20 February 2025
Key takeaways
If you’re a UK resident inheriting assets from the US, here are the key things you need to bear in mind as a beneficiary:
- The US does not impose a direct inheritance tax on beneficiaries. So, if you’re a UK resident receiving inheritance tax, you won’t need to pay anything because the government takes taxes from the estate before they reach you or any of the other beneficiaries.1
- However, if you generate income from your inherited assets, you might have to pay taxes on that income (e.g rental income or dividends).2 We’ll take a look at which taxes might apply in this context, both in the US and the UK.
- We’ve also compiled some information on the taxes that will be deducted from your estate before it reaches you. Again, you won’t need to pay these taxes, but we’ve included a guide to give you more awareness of how the US inheritance works.
While this article provides a high-level overview of US inheritance tax laws, tax regulations are complex and subject to change. We recommend consulting a qualified tax professional for advice tailored to your circumstances and referring to official sources, such as the IRS website, for the latest information.
Inheritance tax in the US: an overview
What is inheritance tax?
Inheritance tax is a levy on money, property or other assets someone leaves to you after they die, with the taxes varying depending on the country imposing it. For countries that have an inheritance tax, the rules can change as to whether the tax is taken from the estate or needs to be paid by the beneficiary.
How will I know if I need to pay US or UK inheritance tax?
UK inheritance tax
If the deceased was UK-domiciled, their assets will be subject to UK inheritance tax. UK domicile refers to where someone’s permanent home is considered for legal and tax purposes. This means a person could be living in the US but still be classed as UK-domiciled. If this was the case for the deceased, then their assets would be subject to UK inheritance tax.3
That’s why it’s essential to check the deceased’s domicile status first. If they were not UK-domiciled, their assets would generally fall outside the scope of UK inheritance tax.3
US inheritance tax
The US doesn’t impose a direct inheritance tax on beneficiaries, so as long as the deceased wasn’t UK-domiciled, you don’t need to worry about needing to pay inheritance tax if you’re a UK resident inheriting assets from the US.1
However, even though you will not be required to pay a direct inheritance tax as a beneficiary, any income generated on those assets, whether it be dividends from investments or rental income from a property, might be subject to different types of income tax2 – both in the US & the UK.
Let’s start with the taxes you need to be aware of once you’ve inherited assets that generate income.
What taxes will you need to pay if your inherited assets generate income?
Capital gains tax in the US & the UK
As a UK resident receiving inheritance from the US, you might also have to pay capital gains taxes if you sell the assets you inherited. These could include physical assets like a house, car, boat and intangible assets like stocks, bonds, mutual funds and cryptocurrency.
The amount you pay, if any, is determined by your filing status, taxable income, and how long you hold onto the asset before selling it.
For property based in the US
The US taxes capital gains on the sale of US real estate, regardless of the seller’s residency status. Therefore, as a UK resident, you might still be subject to US capital gains tax upon selling the inherited US property.4
The type of US Capital Gains Tax you might need to pay falls into two categories:
Short-term Capital Gains: If you sell your assets after holding onto them for one year or less, it’s considered short-term capital gain and will be taxed as ordinary income.
For example, if you bought a property and sold it within a year – the profits would be taxed at the same progressive federal income tax rates as wages or salaries, ranging from 10% to 37%, depending on your taxable income and filing status.4
Long-term Capital Gains: In the case you bought an asset and held onto it for more than a year, it’s considered long-term capital gains and is taxed at a lower rate, ranging from 0% to 20% depending on your taxable income and filing status.2
UK capital gains on worldwide assets
As a UK resident, you are also subject to UK Capital Gains Tax on your worldwide gains – including those from the sale of overseas properties.5
Again, this means that even though you won’t need to pay any US taxes for inheriting assets, as soon as they start generating income, there are taxes in the US and UK that you might need to pay.
Double taxation agreement
Double taxation agreements help prevent people from being taxed twice on the same assets. Here’s how they generally work:
- The country where the deceased was domiciled can tax all their assets, no matter where they are.6
- The other country can only tax specific types of property within its borders, such as real estate.6
For example, the US might have the primary right to tax the capital gain from the sale of US real estate, regardless of the deceased’s residency status.7
Taxes, both in the UK and US, can be complex and subject to change. That’s why we recommend you consult a tax professional when handling your inheritance.
