The ‘One Big Beautiful Bill’ and the impact for individuals

One particular proposal has generated a lot of discussion globally over recent weeks, given the significant impact its implementation could have on overseas taxpayers invested, or doing business, in the US. Both the House of Representatives and the first Senate draft included a provision dubbed the ‘revenge tax’ which would have resulted in increased US Federal tax rates being imposed on non-US individuals and entities considered resident in jurisdictions deemed to have ‘unfair foreign taxes’. This would likely have impacted those resident in the UK, across the EU, Australia, Canada and Japan, amongst others. This provision was not included in the final bill at all, its removal from the Senate bill was reportedly at the request of Treasury Secretary Bessent on 26 June 2025, as the US Treasury Department announced an agreement with the other six G7 countries with respect to their ‘unfair taxes’ and the exclusion of US companies from exposure to the OECD Pillar Two taxes. This is discussed in more detail in a separate article in today’s edition .

The final bill also included a diluted version of the initial excise tax proposed on any ‘remittance transfer’ by a sender located in the United States. The initial proposal was drafted such that there was a danger non-US individuals transferring funds from a US account to an overseas account, even if it was to their own account, may be subject to the charge. Subsequent versions in the Senate narrowed the application significantly such that the excise tax included in the final bill would apply at a reduced one percent and only on certain remittances, which would exclude transfers from accounts with regulated US financial institutions. This should significantly reduce the number of transfers subject to this excise tax.

Given this, some of the hardest hitting and concerning provisions for non-US individuals that were within the OBBB less than a month ago, now have far less or no impact in the final legislation. They do, however, appear to have provided sufficient leverage in rapid negotiations with other countries.

President Trump undertook major tax reform in his first term with the introduction of the 2017 Tax Cuts & Jobs Act (TCJA). The OBBB was therefore not expected to create further significant changes from an income tax perspective but instead extend or make permanent a number of provisions in TCJA that were set to expire at the end of 2025. Had these expiring provisions not been extended or made permanent they would revert back to pre-TCJA levels. 

Many of the provisions impacting individuals were broadly consistent through the versions and uncontested, including making permanent the lower tax rates and wider tax brackets and extending or making permanent certain other deductions and exemptions enacted in TCJA.

The most hotly debated provision related to the amount of State and Local Tax (SALT) deductions allowable to mitigate US Federal tax. The TCJA had limited SALT deductions to $10,000 yet this cap was set to expire at the end of 2025 and revert back to an unlimited deduction which taxpayers had benefited from pre-2018. The final bill reaches a compromise by increasing the cap to $40,000 subject to a phase out for high earners with a floor of $10,000. The cap will revert to $10,000 for tax years from 2030 onwards (i.e. this is not a permanent extension of the cap). This may be of some marginal benefit to US taxpayers overseas.

A US person holding an interest in a foreign corporation that is considered a Controlled Foreign Corporation (CFC) for US tax purposes has always had to navigate some complex legislation that could result in attribution of profits to the shareholders, irrespective of them receiving any cash. These income attribution rules were broadened with the introduction of Global Intangible Low-Taxed Income (GILTI) rules through the implementation of TCJA.

The final bill has made some revisions to these rules including a removal of the reference to GILTI itself, instead being referred to as Net CFC Tested Income. There have been some revisions to the calculation of the amount that is attributed to US shareholders with the removal of a threshold previously prescribed.

In many cases, a US individual shareholder who is exposed to the CFC regime will make a certain US tax election annually (a ‘Section 962 election’) as this can provide them with favourable effective rates, use of foreign tax credits and timing for interaction purposes. Where such an election is made, we will see the effective US tax rate increase from 10.5 percent to 12.6 percent due to a reduction in an allowable deduction under the OBBB. A counter to this is an increase in the proportion of foreign taxes that can be claimed to mitigate US tax, from 80 percent to 90 percent of the amount suffered. As such, the level of appropriate foreign corporation tax needed to be suffered to offset the US taxes due has increased due to the bill, from 13.125 percent to 14 percent.

The impact of these revisions is an expected increase in the amounts subjected to US tax, which will suffer a higher rate of tax, requiring a greater amount of foreign taxes to fully offset the exposure. In cases where there is no local corporation tax suffered (e.g. a low taxing jurisdiction or historic losses reduce the local tax exposure on current profits), making the election will see an increase in the US ‘dry tax’ charge under the final bill, from 10.5 percent to 12.6 percent.

There are also some revisions to deductibility in certain scenarios along with some changes to the application of ‘downward attribution’ to address some of the unintended implications caused by provision in the TCJA in 2017.

The final bill makes permanent the significant increase in the lifetime gift and estate tax exemption for US citizens and US domiciliaries, which was originally doubled under TCJA from $5.49 million in 2017 to $11.18 million in 2018 and is currently sitting at $13.99 million for 2025. This was due to revert down to circa $7 million effective 1 January 2026, however, given the passing of OBBB the exemption available will be $15 million per qualifying individual, annually indexed for inflation. 

There is no change to other reliefs, such as the annual gift exemption for US citizens which is currently $19,000 (indexed for inflation) per year to an unlimited number of donees. There have also been no changes to the position for non-US domiciliaries holding US assets for US estate tax purposes. Those individuals continue to have a relatively small exemption of $60,000 with respect to their US estate as well as further relief via the US double tax treaty network, if available to them. 

Given the low exemption applicable to non-US citizens/domiciliaries there is real exposure to US Estate tax given the broader definition of a US situs asset for this purpose – i.e. it extends to not only include US real estate but also US stocks and shares. This is an area where US tax advice should be sought to determine the level of exposure and reporting required as well as interaction with other jurisdictions and options available.

There are a few campaign trail policies we expected to see in the draft bills that did not feature at all in any versions. These included:

• Increasing the top rate of tax for individuals back up to 39.6 percent for income over $5 million;
• Closing the so-called ‘loophole’ on the taxation of carried interest; and
• The elimination of worldwide taxation of US citizens abroad and a move to a residence-based taxation system.

For international US taxpayers (US individuals overseas or non-US individuals with US assets/income) the landscape has not dramatically changed. The hallmarks of good tax governance remain relevant.

For US Persons living outside the US, management of foreign tax credits remains high on the agenda, as well as pro-active planning for any potential change in location or succession. The increased standard deduction is relevant for those US taxable individuals overseas with little or no US source income, as it may offset all or most of their US tax liability. US individuals abroad who do not have sufficient itemised deductions (such as mortgage interest or state/local taxes) also benefit from a higher standard deduction, reducing total taxable income.

Those US individual business owners exposed to the CFC regime may need to check on the impact of the changes referenced, although in cases such as a US individual shareholder of a UK corporation suffering full UK tax on its profits the impact should be negligible.

For Non-US Persons looking to invest into the US, it remains essential to manage any federal and state level income tax exposure, but also to be aware of, and plan for, the potential of a US Estate tax liability holding such assets may present. Planning is possible but very much dependent on the taxpayers’ relevant facts and circumstances, with a careful eye on tax considerations and interactions in other relevant jurisdictions.

For further information please contact:

• Andrew Harrison
• Rebecca McHarg