The unlimited marital deduction generally does not apply where the surviving spouse is not a US citizen. How a qualified domestic trust works, what it costs, and the alternatives for US-UK couples.
The unlimited marital deduction that allows one American to leave everything to another free of US estate tax generally does not apply where the surviving spouse is not a US citizen. The standard fix is a qualified domestic trust (QDOT): the property passes into a trust with a US trustee, the estate claims the marital deduction, and the tax is deferred rather than forgiven. For a US citizen dying in 2026 the basic exclusion amount is $15,000,000, so this only bites larger estates — but where it bites, the top estate tax rate is 40%.
The logic is entirely about collection. When an American leaves assets to an American, the US has lost nothing: the survivor is still a US taxpayer and the assets will be caught in the survivor's own estate. When the survivor is a British citizen with no US tax status, the assets can leave the US net permanently. Congress answered that risk not by taxing the first death immediately but by requiring a structure that keeps the assets reachable — a US trustee, a withholding mechanism, and tax when value actually leaves the trust.
Two things follow, and they are what people get wrong. Citizenship is the test — not residence, not a green card, not years of US tax filing; a spouse who has filed US returns for twenty years as a resident alien is still a non-citizen spouse here. And the problem is created by the will, not discovered at death. It is separate from the day-to-day filing questions in our guide to US tax when you are married to a non-American, and sits inside the wider picture in US estate and gift tax for Americans in the UK.
Be honest about the thresholds before reaching for a trust. The IRS filing threshold for 2026 deaths is $15,000,000: a return is required where "the gross estate of the decedent, increased by the decedent's adjusted taxable gifts and specific gift tax exemption" exceeds that figure. Below it, a US citizen's estate generally owes no federal estate tax and this restriction is academic. So it is a problem for:
The Form 706-QDT instructions describe a trust meeting four requirements. In practical terms:
The trust instrument must require that at least one trustee is "either a U.S. citizen or a domestic corporation." A British solicitor as sole trustee will not do, however well they know the family. This is usually met with a US bank or trust company alongside a family member.
No distribution of principal may be made "unless the United States trustee has the right to withhold from the distribution the tax imposed on the QDOT." The trustee is, in effect, the collection agent for the tax. Trustees who do not understand that are the source of most QDOT accidents.
Where trust assets exceed $2,000,000, one of three conditions must be met: a US trustee that is a bank; a bond furnished to the IRS for 65% of the fair market value of the trust assets; or an irrevocable bank letter of credit in the same 65% amount. Where assets are $2,000,000 or less, the alternative is that no more than 35% of the trust's assets consist of foreign real property — otherwise the larger-trust rules apply. For a family whose main asset is a UK house, that 35% test is often decisive.
The executor makes the QDOT election on Form 706, and two timing points matter enormously. The property must be transferred to the QDOT before the decedent's death or before Form 706 is filed; Form 706 is due nine months after death, with a six-month extension on Form 4768, and the instructions confirm property may be transferred or irrevocably assigned to a QDOT before the return goes in. Where an existing trust nearly qualifies, the Internal Revenue Manual notes that if judicial proceedings to reform it are commenced before the due date (including extensions), qualification waits for the court-ordered changes. The election, once made, cannot be revoked.
This is where expectations part company with the law. Per the Form 706-QDT instructions, estate tax applies to three things: distributions from the trust, the value of property remaining in it on the surviving spouse's death, and the corpus portion of certain annuity payments. Distributions of income to the surviving spouse are not taxed.
That distinction defines the planning. A QDOT can pay a British widow the whole income of a large portfolio for thirty years with no estate tax; the moment it pays her capital, tax is triggered. The trustee files Form 706-QDT, due not later than 15 April following the year of a taxable event — or within nine months of a death.
There is relief for genuine need. A distribution of principal is treated as made on account of hardship where it is made to the spouse "in response to an immediate and substantial financial need" relating to health, maintenance, education or support. Hardship distributions are still disclosed on Form 706-QDT. The exception is narrower than families hope: it is for need, not convenience, and not for buying a second home.
Lifetime gifting is the quiet, unspectacular answer, and for many couples it is better than any trust.
The gift tax mirrors the estate tax: gifts to a non-US-citizen spouse are not eligible for the unlimited gift tax marital deduction. Instead there is an enlarged annual exclusion. For 2026 the IRS confirms "the annual exclusion for gifts to a spouse who is not a citizen of the United States increases to $194,000," while the ordinary annual exclusion "remains at $19,000."
Used deliberately over a long marriage, that is substantial. It equalises estates while the US citizen is alive, moving value out of the taxable estate without a trust, a bond, a US trustee or an annual return. It needs care: the gift must be a real, present-interest transfer; the UK consequences have to be checked; and gifts above the annual figure start consuming the lifetime exclusion and bring a Form 709 filing requirement.
The restriction is about citizenship, so citizenship can resolve it. The Internal Revenue Manual states that where "the surviving spouse became a U.S. citizen, the QDOT tax does not apply to any distributions made after the spouse became a citizen if" the spouse was a US resident at all times after the decedent's death and before becoming a citizen — or where no QDOT tax had previously been imposed. The US trustee notifies the IRS by filing a final Form 706-QDT.
