Your father renounced in 2015. His legacy to you carries a 40 per cent charge

Figures relate to tax year 2025-26 (UK) · 2025 (US)

American gift and estate tax normally falls on the person giving. The donor pays, the recipient receives cleanly, and that is how almost every transfer works.

One provision reverses that completely. Where the giver gave up American citizenship as a covered expatriate, the charge lands on the American who receives the money instead.

That reversal catches families years later. Somebody renounces, the tail follows them, and a child or sibling who never left discovers that an expatriate gift to them carries a charge at the top estate rate.

Key takeaways

• The charge falls on the American recipient, not the donor.
• It applies only where the donor was a covered expatriate.
• The rate is the highest estate tax rate, currently 40 per cent.
• It reaches both lifetime gifts and bequests on death.
• There is no time limit after the expatriation.
• An annual exclusion removes small gifts.
• A transfer to a US citizen spouse is generally exempt.

What is the expatriate gift charge?

A tax on an American who receives property from somebody who left the American tax system as a covered expatriate. According to IRS guidance on expatriation, the charge lands on the recipient rather than on the person making the transfer. That reverses the normal rule entirely.

The expatriate gift rules exist to stop somebody moving wealth out of the American estate system and then passing it back to American family free of charge.

Without it, somebody could renounce, escape the estate tax, and still leave everything to American children untaxed. The provision closes that door.

Who counts as a covered expatriate?

Somebody who failed one of three tests when they gave up citizenship or long-term residence. The tests look at net worth, at average American tax across five years, and at whether they could certify five years of compliance.

Failing any one is enough, and the certification test catches people with modest assets who simply had unfiled returns behind them.

Our guide to the exit tax and Form 8854 covers those tests in detail.

A worked example

The figures below are illustrative. They use round numbers so you can follow each step and substitute your own.

Robert renounced American citizenship in 2015. His net worth was above the threshold at the time, so he was a covered expatriate when he left.

He dies in 2026 leaving £400,000 to his daughter Anna, who lives in Bristol and holds an American passport through him.

Anna receives the money and faces a charge at 40 per cent on the amount above the annual exclusion. That is roughly £158,000 payable by her.

Robert pays nothing, because he sat outside the system when he died. The entire charge sits with the person who inherited.

How is it different from a normal foreign gift?

Completely. An ordinary gift from a foreign person to an American carries no tax at all, though a large one needs an information return. An expatriate gift turns that reporting duty into a real charge, purely because of who gave it.

This provision turns a reporting obligation into a tax charge. The difference is the status of the person who gave it rather than anything about the gift itself.

Our guide to Form 3520 foreign gifts covers the ordinary position.

The two situations compared

The table shows what changes when the donor is a covered expatriate. Only the status of the giver differs.

Is there a time limit?

None at all, and that is the feature people find hardest to accept. The status sticks to the person for life. An expatriate gift made thirty years later is caught exactly as one made the following week.

There is no cleansing period and no way to shed covered status once it exists. Every expatriate gift they ever make carries the same exposure.

That makes avoiding the status at the time of expatriation far more valuable than people realise.

What is excluded from the charge?

An annual amount matching the ordinary gift tax exclusion, which for 2025 sits at $19,000 per recipient. Any expatriate gift below that figure in a year attracts nothing. Transfers to an American citizen spouse and to charity are generally exempt as well.

Transfers to a spouse who is an American citizen are generally exempt, as are transfers to charity. Those follow the usual estate tax pattern.

Property that was already subject to American gift or estate tax in the donor's hands is also outside it.

What rate applies?

The highest rate of estate tax in force when the transfer happens, which for 2025 is 40 per cent. There is no graduated scale and no lifetime exemption to absorb part of it.

That flat treatment makes it harsher than ordinary estate tax, which allows a substantial exemption before any charge arises.

The absence of an exemption is what turns a modest legacy into a real liability.

Who actually reports it?

The recipient does, on a dedicated return, for the year the transfer arrives. Nobody files on the donor's behalf, because they sit outside the system entirely. The whole burden therefore lands on the person who received the money.

That places the whole burden on somebody who may know nothing about the donor's tax history. Establishing whether the person was a covered expatriate is the hard part.

Ask the question while the donor is alive rather than afterwards.

How do you find out the donor's status?

By asking them directly, since no register exists for you to search. They know whether they filed Form 8854 and what it reported against the three tests. Executors can sometimes piece it together afterwards, though that route is slower and less reliable.

Executors can sometimes establish it from the estate papers, though that is slower and less reliable. The information lives with the individual.

A short written confirmation obtained during their lifetime saves a great deal of difficulty later.

Does it reach assets held in a trust?

