Married to a British spouse: the marital deduction trap in US estate tax

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

An American dies in London leaving everything to a British spouse. The will is simple, the marriage was long, and the estate looks settled. Then the estate tax return raises a question nobody planned for, because the unlimited marital deduction does not apply to a spouse who is not a US citizen.

The fix exists, but the family has to build it in time. So this guide covers what the rule actually says, how a qualified domestic trust restores the deferral, and what British inheritance tax does alongside it.

Key takeaways

• The unlimited marital deduction applies only where the surviving spouse holds US citizenship.
• A qualified domestic trust, known as a QDOT, restores the deferral for a non-citizen spouse.
• The QDOT election is made on a timely filed estate tax return, so the window is short.
• A surviving spouse who naturalizes before that return is filed can remove the problem entirely.
• Lifetime gifts between spouses are capped rather than unlimited where the recipient is not a citizen.
• Britain runs its own spouse exemption on different tests, and the two rarely match neatly.

What is the marital deduction?

It is the rule that lets one spouse leave assets to the other without federal estate tax at the first death. The tax waits rather than disappears, because the survivor's estate picks it up later. For most American couples the deduction has no ceiling and needs no election. That is why it attracts so little attention.

Citizenship is the condition that breaks it. Congress limited the marital deduction for non-citizen spouses on a simple worry. A survivor could leave the country with the assets and never face the second tax. So the deduction is withheld unless the property passes into a structure that keeps it within reach.

Why does citizenship matter so much?

Because the deferral relies on the survivor being taxable later. A US citizen remains inside the estate tax system wherever they live. A British spouse may not be, so the law substitutes a trust that keeps the assets under American jurisdiction until the tax is either paid or the survivor naturalizes.

Residence does not cure it. A British spouse living in Boston for thirty years, holding a green card and paying US tax every year, still fails the citizenship test. In our practice that surprises more couples than any other feature of the system.

How a QDOT restores the deduction

A qualified domestic trust holds the property that would otherwise have qualified. The estate claims the marital deduction for assets passing into it, so no tax falls due at the first death. The trust then pays estate tax later, when capital leaves it or when the surviving spouse dies.

Income follows different rules from capital. Distributions of income to the surviving spouse come out without that charge, which is what makes the structure workable for a survivor who needs to live on the assets. Distributions of principal generally trigger the deferred tax.

A hardship exception covers principal taken for health, education, maintenance or support. It applies only where other resources fall short. It is narrower than it sounds, and it is not a general escape hatch.

What a QDOT has to contain

The requirements are technical, and missing one can invalidate the whole election. According to IRS guidance on the estate tax, the trust must give an American trustee the power to withhold the tax on distributions. Larger trusts face extra security requirements on top of that.

The $2 million line is the one people forget. Above it, a family member acting alone as trustee will not satisfy the rules, and arranging a bank trustee or a letter of credit after a death is slow, expensive work.

When does the election have to be made?

On the estate tax return itself, filed within nine months of death or fifteen months with the automatic extension. An executor can move property into the trust before the return goes in, even where the will never mentioned one. But once the filing window closes, the marital deduction for that property disappears.

That deadline is why this belongs in planning rather than administration. A will that simply leaves everything to a non-citizen spouse forces the executor to build a trust under time pressure, while grieving, and often across two legal systems.

Can naturalization solve it instead?

Sometimes, and it is worth checking early. If the surviving spouse becomes a US citizen before the estate files its return, and lives in the United States throughout that period, the estate can claim the ordinary marital deduction with no trust at all. The timing is tight but not impossible.

Naturalization has consequences of its own, of course. It brings the survivor fully into the US tax system for life, including on British assets and British income. Our guide to green card holders in the UK covers why that decision is never purely about estate tax.

What happens when the trust finally ends?

The deferred tax falls due on whatever remains. On the death of the surviving spouse, the trust property carries the charge that the first estate avoided, at the rates in force at that point. Capital taken out during the survivor's lifetime carries it earlier, distribution by distribution.

That timing explains why a QDOT needs liquidity. A trust holding one illiquid asset can face a charge with no cash to meet it, which forces exactly the sale the family hoped to avoid.

