In a transatlantic analysis of the position that expat US citizens find themselves in, the firm looks at the implications of the end of the UK's non-dom system on one side, and the potential end of US estate and gift tax exemptions, on the other.

US expats living in the UK must be prepared to act on the changing tax landscapes on both sides of the Atlantic, as the UK axes the resident non-dom system, and amid uncertainties whether US estate and gift tax exemptions will endure, according to audit, tax and business advisory firm, Blick Rothenberg.

The firm takes a transatlantic look at tax changes in the UK and US following the 30 October Autumn Budget in the UK and the election to a second term of Donald Trump in the US. 

The $13.6 million threshold on estate and gift tax in the US, created by 2017 legislation, is scheduled to run out at the end of 2025 unless Trump and his Republican colleagues in Congress extend it. 

In the UK, finance minister Rachel Reeves has moved to end the non-dom system and replace it with a residency-based system. Critics say it will garner no net new revenue; instead it will drive HNW foreigners out of the UK, shrinking the tax base. Reeves and colleagues argue that the system, which dates to the late 18th century, gives an unfair status to a small but very wealthy group of people. 

“Americans who have not been here long enough to qualify as long-term residents (LTR) under the new UK inheritance tax (IHT) rules, who then leave the UK permanently before becoming LTR, would benefit from either an extension of the current US estate tax exemption or abolition of that tax, as IHT would then only be relevant to their UK sited assets,” John Havard, a US/UK private client consultant at Blick Rothenberg, said in a note. 

“As US estate and gift taxes are integrated, a reversion to the old, lower, exemption might give them cause to think about taking advantage of the present rule and gift assets in 2025, the value of which would be outside the lower exemption amount in 2026,” Havard said. 

“US citizens living in the UK who will be LTR under the new UK rules need to start thinking about how UK and US taxes interact. If they were close to hitting the threshold for deemed domicile under the ‘old’ UK rules, then that thinking should have been done before the Budget. Otherwise, they may find themselves scrambling to prepare for a changing tax landscape,” he continued. 

Unlike citizens of most developed countries, US nationals are treated on a worldwide basis, requiring them to file a return to the Internal Revenue Service regardless of where they live. Double-taxation treaties mean that they may not have to pay money to the US during their time abroad, depending on what local taxes apply. 

The US tax regime discourages foreign financial institutions from serving expats because of compliance costs. However, several firms, such as London & Capital, Maseco, RBC and Schroders, among others, specialise in serving this population cohort.

As for the US, the months leading up to the 5 November vote saw a flurry of commentary about what HNW people should do in advance of the schedule sunset of the estate and gift tax exemptions. For expat Americans, the change to the non-dom rules pose a number of challenges, Havard said.

“If they [expats] were deemed domiciled under the ‘old’ rules, the extension of the current estate tax exemption or its abolition will have little impact on them if the plan is to continue living in the UK for the foreseeable future. The prospect of IHT on worldwide assets should be their primary focus for the time being,” he said. 

“There is no one-size-fits-all approach to this situation, especially as we do not know if the estate tax will have its current exemption extended, made permanent or be abolished all together. It is strongly recommended that US citizens who are long-term residents of the UK get professional advice to understand their own position. That is particularly important for any US citizen whose spouse is not also a US citizen,” Havard said. 

“At the very least, US citizens who are long-term residents of the UK should be reviewing their wills to ensure that the provisions and wishes expressed are fit for purpose in the two-tax regime which will apply at death. Which will almost certainly not be the case if a will was made while still living in the US and has not been reviewed since,” Havard said.