What will be deducted from your US inheritance before it reaches you in the UK?
US states with inheritance tax
In the US, there are only six states that impose a tax on inheritance. Even with these inheritance taxes, the tax is levied on the estate and not on the individual, so as a UK resident receiving inheritance, you would not need to pay the inheritance tax.
Here’s how the regulations and the tax rate vary by state as of the date of publication (20/02/2025):
- Iowa: Inheritance tax in the state will be abolished in 2025. Rates currently range from 1% to 2% on inheritances valued between $12,500 and $150,000. Spouses, children, stepchildren, parents, grandparents and great-grandparents, grandchildren and great-grandchildren are exempt.1
- Kentucky: The state has the joint highest top marginal inheritance tax rate of 16% on assets over $1,000, depending on the beneficiary’s relationship to the deceased. Spouses, parents, children, stepchildren, grandchildren and siblings are exempt.1
- Maryland: The only state that imposes both an estate and an inheritance tax, Maryland levies a rate of 10% for the latter. Spouses, children, parents, grandparents, grandchildren, siblings and charities are exempt.1
- Nebraska: Parents, children, siblings and grandparents pay 1% on assets over $100,000. Aunts, uncles, nieces and nephews pay 11% on assets over $40,000. All other beneficiaries pay 15% on assets over $25,000. An exemption applies to spouses and beneficiaries under age 22.8
- New Jersey: The state has the joint highest top marginal inheritance tax rate of 16%, which ranges from 11% depending on the value of the assets and the relationship with the deceased. Spouses, children, parents, grandparents, grandchildren and charitable organisations are exempt. An exemption applies to siblings and sons/daughters-in-law up to $25,000.9
- Pennsylvania: Inheritance tax is charged at a rate of 4.5% for close beneficiaries (children, parents and grandparents) on assets over $3,500, 12% for siblings and 15% for other beneficiaries. An exemption applies for spouses, children under 21 and charities.10
Estate tax in the US
Estate tax is also deducted from the assets you’re inheriting before you inherit them. This is paid out of the estate before any remaining money, property or other assets are distributed to you and the other beneficiaries. For your information, this is how the estate is taxed before it reaches you:
The executor of the deceased’s estate must file an estate tax return. The value of the deceased’s assets is typically determined by their fair market value, not how much someone paid for them.
In addition to the federal tax, 12 states and the District of Columbia have their own estate taxes. These are the tax rates as of the date of publishing (20/02/2025):
| State | Estate taxes |
| Connecticut | Flat rate of 12% on estates worth more than the federal exclusion limit.11 |
| Hawaii | Tax ranges from 10% to 20% on estates valued at more than $5.49 million.12 |
| Illinois | Tax ranges from 0.8% to 16% on estates worth more than $4 million.1 |
| Maine | Tax ranges from 8% to 12% on estates worth more than $6.8 million.13 |
| Maryland | Tax ranges from 0.8% to 16% on estates worth more than $5 million.1 |
| Massachusetts | Tax ranges from 0.8% to 16% on estates worth more than $2 million.14 |
| Minnesota | Tax ranges from 13% to 16% on estates worth more than $3 million.1 |
| New York | Tax ranges from 3.06% to 16% on estates worth more than $6.58 million.1 |
| Oregon | Tax ranges from 10% to 16% on estates worth more than $1 million.1 |
| Rhode Island | Tax ranges from 0.8% to 16% on estates worth more than $1.77 million.1 |
| Vermont | Flat rate of 16% on estates worth more than $5 million.1 |
| Washington | Tax ranges from 10% to 20% on estates worth more than $2.19 million.15 |
| District of Columbia | Tax ranges from 11.2% to 16% on estates valued at $4.71 million or more.1 |
Lumon: Providing peace of mind for you and your loved ones
At Lumon, we’re here to make transferring your funds as straightforward as possible so you can focus on what matters most.
Our service is designed around your needs, offering a tailored approach and competitive exchange rates. Your dedicated currency specialist will guide you through your options and provide market insights, helping you get great value from your transfer.