Portability adds a further layer. The first estate can still elect to pass its unused exemption to the survivor, although the final figure stays open while the trust continues. So both elections belong in the same conversation rather than separate ones.

Lifetime gifts are capped too

The same citizenship rule applies while both spouses are alive. Gifts between American spouses face no ceiling. Gifts to a non-citizen spouse stop at an indexed annual amount, which stood at $190,000 for 2025.

That cap matters more than it looks, because ordinary life often involves quiet transfers. Adding a spouse to a bank account, buying a house in joint names, or paying off their mortgage can all count as gifts. Couples who move money freely between accounts can exceed the limit without ever intending a gift at all.

Documentation helps here as well. A short note of what each transfer was for, written at the time, carries far more weight than a reconstruction years later. Our clients keep that record as a matter of routine, because gift questions surface at the worst possible moment.

A worked example

The figures below are illustrative. Take an example: an American dies in 2025 with a $9 million estate, leaving everything outright to a British spouse who has never naturalized. The estate sits comfortably inside the federal exemption, so no tax arises either way.

Now change one number. Make the estate $20 million, and the position changes completely. Without a QDOT, the amount above the exemption is taxable at the first death instead of the second, and the family pays tax years earlier than a citizen couple would.

The deferral is not the only benefit lost. Paying tax early usually means selling assets early, often at a time the family would not have chosen. That forced timing does more damage than the tax rate itself.

What Britain does at the same moment

Britain runs its own spouse exemption, and it does not follow citizenship. Transfers between spouses are generally exempt from inheritance tax where both are within the UK net. Where the recipient sits outside it, Britain has historically capped that exemption. An election then lets a couple accept the wider net in exchange for full relief.

The British rules changed in April 2025, replacing domicile with a long-term residence test for inheritance tax. So a couple who planned around the old definitions should revisit the position rather than assume it carried over. Our guide to US and UK inheritance tax sets out how the two systems overlap.

One practical point often decides the outcome. Where the American spouse owns British property, both systems can reach the same asset at the same moment, and the credit rules then settle who effectively collects. Modeling that before either death costs far less than arguing about it afterwards.

The estate and gift tax treaty between the two countries can also change the answer, including on which country taxes what. Treaty relief needs a claim rather than arriving on its own, and it rewards early advice far more than late paperwork.

How to protect the position while you can

The useful work happens years ahead of the moment it matters. Most of it costs little, and none of it requires the couple to expect anything in particular. These steps are the ones we work through with mixed-nationality couples.

1. Confirm the citizenship and residence status of both spouses, in writing, today.
2. Estimate the American estate on current values, including UK property and pensions.
3. Check whether that estimate could exceed the federal exemption at either death.
4. Add QDOT wording to the will or trust so the executor has the option ready.
5. Name a trustee who meets the US requirements, and review that choice every few years.
6. Track gifts between spouses against the annual limit rather than reconstructing them later.
7. Revisit the plan after any change of citizenship, residence or major asset.

Mistakes and penalties we see with mixed-nationality couples

• Assuming a green card gives the same protection as citizenship, which it does not.
• Leaving everything outright to a non-citizen spouse with no QDOT wording anywhere.
• Missing the filing window, which forfeits the marital deduction for those assets permanently.
• Appointing a family trustee for a trust above the security threshold.
• Treating joint accounts as neutral, when funding one can be a gift above the annual cap.
• Planning only for the American side and ignoring the British exemption rules entirely.

The cost of these errors is rarely a penalty notice. It is tax paid a generation early, on assets that a citizen couple would have passed on untouched. That difference can run to seven figures in a large estate. Worse, the family usually discovers it at the least convenient possible moment.

How US UK Tax Accountants helps

We start with the simplest question, which is whether either estate is large enough for this to matter at all. For many couples the honest answer is no, and that answer costs very little to establish. Where it is, we work with your lawyers on the wording, the trustee choice and the treaty position, then handle the filings when they fall due. If you and your spouse hold different passports, get in touch and we will review the position alongside our trusts and estates work.

Last reviewed 19 September 2026. This article is general information and not personal tax advice. Estate planning turns on documents and facts this page cannot see, so take advice on your own position before acting.