US Estate Tax Planning for Non-US Persons and British Expats

Yes - if you are not a US citizen or domiciliary, your US real estate is a US-situs asset subject to US federal estate tax. The exemption available to non-US persons is just $60,000 (unchanged since 1988). A Florida property worth $500,000 would leave $440,000 taxable at rates up to 40%, producing a tax bill of approximately $138,000-$150,000 before any treaty credit. This applies regardless of whether you have ever visited or lived in the US beyond the property.

Yes. The location of your brokerage account is irrelevant - what matters is the domicile of the fund. VOO and IVV are US-incorporated ETFs, making them US-situs assets subject to NRA estate tax. If your UK broker holds these funds on your behalf, they are still in your US-situs estate. The solution widely used by UK and European investors is to switch to Irish-domiciled UCITS equivalents (such as the Vanguard FTSE All World UCITS ETF or iShares Core MSCI World UCITS ETF), which are not US-situs for estate tax purposes.

The $60,000 NRA (non-resident alien) estate tax exemption is the amount of US-situs assets a non-US person can hold free of US estate tax at death. It has not changed since 1988 (the Technical and Miscellaneous Revenue Act) and is not indexed to inflation. By contrast, US citizens and domiciliaries benefit from a $13.99 million exemption in 2025 - permanently raised to $15 million per individual from 2026 under the One Big Beautiful Bill Act (signed July 2025). The NRA $60,000 threshold was not changed by this legislation. This $249-fold gap between US citizen and NRA treatment is the core exposure problem for non-US investors holding US assets.

It can significantly reduce exposure, but it is not automatic. The US-UK Estate and Gift Tax Treaty (separate from the income tax treaty) allows UK-domiciled individuals to claim a proportional unified credit instead of the standard $60,000 NRA exemption. The credit is calculated as the fraction of your worldwide estate represented by US-situs assets, multiplied by the full US citizen unified credit. This can raise the effective exemption to hundreds of thousands or even millions of dollars, depending on the size of your worldwide estate. Treaty benefits must be actively claimed by attaching Form 8833 to Form 706-NA - they are not applied automatically.

For US estate tax, the IRS uses domicile - not physical residency, visa status, or tax residency. Domicile means the country where you intend to remain permanently without any present intention to leave. You can be a US visa holder, a long-term US resident, or even a green card holder and still be treated as a non-domiciliary if your intent was always to return abroad. Conversely, a person who never held a visa but settled in the US with no intention to leave could be treated as US-domiciled. The distinction matters enormously: US domiciliaries receive the $15 million exemption (from 2026); NRAs receive $60,000.

Potentially yes, and this risk has increased since April 2025. The UK replaced its domicile-based IHT system with a long-term residency test: spending 10 or more of the last 20 tax years as a UK resident triggers worldwide IHT exposure. A British expat who has returned to the UK after years abroad, or who never left, and who also holds US assets, could face UK IHT on the worldwide estate (including US assets) AND US estate tax on the US-situs assets specifically. The US-UK Estate Tax Treaty provides credits to reduce double taxation, but the interaction is complex - particularly following the April 2025 UK reform. Professional advice is essential.

No. Irish-domiciled UCITS ETFs (such as the Vanguard FTSE All World UCITS ETF, iShares Core MSCI World UCITS ETF, or Invesco S&P 500 UCITS ETF) are not US-situs assets for NRA estate tax purposes. The situs of an ETF follows its country of domicile, not the nationality of its underlying holdings. Because these funds are incorporated in Ireland, they are non-US assets from a US estate tax perspective. This is why many UK-based investors specifically choose UCITS structures rather than US-listed equivalents such as VOO, IVV, or QQQ.

Form 706-NA (United States Estate Tax Return for Non-Resident Aliens) is the US estate tax return filed by the estate of a non-US person who held US-situs assets at death. It must be filed if the gross US-situs estate exceeds $60,000. The deadline is 9 months after the date of death (extendable by 6 months using Form 4768). Any tax owed must be paid by the original 9-month deadline to avoid interest charges. The form was updated by the IRS in September 2025. Filing requires a US attorney or estate tax specialist - most UK-based executors will need to appoint US counsel.

The process typically takes 18 to 24 months or more. The sequence is: (1) IRS reviews the estate and confirms Form 706-NA is filed and any tax is paid; (2) the IRS issues Form 5173 (Transfer Certificate) - this alone takes 6-12 months; (3) the custodian (Vanguard, Schwab, Fidelity, etc.) reviews Form 5173 and releases the assets - a further 1-3 months. Until Form 5173 is issued, US custodians are legally prohibited from releasing the assets to beneficiaries, regardless of the estate's size or the tax position.

Holding US real estate through a non-US company can convert the taxable asset from US real estate (US-situs) to foreign company shares (not US-situs). This is a legitimate strategy used by non-US investors - the shares of a UK limited company are not US-situs for NRA estate tax purposes, even if the company owns US property. However, this structure has costs and complexities: it triggers the US Foreign Investment in Real Property Tax Act (FIRPTA) on sale, adds annual compliance costs, and may affect financing options. It is not a universal solution and requires careful structuring advice before implementation.

Yes - if you own US-situs assets. US estate tax for non-resident aliens is triggered by asset location, not by your personal connection to the US. A British person living in Singapore who holds shares in Apple, Microsoft, or any US corporation through a UK broker has US-situs assets in their estate. A person who has never set foot in America but holds a US-listed S&P 500 ETF has exposure. The $60,000 exemption is the only threshold - there is no minimum physical connection requirement.

Professional costs for US estate administration can be significant: a US estate tax attorney typically charges $2,500-$20,000+ depending on estate complexity; US probate costs (court fees, executor fees) range from $50-$1,200 in court fees plus executor fees of 3-5% of the estate; and a US-specialist CPA or tax adviser for Form 706-NA preparation may charge $1,500-$10,000+. On a $500,000 US-situs estate, total professional and probate costs often reach $14,000-$50,000 in addition to any tax owed.

Yes, in some states. US federal estate tax is only one layer. Twelve states plus the District of Columbia (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington) levy their own estate tax, with exemptions ranging from about $1 million in Oregon up to the full federal level in Connecticut. A further five states (Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania) levy an inheritance tax paid by the person who inherits. For a non-US person, the state that usually matters is where US real estate is located: state estate tax reaches in-state real property regardless of the owner's residency or citizenship, and states are not party to the US federal estate tax treaties, so a state can tax even where the federal position is covered. State rules for non-residents vary, and a specialist confirms the position for the specific state.

The recurring ones are: assuming a foreign broker protects you, when US-listed ETFs and US company shares are US-situs wherever the account is held; thinking the $60,000 exemption is generous, when it has not changed since 1988; expecting the treaty credit to apply automatically, when it must be claimed on Form 706-NA; believing you are safe because you have never lived in the US, when exposure follows where the asset is, not where you are; overlooking state-level estate tax on US real estate; and selling inherited US assets without using the stepped-up basis. Each point is general information, not advice, and a specialist reviews your actual position.

Generally yes. Separate from estate tax, US-situs assets in a non-US person's estate usually receive a step-up in cost basis to their market value at the date of death (IRC §1014). Heirs who sell shortly after inheriting may therefore have little or no capital gain. Documenting the date-of-death valuation is the practical step, and a specialist confirms how it applies to the specific assets.