Two cautions. The residence condition is real: a widow who returns to London and then naturalises is in a different position from one who stays in New York. And naturalisation carries a long US tax tail — worldwide income reporting, and eventually the same estate tax exposure the planning was meant to manage. Where naturalisation is already in progress, its timing against the Form 706 window is a question for US counsel, because citizenship status is what the rule turns on. It belongs on the table; it is rarely by itself a reason to naturalise.
Since 6 April 2025, UK inheritance tax turns on long-term UK residence rather than domicile. HMRC defines a long-term UK resident as someone UK tax resident for the previous 10 consecutive years, or for 10 or more years within the previous 20; for such a person, inheritance tax reaches overseas assets as well as UK ones.
The UK has its own mirror-image trap. Under IHTA 1984 s.18(2), where the transferor is a long-term UK resident but the spouse is not, the spouse exemption is limited to the nil-rate band applying at the date of transfer — £325,000 — and HMRC's manual confirms the limit is cumulative across transfers to spouses. The restriction does not apply where both are long-term UK residents, or where the transferor is not but the recipient spouse is. A spouse who is not a long-term UK resident may elect to be treated as one for all inheritance tax purposes, unlocking full spouse exemption; the election cannot be revoked and lapses only after 10 consecutive years of non-UK residence.
Note the asymmetry: the US rule looks at the survivor's citizenship, the UK rule at the survivor's long-term residence. Different tests, and a couple can fail both at once.
Finally, the US-UK estate and gift tax convention, signed on 19 October 1978, is a separate treaty from the income tax treaty. It allocates taxing rights and relieves double taxation between the two systems. It does not repeal either country's spousal rules, and planning that assumes a treaty will mop up a drafting failure is planning on hope. Our guide to UK inheritance tax under the long-term residence rules goes further into the UK mechanics.
| Situation | US position | What to consider |
|---|---|---|
| Estate well below $15,000,000 (2026), British spouse | No Form 706 required; restriction academic | Keep the wills simple; revisit if the exclusion falls |
| Estate above the exclusion, left outright to a British spouse | Marital deduction generally denied; up to 40% on the excess at the first death | A QDOT drafted in advance, or funded before Form 706 is filed |
| Same, but the assets are a UK house and a trading company | Same exposure, no cash to pay it | Liquidity first; and the 35% foreign real property test |
| Non-citizen spouse expected to naturalise soon | Citizenship status governs the rule | Sequence naturalisation against the filing timetable with US counsel |
| US citizen willing to equalise during life | Gifts to a non-citizen spouse capped at $194,000 (2026) | An annual gifting programme; check the UK side of each transfer |
| Both spouses long-term UK residents | US rules unchanged by UK status | UK spouse exemption unrestricted; the QDOT question still stands |
| US citizen is a long-term UK resident, British spouse is not | QDOT issue and UK spouse exemption capped at £325,000 | Both systems at once; consider the UK long-term residence election |
A US citizen dies in 2026 leaving a worldwide estate of $22,000,000 outright to her British husband, who has never held US citizenship.
Had the same $7,000,000 passed into a properly drafted QDOT, the marital deduction would have been available and nothing would have been payable at the first death. The husband could have received the trust's income for life without estate tax; tax would arise on distributions of principal and on the balance remaining at his death. The cost is not zero — a US trustee, annual compliance, possible security arrangements, less flexibility — but the family keeps the assets, and the use of the money, for a generation instead of selling to fund a bill.
1. Establish in writing the surviving spouse's citizenship as at the date of death — not residence, not immigration status.
2. Value the estate and identify what, if anything, exceeds the exclusion for the year of death.
3. Read the will against the QDOT requirements: can the assets still be routed into a qualifying trust?
4. Instruct US counsel at once if an existing trust may need reformation — proceedings must begin before the extended due date.
5. Identify a US trustee and check the security position against the $2,000,000 and 35% tests.
6. Calendar the Form 706 due date at nine months and file Form 4768 if there is any doubt at all.
7. Put the ongoing Form 706-QDT compliance in place before the trustee makes a first distribution.
This article explains the landscape so that you can ask the right questions. It is not drafting advice, and nothing here should be used to write, amend or interpret a will or a trust. QDOTs are drafted by qualified estate planning counsel — usually two sets working together, US counsel on the trust and the election, UK counsel on the will and the inheritance tax position. Accountants model the numbers, prepare Form 706 and Form 706-QDT and keep the compliance running; they do not draft the instrument.
If your combined estate is anywhere near the exclusion and one of you is not a US citizen, this is worth an hour of someone's attention now rather than nine months of pressure later. The useful work is sequencing: what each system will charge, whether a QDOT, lifetime gifting or an election is the better instrument, and whether the wills on both sides of the Atlantic say the same thing. We work alongside estate planning counsel as tax specialists for US and UK positions, model the numbers in both currencies and prepare the US returns — with a licensed CPA or Enrolled Agent reviewing and signing off the US filings and an ACCA-qualified accountant on the UK side. If that is where you are, book a consultation.