Changes for non-doms: What new rules mean for US nationals

What’s new for inheritance tax (IHT) and US citizens? 

IHT will now apply on worldwide assets after 10 years of residence (and for up to 10 years after leaving). However, there are no intended changes to the UK-US Estate Tax Treaty, which could potentially provide IHT relief in cases where the treaty applies. 

With only 10 countries covered by UK estate tax treaties, US citizens have access to unique benefits that could still protect against certain tax exposures.

Offshore trusts 

Foreign trusts established pre-Budget Day will still be exempt from IHT on the settlor’s death. Such trusts will now be subject to a 6% charge every 10 years during the period that the settlor is IHT liable.

The treaty could again offer opportunities for Americans with offshore trusts to mitigate the 6% charge providing they have the right fact pattern.

Capital Gains Tax (CGT) changes for higher rate taxpayers 

Higher-rate taxpayers will see a rise in CGT to 24%, effective immediately. For many Americans, this means the effective tax rate on “long term gains” including the Obamacare surcharge, could reach nearly 28%, making tax planning even more important.

Pension lump sum 

The much-debated removal of the 25% tax-free pension lump sum didn’t materialise. However, from April 2027, inherited pension pots will be subject to IHT, bringing UK pensions in line with how the UK currently taxes IRAs and 401(k)s. Given the big difference between the UK’s £325,000 and the (expected) US $14 million IHT allowances, this change could create a larger tax bill for UK-based Americans in the future.

Time to start planning for 2025 

The CGT changes take effect immediately, but most other adjustments won’t roll out until April 2025 or later. With time to prepare, now is the perfect opportunity for US citizens to seek advice, review their assets, and consider any adjustments needed to maximise the benefits under the new rules.