A changing landscape: an overview for those with Scottish and US assets

For individuals with cross-border interests, bespoke advice in relation to their estate planning is required. Brodies is frequently instructed by clients who have assets in Scotland, the rest of the UK - and the US to assist with their estate planning, ensuring that any arrangements put in place are workable in all countries. We regularly work alongside our client's wealth managers and advisors within these jurisdictions to ensure actions taken are compatible and are the most tax efficient.

This co-authored article between Susanne Batchelor, Partner at Brodies LLP and Gary Donald, Wealth Manager at LGT Wealth Management US discusses some of the legal and wealth management considerations for clients with assets in both Scotland and the US.

1. Possible changes to US Estate tax?

Following the inauguration of President Trump in January of 2025, speculation as to what the future holds for the estate tax in the US has continued. During President Trump's previous term, one of his most notable policies was the Tax Cuts and Jobs Act. This is the federal estate and gift tax exemption which is currently at a very generous just under $14 million for an individual, or just under $28 million for a married couple.

The sunset for these tax provisions is December 2025, and there is of course a level of uncertainty as to whether these will continue or, whether the exemptions will be much lower in the future. There has been speculation on what President Trump may do in relation to this act, as his previous actions have supported making the changes under the Tax Cuts and Jobs Act permanent. However, in a time of uncertainty, it may be the time to review your estate planning to see if actions can be taken now to secure the favourable tax treatment on offer.

Consideration must be given to the domicile of the individual and whether they will be subject to the UK inheritance tax regime on death. It may be the case that the provisions of the Double Taxation Convention between the US and the UK provide relief if there is a tax charge which is levied in both countries.

2. Why do I need wealth management and investment solutions for my cross-border assets?

For individuals who have a financial or personal connection to the USA, particularly those living outside of the USA, it is important to take into account the global reach of the US taxation system, ensuring that any financial plan or investment strategy is well thought through to target long-term investment growth and, more controllable, mitigating the risk of negative US tax consequences.

For example, a US taxpayer should think carefully before investing in any non-US funds, given that they may be classified as a Passive Foreign Investment Company (PFIC) by the US. The term PFIC can refer to any non-US fund or collective investment vehicle which is non US listed such as UK unit trusts, ETFs, investment trusts, REITS and SICAVs. Distributions and gains from PFICs attract higher US tax compared to the standard qualified dividend and capital gains tax rates. It is therefore important to avoid falling foul of the PFIC rules to ensure annual accounting fees are not increased as a result of the additional tax reporting burden.

By the same token, a US taxpayer residing outside of the US should be aware that investments in US mutual funds can be taxed aggressively in their country of residence. For example, the UK can tax US mutual funds to offshore income gains, rather than capital gains tax.

Further considerations

Additionally, some local tax incentives cannot be applied in all cases. UK ISAs, typically viewed as one of the most tax advantageous wrappers available in the UK, are not tax-free from a US perspective. In a similar vein, other popular investment wrappers such as offshore life insurance bonds, are often not appropriate vehicles for US taxpayers due to their structure or range of underlying investments. Despite the local tax advantages these can offer, for US connected persons, they may end up being more detrimental than beneficial.

A simple rule of thumb is that local tax incentives are rarely efficient in the US and vice versa.

Finally, finding financial institutions that are qualified from both a knowledge and regulatory perspective and are in a position to provide the required specialist services to US connected persons is key. Working in partnership with professional advisers will ensure an individual receives a cohesive service that they can trust and which aims to maximise investment growth and take advantage of any tax benefits they may be entitled to.

3. Planning ahead for future developments

There are a number of opportunities for those with cross-border interests to plan for the future and it is important to note the unique elements of estate planning that differ cross-border. The contents of this article should not substitute legal advice and we recommend speaking with a legal or wealth management professional before making any personal decisions on estate planning or investments.

Brodies' wills and estate planning experts can advise on Scottish matters, as well as English wills and probate. Our personal law team is highly experienced in working with individuals who have connections in the US and UK. To speak with a member of our team, please get in touch.