If you are British and you hold US shares, a US brokerage account, or a property in America, there is a US tax you have probably never been warned about, and it can take up to 40% of those assets when you die. The United States charges estate tax on US-situated assets owned by non-Americans, and the exemption for a non-US person is a startlingly low $60,000, against the $15 million a US citizen enjoys. The good news, and it is very good news, is that a treaty between the US and the UK largely rescues British people from this trap, but only if you understand your exposure and claim the relief correctly. This guide explains which of your assets are caught, how the US-UK treaty protects you, the withholding tax on US dividends, and the trap on selling US property. It is a starting point for understanding your position, not personal tax advice.
Most British investors have no idea this exists. The United States levies estate tax not only on its own citizens and residents, but on anyone who dies owning US-situated assets, wherever that person lived. For a US citizen or US-domiciled person, this is rarely a worry, because they have an exemption of around $15 million in 2026 (approximately $15.2 to $15.5 million, indexed for inflation). For a non-US person, a British expat included, the exemption on US-situated assets is only $60,000. Above that, the estate faces US estate tax at rates rising to 40%. So a British person holding, say, $500,000 of US shares could in principle face a very substantial US tax bill on death, entirely separately from UK inheritance tax. This is determined by domicile, not by where you live or your income tax residence, and it applies whether you are in London, Dubai or anywhere else. It is, without exaggeration, one of the largest and least understood risks for internationally minded British investors, which is why it is worth understanding before it becomes a problem for your family.
The tax applies only to US-situated, or US-situs, assets, so the definition is everything. The main assets that are caught include US real estate, such as an apartment in New York or Florida; shares in US corporations, which very much includes US-listed stocks such as Apple or Microsoft; shares in US mutual funds; and tangible property physically located in the US. One point catches people out constantly: US shares are US-situated even if you hold them through a UK or offshore brokerage account. Moving your US shares to a non-US platform does not change their situs or remove the exposure. Equally important is what is generally not caught: US bank deposits are typically exempt, and, significantly, shares in a non-US fund that itself invests in US companies are generally not US-situs. This last point is central to how the exposure is often managed: holding US market exposure through a non-US-domiciled fund, rather than US shares directly, can keep you outside the US estate tax net altogether.
Here is the reassuring part, and it is specific to British people. The United States has estate tax treaties with only around fifteen countries, and the United Kingdom is one of them. Under the US-UK Estate and Gift Tax Treaty of 1979, a person domiciled in the UK for the purposes of the treaty can claim a pro-rated share of the same large exemption that a US citizen would receive, rather than being limited to the $60,000. In practice, this largely neutralises the trap for a UK-domiciled person, because the effective exemption becomes a proportion of the multi-million-dollar US allowance rather than a mere $60,000. This is enormously valuable, but two things matter. First, the relief is not automatic: it must be claimed, typically on a US estate tax return for the non-resident, Form 706-NA, with the treaty position properly established. Second, it depends on your being UK-domiciled under the treaty's terms. Domicile for the treaty is determined under each country's own domestic law, which for a UK person means the UK common law domicile test, with a tie-breaker rule if the two countries would both claim you. Someone who has moved to, say, the UAE and shed UK domicile may not have the same protection. So the treaty is a powerful shield, but it is one you have to raise correctly, and its availability depends on your circumstances.
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Separately from estate tax, there is an income tax point that affects you while you are alive. When a US company pays a dividend to a non-US person, the US withholds tax at a default rate of 30%. For a UK person, the US-UK income tax treaty reduces this to 15%, but only if you have completed the appropriate form, a W-8BEN, with your broker to certify your UK status and claim the treaty rate. Many British investors unknowingly suffer the full 30% simply because the form was never completed, losing half as much again of their dividend income as they needed to. This is a straightforward thing to get right, and getting it wrong is a quiet, recurring cost. The 15% withheld can also generally be credited against UK tax on the same income, so the treaty rate matters for your overall position, not just the US slice.
US real estate carries its own specific complication on sale. Under a regime known as FIRPTA, the Foreign Investment in Real Property Tax Act, when a non-US person sells US real estate, the buyer is generally required to withhold 15% of the gross sale price, not the profit, the whole sale price, and remit it to the IRS. The gain itself is also subject to US income tax. The withheld amount is not the final tax; it is a payment on account that you reconcile by filing a US tax return, reclaiming any excess. But the effect on cash flow can be severe: on a $600,000 property sale, $90,000 can be withheld at closing regardless of your actual gain, tied up until you file. Anyone holding or selling US property needs to understand this in advance, both to plan cash flow and to make sure the eventual US filing is done so any over-withholding is recovered.