- E-wallet: Keep your inheritance in the original currency and transfer it when the exchange rate works in your favour.
- Dedicated account manager: Get support from a currency specialist who will work with you to manage risk and plan your transfers.
- Forward contracts: Lock in an exchange rate for future transfers to protect the value of your inheritance from market fluctuations.
FAQs about American inheritance tax
How much can you inherit in the US tax free?
As a UK resident, you don’t pay any direct taxes on the inheritance you receive from the US because any state or federal taxes will be deducted from the state before it reaches you.1 However, if you generate income from your inherited assets, other income taxes might apply – both in the US and the UK.2
Is there inheritance tax in the USA?
In the US, there are only six states that have an inheritance tax. Even then, the inheritance tax is not directly imposed on beneficiaries. Instead, any applicable estate tax is paid by the deceased’s estate before the assets are distributed. Therefore, as a UK resident, you will not need to pay any direct inheritance tax, even if what you inherit comes from one of those six states.1
Do I pay UK tax on US inheritance?
If you’re UK-domiciled, meaning the UK is considered your permanent home for legal and tax purposes, your inheritance may be subject to UK inheritance tax. This will still depend on the total value of the deceased’s worldwide estate and your relationship with them. However, the double taxation treaty between the UK and the US provides some reliefs which could help you avoid being taxed twice on the same inheritance.14
What is the highest inheritance tax in the US?
This inheritance tax is not imposed directly on the beneficiary of the inheritance, so the taxes owed will be taken from the estate before it’s distributed to the beneficiaries.
Of the six states that impose an inheritance tax, Kentucky and New Jersey have the highest top rate of 16%.9 As a UK resident, you won’t pay this tax directly. Instead, the US Government will deduct these taxes from the estate before it reaches you.
Lumon does not hold its own license or permission to service clients in the United States directly. Services for American customers are provided through our partnership with Currencycloud, an Electronic Money Institution authorised to operate in the United States. Currencycloud issues e-money for funds posted to your account and safeguards these funds in line with regulatory requirements. Safeguarded funds are held at reputable financial institutions and are protected in the event of Currencycloud’s or Lumon’s insolvency. Safeguarding starts as soon as Currencycloud has the funds and ends when funds are paid out to the designated beneficiary account.
This content is intended for residents of the UK and EEA only. Lumon does not hold its own license or permission to service clients in America. Services for customers in America are facilitated through our introducer arrangement with Currencycloud. For more details, please visit https://www.lumonpay.com/legal-info/.
1 Tax Foundation – Estate and Inheritance Taxes by State, 2024
2 Internal Revenue Service, IRS – Capital gains and losses
3 GOV.UK How Inheritance tax works: thresholds rules and allowances, When someone living outside of the UK dies
4 Tax Foundation – Sale of your home
5 GOV.UK – Capital Gains Tax: What you need to pay
6 GOV.UK – Inheritance Tax: Double Taxation Relief
7 GOV.UK – UK/USA Double taxation
8 NOLO – Nebraska Inheritance Tax
9 New Jersey Division of Taxation – Inheritance and Estate Tax
10 Commonwealth of Pennsylvania – Inheritance Tax
11 Connecticut State Department of Revenue Services – Estate and Gift Tax Information
12 State Of Hawaii – Department Of Taxation – Instructions for Form M-6 Hawaii Estate Tax Return
13 Maine Revenue Services – Department of Administrative and Financial Services – Estate Tax
14 Mass.gov – Massachusetts Estate Tax Guide
15 Department of Revenue, Washington State – Estate tax tables
Sources last checked on date: 20/02/2025
The information provided in this material is accurate to the best of our knowledge at the time of writing 20/02/2025, but it is subject to change. The content is for informational purposes only and does not constitute tax advice. It is essential that individuals seek advice from professional services regarding tax matters. We do not accept liability for any errors or outdated information, and individuals should not rely on the information presented without consulting an expert.
This content is intended for residents of the UK and EEA only. Lumon does not hold its own license or permission to service clients in the United States. Services for customers in the United States are facilitated through our introducer arrangement with Currencycloud. For more details, please visit https://www.lumonpay.com/legal-info/.
