taxes under its own rules: inheritance tax hits the estate at 40% above the nil-rate band (£325,000, supplemented where applicable by the residence allowance), the US ETFs of a deceased within the UK scope entering the worldwide base like any other asset. Note that in 2025 the United Kingdom reformed the personal basis of its inheritance tax — long-term residence replacing the historic notion of domicile — while the treaty, for its part, continues to reason in terms of domicile: the interaction of the two regimes is precisely the kind of question to handle with a professional.

Design responses

For the UK-domiciled non-US-citizen holder, the picture joins that of the French or German resident: US tax risk set aside on the ETFs by attribution, full procedural friction (freeze, 706-NA, delays), US real-estate sleeve protected — here by the “as a US resident” cap rather than by a proration — as long as the worldwide estate stays under the federal exemption. The design responses are the same: an estate file prepared in advance, heirs' liquidity outside US accounts, UCITS substitution for whoever wants to remove even the procedure. To which is added a distinctly British watchpoint: the 2025 reform may shift the boundary of the UK scope for international paths.