The US estate tax on your US assets does not replace UK inheritance tax; it sits alongside it, and the two must be reconciled. The same US asset can be within the UK inheritance tax net (if you are UK-domiciled or deemed domiciled, or under the new residence-based rules) and within the US estate tax net at the same time. The US-UK treaty prevents the same asset being fully taxed twice by giving a credit for US estate tax paid against the UK inheritance tax on that asset (and the primary taxing right generally follows domicile), so although the total tax can still be significant, you are not simply paying both in full on the same asset. This is a genuinely technical area, and the interaction depends on your domicile, your residence, and the nature and location of your assets. The practical message is that if you hold meaningful US assets, they should be looked at as part of your whole cross-border estate plan, not in isolation, and the structure in which you hold them, direct US shares versus non-US funds, personal ownership versus other arrangements, can make a very large difference to what your family ultimately keeps. Note too that US gift tax can apply to a non-US person who gives away US-situs assets during life, with the same $60,000 exemption, so lifetime gifts of US property or shares are not a simple way around the estate tax and need their own care.
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The most dangerous mistake, because you cannot manage a risk you have never heard of. Many British investors hold US shares or a US property with no idea that a 40% US estate tax with a $60,000 exemption could apply on death. Simply knowing it exists is the first and most important step.
Holding your US shares through a UK or offshore brokerage does not change their US situs. The shares are still US-situated assets and still within the US estate tax net. Where the account is held does not fix the problem; what you hold does.
The US-UK treaty is what rescues most British people from this trap, but it is not automatic. It must be claimed correctly, generally through a US estate tax filing, and its availability depends on your being UK-domiciled under the treaty. Assuming protection you have not established, or that no longer applies after a move, is risky.
Failing to complete a W-8BEN means US dividends are withheld at 30% instead of the 15% treaty rate. It is a simple form, and not completing it is a persistent, avoidable drain on your US investment income.
Selling US real estate without expecting 15% of the gross sale price to be withheld at closing can create a serious and unexpected cash-flow problem, and failing to file afterwards can mean never reclaiming any over-withheld amount.
Geoffrey had built a substantial portfolio over the years, including around $700,000 of US shares, Apple, Microsoft and a US index fund, held through his international brokerage account. He assumed that because the account was not in the US, and because he lived in Dubai rather than America, US tax was not his concern. He had also never completed any US forms with his broker.
A review of his position identified two issues he had not seen. First, his US shares were US-situated assets, so on death they would be exposed to US estate tax with only a $60,000 exemption, a potential liability running to hundreds of thousands of dollars, and his move to the UAE raised real questions about whether the US-UK treaty protection he might once have relied on still applied to him. Second, he had been suffering 30% withholding on his US dividends for years for want of a W-8BEN. His US market exposure was restructured so that it was held through non-US-domiciled funds rather than US shares directly, taking those holdings outside the US estate tax net, and the withholding position on any remaining US holdings was corrected.
Geoffrey kept his exposure to the US market, which he wanted, but held it in a way that no longer left a potential six-figure US estate tax liability hanging over his family, and stopped overpaying tax on his dividend income. The investment strategy did not really change; the structure that delivered it did.
Illustrative example, not a real client.
Clarity Global Wealth helps British expats understand and manage their exposure to US tax on US assets, an area that is widely overlooked until it becomes a problem. We start by identifying which of your holdings are US-situated and therefore within the US estate tax net, assessing the size of the exposure, and clarifying whether and how treaty protection applies to you given your domicile and where you live. From there, the questions are practical: whether your US market exposure would be better held through non-US-domiciled funds, whether your dividend withholding is set up correctly, and how any US property fits your plans. Because this interacts with UK inheritance tax and your wider cross-border estate, we look at it as part of the whole picture and coordinate with US and UK tax and legal specialists where the detail requires it. The aim is simple: to keep the investment exposure you want while removing the structural US tax risk you almost certainly do not.
This guide is provided for general information only and reflects our understanding of the rules as at the date of publication. It is not personal financial, investment, pension or tax advice, and should not be relied upon as such. Rules and tax treatment can change and depend on your individual circumstances and country of residence. You should always seek regulated advice specific to your situation before taking action.
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