As Americans celebrate Independence Day on 4 July, Scotland has recently been conducting its own form of transatlantic diplomacy. The Tartan Army's recent visit to Boston saw thousands of Scots descend on the city armed with kilts, bagpipes and what appeared to be an inexhaustible capacity for finding the nearest bar. By all accounts, Boston welcomed them warmly, proving that the historic ties between Scotland and the United States remain as strong as ever.
Those connections are not merely cultural: many individuals have family members, property, investments or citizenship ties in both countries. As a result, estate planning for US residents (whether or not they are also US citizens) with Scottish connections frequently involves navigating two legal systems, two tax regimes and a range of cross-border succession issues which raise some important considerations.
Taxes Across the Atlantic
One of the biggest financial challenges for US citizens moving abroad is taxation. The US taxes its citizens based on citizenship, not residency, which means that even if you move to Scotland, you will still need to file a US tax return. You may also be liable to pay Scottish and wider UK taxes as well. However, there is a robust dual-tax treaty between the US and the UK that can help avoid double taxation in most circumstances.
In particular, US citizens moving to the UK should be aware of the new UK rules that apply to inheritance tax ("IHT") from 6 April 2025. From 6 April 2025, individuals who have been UK tax resident for at least 10 of the previous 20 tax years are generally subject to IHT on their worldwide assets, while those who are not are typically subject to IHT only on their UK-based assets. The UK residence rules are complex, and seemingly minor changes in travel patterns can have significant implications for future IHT exposure so it is important that professional advice is taken at an early stage.
From 6 April 2025, the UK tax treatment of offshore income and gains also changed. Specifically, the “Foreign Income and Gains” (“FIG”) regime allows new residents of the UK to shelter their non-UK assets from UK tax. Under the FIG regime, foreign income and gains will be fully exempt from UK taxation for the first 4 UK tax years (as long as the individual hasn’t been resident in the UK during the previous 10 years). After this initial 4 year period, all UK residents will be liable for tax on their worldwide income and gains. There are some costs to using the FIG (for example, the loss of your annual income tax personal allowance) and the offshore income and gains still need to be reported on a UK tax return, so you should consult a tax professional.
Domicile – more than just where you live
Although the UK has now moved to a residence-based system for IHT purposes, the concept of domicile still remains relevant for cross-border succession planning. In particular, domicile will inform the succession laws that apply to an individual's estate on death. In particular, if an individual is domiciled in Scotland on death, then Scottish succession rules will apply, including forced heirship rules for spouses/civil partners and children. These rules are known as 'legal rights' and they limit testamentary freedom over fixed shares of your moveable estate (broadly, everything aside from land and buildings and pensions are also excluded).
Wills and Powers of Attorney: One Size Rarely Fits All
Individuals with assets, family members or legal connections in both Scotland and the US should also ensure that their estate planning documents are reviewed in both jurisdictions. A US will or power of attorney will likely not operate as intended in Scotland (and vice versa). In most cases where there are connections to the US and Scotland, separate wills and powers of attorney tailored to each country will be advisable as this can simplify the administration of an estate on death and avoid unnecessary delays, costs and practical difficulties for surviving family members.
US Revocable Trusts: Effective in the US, But How Are They Viewed in the UK?
US revocable living trusts are commonplace in US estate planning. However, their tax treatment in the UK is not always straightforward and these structures therefore require careful consideration where there are connections to Scotland or the wider UK.
From a UK perspective, the tax treatment of a US revocable trust will depend on the specific terms of the trust and the personal circumstances of the truster, trustees and beneficiaries. A structure that achieves a particular outcome for US tax purposes may not produce the same result under UK income tax, capital gains tax IHT rules. Accordingly, individuals with an interest in these types of trust and who are moving between the US and Scotland, or holding assets in both countries, should take early advice on the UK tax treatment of these trusts.
Bridging the Atlantic
For US residents moving to Scotland, or with assets, family members or business interests here or in the wider UK, careful planning is essential to navigate issues such as succession, taxation, wills, powers of attorney and trust structures across two distinct legal systems. Obtaining expert advice at an early stage is crucial and a collaborative approach among legal, tax and financial advisers in both countries is crucial to ensure that planning is joined up, tax-efficient and aligned with the client's objectives. If you would like to discuss any of the issues raised in this article, our Personal team would be delighted to assist.
