What assets do you have back in the UK?

If you’re the same as most British expats in the US, these assets are likely to include residential property, an investment portfolio – maybe in ISAs – and a pension fund accrued before you emigrated.

There’s an obvious temptation to take them for granted – out of sight, out of mind – while you focus on your life in the US. What happens to them ultimately will then depend on your future plans.

However, you need to be aware of some key changes that were recently announced and are likely to come into effect from April 2027.

These changes will affect both your retirement and legacy planning. This “double whammy” may well prompt you to review your plans.

UK pension funds will become liable for Inheritance Tax

For some time, your UK pension fund has been exempt from Inheritance Tax (IHT). This has made pensions an effective vehicle for passing wealth to your beneficiaries without them incurring an IHT charge on your death.

Realistically, this was always something of an untenable position. A pension fund, by definition, is designed to provide you with an income in retirement, rather than to be used as a tax-mitigation option.

So, it’s no big surprise that the UK government has announced that, from 6 April 2027, most unused pension funds and pension death benefits will be subject to IHT.

This change is likely to affect both your long-term income planning and your UK estate planning.

As a US resident, you are still liable for Inheritance Tax on your UK assets

IHT is assessed on the value of your estate in the UK at the time you die, even if you reside in the US. This would be in addition to any US estate tax to which you may be subject.

In the 2025/26 tax year, UK IHT is payable by your beneficiaries at a rate of 40% on the value of your assets above the current £325,000 threshold (the “nil-rate band”). You also have an additional allowance – the “residence nil-rate band” – of up to £175,000 for residential property if the total value of your UK estate is less than £2 million.

Your nil-rate bands pass to your spouse or civil partner on death should you predecease them, and they can inherit your entire estate tax-free. Effectively, this means you and your spouse or civil partner can pass £1 million to your beneficiaries without incurring IHT.

So, with the value of your UK pension fund set to be liable for IHT, this is clearly an issue you need to address.

Your beneficiaries could pay tax twice on their inheritance

One effect of the changes is that, if your beneficiaries are living in the UK, they may face a double tax charge on any pension assets inherited on your death.

If you are over the age of 75 when you die, your beneficiaries may be required to pay Income Tax at their marginal rate on their pension inheritance.

This means that, from April 2027, they could end up being taxed at 40% and then up to 45% on the same amount, depending on their marginal rate.

You should review your plans now to see if you need to make changes before April 2027

The implementation date of April 2027 means there is a window of opportunity for you to review your UK plans and take steps to mitigate the impact of the changes.

This review will clearly be driven, to a great extent, by your future plans. For example, if you are planning to remain as a long-term resident in the US, it could make sense to start moving some existing UK-based assets into your US portfolio.

As well as reducing your UK IHT liability, you will also minimise currency risk. Furthermore, the assets will be in a jurisdiction with far more favourable rules around taxes payable on your estate when you pass on.

You may also want to consider strategies to mitigate the effect of IHT on your UK assets, such as gifting, life insurance, and using trusts.

Although April 2027 might seem some way off, the sooner you start the process of reviewing your plans and exploring your options, the better.

Above all, given the complexity of estate planning, we strongly recommend seeking expert advice before making any changes to your plans.

Get in touch

If you are an expat living in the US and would like to talk about your own financial plans and estate planning arrangements, please get in touch to arrange an exploratory Zoom call to review your options.

Please note

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