Cross-Border Marriages: International Tax and Succession Planning

Written by Ben Lightfoot, CFP™

For many globally mobile families, love knows no borders, but taxes and estate laws certainly do. At MASECO, we frequently work with married couples living in the UK where one spouse is a UK national and UK-only taxpayer, while the other is a US citizen and therefore subject to both US and UK tax regimes. These cross-border marriages create planning challenges, but also present opportunities when approached with care and coordination.

This article highlights key considerations for US/UK families, focusing on tax exposure, asset structuring, and succession planning. It is intended to help families, and their advisors understand how multi-jurisdictional households can navigate the intersecting rules of two complex tax systems.

Tax Residency and Filing Obligations: US Citizenship Brings Global Reach

The US taxes its citizens on worldwide income, regardless of where they live. This means a US citizen living in the UK generally must file annual US tax returns and may also owe US tax, even if UK tax has already been paid.

The non-US spouse, by contrast, is usually subject only to UK tax unless they have other US connections, such as a Green Card or US-source income.

Income and Capital Gains: Why Asset Titling May Matter

The way assets are titled (who legally owns them) can have a significant impact on taxation.

Individually Titled Accounts: In many situations, it may be more efficient for the UK-only spouse to own UK investment assets that would otherwise create US tax challenges. For example, UK mutual funds, ETFs, and other “collective investments” are considered Passive Foreign Investment Companies (PFICs) by the US tax regime, triggering complex reporting and potentially punitive tax treatment. When owned by a non-US spouse, PFIC rules typically do not apply.
Joint Accounts: Joint ownership is common but can raise tax complications. The US spouse may need to report their share of income and gains, even if they do not actually receive that income. If the account is primarily funded by the US spouse, US gift tax rules could also apply, since gifts to a non-US spouse do not qualify for the unlimited marital deduction. Careful documentation is often important in these cases.
UK Trusts: Trusts introduce another layer of complexity. If a UK-only spouse creates a UK trust and names a US spouse or US children as beneficiaries, this may lead to additional US tax reporting and potentially unfavorable taxation of trust distributions.
US Trusts: Similarly, US domestic trusts can create complications when there are UK-resident beneficiaries. A trust established in the US may be treated as a “foreign trust” under UK tax law, leading to different reporting requirements and potentially unexpected tax charges in the UK, especially where distributions are made. The classification of the trust (grantor vs. non-grantor for US purposes) and the residency of the trustees can influence both US and UK tax outcomes. Careful cross-border coordination is often needed when a US trust forms part of the family’s wealth structure.

Tax-Advantaged Accounts: Understand What Works Where

Tax-favoured accounts in one country may not receive the same treatment in the other.

UK ISAs: While tax-free in the UK, ISAs are generally taxable for US citizens. They also often hold PFICs, which create additional US tax complications. These accounts are typically more suitable for the UK-only spouse.
US IRAs and Roth IRAs: These accounts are generally respected in both the US and UK under the tax treaty, meaning tax deferral (or tax-free growth for Roths) can often be preserved. Contributions must meet eligibility rules, and reporting is still required.
UK SIPPs: SIPPs (Self-Invested Personal Pensions) are often treated favourably under the US/UK treaty. Contributions can still be made by a non-working spouse with UK tax relief up to certain limits. They may work well for either spouse when structured correctly.

Currency and Reporting: Staying Ahead of Compliance

Cross-border couples often hold accounts in multiple currencies, for example in USD, GBP, or EUR. This adds complexity to both tax reporting and investment management.

The US requires all figures to be reported in USD using IRS-approved exchange rates.
The UK reports everything in GBP.

These differences can lead to timing mismatches and unintended taxable gains or losses.

Tip: Many families find it helpful to work with platforms and advisors who provide consistent, tax-aware reporting across both currencies.

Estate Planning: Navigating UK Inheritance Tax & US Estate Tax

Estate and inheritance planning is one of the most critical and complex aspects for cross-border couples.

UK Inheritance Tax (IHT): IHT generally applies to UK-domiciled individuals on their worldwide assets, or to UK-situs assets for non-domiciled individuals. Transfers from a UK-domiciled spouse to a non-UK domiciled spouse are only exempt up to a lifetime cap ( £325,000 in 2025), unless the non-domiciled spouse elects to be treated as UK domiciled for IHT purposes.
US Estate Tax: US estate tax applies to US citizens on their worldwide assets. While there is a high lifetime exemption (~$13.99M in 2025), gifts and bequests to a non-US spouse do not qualify for the unlimited marital deduction. Lifetime gifts to a non-US spouse are limited to the annual exclusion amount ($190,000 in 2025).
QDOTs (Qualified Domestic Trusts): US law allows the use of a Qualified Domestic Trust to address the estate tax issue. A QDOT can enable a US citizen to leave assets to a non-US spouse without triggering immediate US estate tax, provided the trust meets strict requirements (such as having a US trustee and allowing the IRS to collect tax on distributions of principal). This structure may be worth considering in certain circumstances with professional guidance.

Possible planning approaches may include:

Considering QDOTs where assets pass to a non-US spouse.
Structuring lifetime gifts within annual limits.
Maintaining separate accounts to simplify UK IHT treatment.

Practical Considerations for Cross-Border Couples

Every family’s situation is unique, but a few guiding principles may apply:

Keep US and UK accounts clearly segregated.
Title assets deliberately and keep clear records.
Consider tax-efficient wrappers where appropriate: ISAs for UK-only spouses; Roth IRAs or SIPPs for US spouses.
Plan with long-term moves in mind, as relocation can affect the best approach.
Work with advisors experienced in both jurisdictions, as the rules are intricate and costly mistakes can occur without proper guidance.

Final Thoughts

Cross-border marriages bring complexity but also opportunities. With the right planning and professional support, US/UK families may be able to reduce tax burdens, avoid compliance pitfalls, and ensure assets pass according to their wishes.

At MASECO, we help globally minded families navigate these challenges with confidence. If you or someone you know is navigating life across borders, our team is here to help.

The Legal Stuff

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