Trust-related health checks for Americans with UK connections

Insight

09.06.2026

One of the key 'health checks' for Americans planning to move to the UK is to consider how their irrevocable and revocable trusts will be treated for UK tax purposes. On the menu of things to think about in advance are, in no particular order:

trustee residence;
the parameters of any investment powers held by a UK resident;
how any underlying investments will be treated; and
how their revocable trust is likely to be treated for each type of relevant UK tax – whether the revocable trust is effectively a 'nothing', a sort of bare trust or nominee arrangement, or a substantive settlement.

In an earlier briefing, 'UK inheritance tax changes: how the US-UK Treaty could protect some Americans', we considered how existing US trusts that look like substantive settlements for UK tax purposes may be able to qualify for treaty protection from UK inheritance tax (IHT) exposure even after the grantor moves to the UK.

In 'LLC beware! The UK tax trap for American LLCs and how to avoid it', we also explored how LLCs translate (or not) across the Atlantic. This is a key question for LLCs held in trust because the discrepancies between US and UK tax treatment can give rise to something close to double taxation if not carefully structured. However, we would note that the UK Treasury is currently examining whether tax in this area should be reformed, so this is one to watch.

Now that we have added that background reading to your TBR, the main goal of this briefing is to flag that just because a revocable trust may be all but ignored for US tax purposes during the grantor's lifetime, that does not mean the same treatment necessarily applies for UK tax purposes.

So, why does this matter?

When a UK long-term resident adds assets to a substantive settlement, or when anyone adds UK-situated assets to a substantive settlement, it can trigger an immediate 20% IHT charge, with ongoing IHT charges also potentially applying.

One point to watch is what happens under the terms of the revocable trust if the grantor loses capacity. If there is an 'incapacity trigger' that suddenly creates fiduciary obligations and trustee discretions, this can cause an immediate 20% IHT charge if the grantor is a UK long-term resident at the relevant time.

In certain circumstances, having a revocable trust treated as a settlement can also have UK income tax and/or capital gains tax implications for UK-resident beneficiaries who receive distributions from the trust (usually after the grantor's lifetime), even if the grantor never sets foot in the UK.

Of course, the easiest solution from a purely UK perspective is to get rid of the revocable trust altogether, but they can serve a valuable function for US planning purposes so sometimes a more nuanced approach is needed.

While there is no single silver bullet that guarantees a revocable trust will not be treated by HMRC as a substantive settlement, careful planning and structuring of a US revocable trust can mitigate this UK tax risk.

Some of the key hallmarks a UK adviser will look for when analysing the revocable trust are whether there are 'interests in succession' (broadly meaning named beneficiaries who have vested or contingent interests), whether the trustee owes fiduciary duties to anyone other than the grantor, the extent of the trustee's discretion, and any limitations on the grantor's right to revoke the trust.

The position under the trust's governing law is a key piece of the puzzle, so it will be important for the UK and US advisers to work together to reach a pragmatic solution. Ideally any recommended changes can be made at an early stage to ensure the trust will work for both jurisdictions.

To find out more about the UK tax treatment of US revocable and irrevocable trusts, including inheritance tax, income tax and capital gains tax considerations for individuals moving to the UK, please contact our Private Client team or your usual Farrer & Co contact.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.