It can, and the mechanism differs depending on the kind of trust. Distributions from a foreign trust that received property from a covered expatriate can carry the charge through to an American beneficiary.

A domestic trust receiving such property works differently again, and the trust itself bears the charge.

Our guide to UK trust distributions covers the wider trust position.

Can the donor fix it after the event?

Not retrospectively. Covered status is fixed at the date of expatriation, and later compliance cannot undo it. What can still help is planning the transfers themselves, spreading them across years or directing them elsewhere.

What can help is planning the transfers themselves. Spreading gifts across years to use the annual exclusion reduces the charge, as does giving to non-American family members instead.

Those are blunt tools, but they are the ones available.

Does Britain charge anything as well?

Potentially, on the donor's side. A lifetime gift can fall within British inheritance tax if the donor dies within seven years, and an estate may face inheritance tax in the ordinary way.

That produces a genuine double charge in some cases, because the American tax falls on the recipient and the British one on the estate.

Our guide to US UK inheritance tax covers how the two systems interact.

What should families do about it?

Establish the status before planning anything at all. If the person who expatriated was not covered, the whole problem disappears and no expatriate gift charge arises on any transfer they make, now or later.

Where covered status applies, the planning shifts to who receives rather than how much. Non-American family members take the same property with no charge at all.

That conversation is easier to have early than during an estate administration.

Does it matter where the property sits?

No, and that is unusual. Ordinary American estate tax on a foreign person reaches only assets situated in America, while an expatriate gift charge reaches worldwide property wherever it is held.

A British house, a British pension pot and a British bank balance are all inside it. Location offers no protection whatsoever here.

That breadth is what makes the provision so much harsher than it first appears.

What if the recipient is not American?

Then nothing is charged at all. The provision taxes American recipients, so a British sibling or child with no American status takes the same property entirely free of it. That asymmetry is the most useful planning point available here.

That asymmetry is the single most useful planning point in the whole area. Directing an expatriate gift to non-American family removes the charge completely.

It only works where those people were genuinely the intended recipients.

Does receiving in instalments help?

A little, because the annual exclusion applies each year rather than once overall. Spreading transfers across several years removes a slice annually instead of a single slice, which on a modest legacy can remove the charge completely.

On a large legacy the effect is marginal. On a modest one spread across a decade it can remove the charge entirely.

The donor has to be alive to do it, which limits the tactic to lifetime giving.

What about property the donor already paid tax on?

That sits specifically outside the charge. Where the property already attracted American gift or estate tax in the donor hands, it does not face a second charge in yours. In practice this rarely helps, for an obvious reason.

In practice this rarely applies, because a covered expatriate is usually outside the system by the time they give anything away.

It matters most for transfers made shortly before expatriation.

How do you value what you received?

At fair market value on the date of the transfer, converted into dollars at the rate on that day. For a British asset that means a sterling valuation and then a conversion.

Property and private company shares need a proper valuation rather than an estimate. The figure drives the whole charge.

Our guide to exchange rates on a US return covers the conversion.

Is there any relief for tax paid in Britain?

Not straightforwardly. The British charge falls on the estate or the donor, while the American one falls on you, so the two sit with different people and the usual credit mechanics do not line up.

That produces a genuine economic double charge in some families. The estate tax treaty was not written with this provision in mind.

Take advice before assuming relief exists on either side.

How to handle a transfer

1. Establish whether the donor expatriated and when.
2. Find out whether they were a covered expatriate at that date.
3. Ask whether Form 8854 was filed and what it reported.
4. Value the property received at its date of transfer.
5. Apply the annual exclusion for that year.
6. Check whether any spousal or charitable exemption applies.
7. File the recipient return and pay the charge.
8. Keep the evidence of the donor's status permanently.

Mistakes and penalties we see with an expatriate gift

The first is assuming the charge falls on the giver. It does not, and the recipient often finds out only after the money has been spent.

The second is treating it as an ordinary foreign gift. Those are reportable but not taxable, and the distinction is the donor's status.

The third is never asking the question while the donor is alive. Establishing covered status from an estate afterwards is considerably harder.

The fourth is assuming a long gap since expatriation removes the problem. There is no time limit whatsoever.

How US UK Tax Accountants helps

We establish the donor's status before anything moves, because the answer decides whether a charge exists at all. Where it does, we work out what the annual exclusion and the exemptions remove first.

For families where somebody is planning to renounce, we model this tail alongside the exit tax. Our expatriation service covers both sides of it.

If a relative who renounced has left you something, get in touch before spending it. The charge falls on you rather than on the estate.

Last reviewed 14 October 2026. This article is general information and not personal tax advice. Every transfer turns on its own facts, so take advice on yours before acting.