In brief:
- The April 2025 non-dom reforms closed most routes to permanently shielding non-UK assets from IHT — but not all.
- US nationals relocating to the UK may be sitting on a unique planning opportunity.
The 6 April 2025 non-domicile reforms prompted much speculation about wealthy individuals leaving the UK. However, one group seemingly absent from the exodus is US nationals. Driven by geopolitical uncertainty stateside, many are choosing to relocate - and the UK remains a compelling destination.
US citizens are subject to worldwide taxation wherever they reside, so provided double taxation can be avoided, they are generally undeterred by UK tax - with one exception: UK inheritance tax (IHT), which can create up to an additional c.$5.8 million of tax per person (on death), as compared to US estate tax.
IHT reform
Under the pre-April 2025 regime, non-domiciled individuals could establish excluded property trusts (EPT), which could permanently shield non-UK assets from IHT, even if the settlor later became UK domiciled. The Finance Act 2025 replaced domicile (for IHT purposes) with a long-term resident (LTR) test – met where an individual has been UK tax resident in any 10 of the previous 20 tax years.
Additionally, the IHT treatment of trusts now depends on the settlor's current LTR status rather than their domicile on creation - meaning it is no longer possible to permanently shield non-UK assets via a trust, at least under domestic law…
The treaty protected trust
Critically, the new legislation did not amend existing double tax treaties, meaning the US/UK Estate Tax Treaty (Treaty) remains unchanged. The Treaty enables individuals who are US domiciled for Treaty purposes, and who do not hold UK nationality, to establish a trust which will be permanently shielded from IHT (provided it does not hold certain UK assets), even if the settlor subsequently becomes LTR.
We refer to this as a "treaty protected trust" (TPT), now one of very few routes by which non-UK assets can be permanently shielded from IHT — a planning opportunity of considerable significance.
Key considerations
- An individual's domicile for Treaty purposes is complex and fact-specific; specialist advice is essential.
- Timing is critical: a TPT must be established whilst the settlor is still US domiciled for Treaty purposes and before acquiring UK nationality. If already UK tax resident, there could also be capital gains tax (CGT) consequences on creation.
- A TPT does not offer UK income tax or CGT benefits, but can be structured to align the UK and US tax treatment, preventing double taxation.
To discuss whether a TPT may be relevant to you or your clients, please get in touch.