Ashford International Law P.C.

Summary

1. The United States taxes its citizens on worldwide income, and at death on the worldwide estate, wherever they live. A move to Western Europe adds a second tax system; it does not replace the first.
2. Most Western European countries tax a new resident on worldwide income from the first year, and several apply inheritance, gift or wealth taxes by reference to residence.
3. The months before the move are the planning window. Retirement accounts, investment funds, trusts, gifts and the family home are easier to arrange while the family is resident only in the United States.
4. The estate and gift tax conventions with Germany, France, the United Kingdom, Austria, Denmark and the Netherlands decide which country taxes an estate. The German convention treats an American citizen as domiciled in the United States for the first ten years in Germany.
5. United States filing continues after the move: the foreign tax credit, FBAR and Form 8938, and the tax claims of the state the family left all need attention.

Part I. Two tax systems at once

United States citizens and green card holders remain taxable in the United States on their worldwide income and, at death, on their worldwide estate, regardless of where they live. The countries of Western Europe tax by residence: a person who establishes a home or habitual abode there becomes taxable on worldwide income, and in most of them the estate, the heirs or both become taxable on worldwide assets as well. An American family that moves is therefore subject to two complete tax systems applied to the same income and the same assets.

Double taxation is avoided mainly through the foreign tax credit on the United States side (section 901) and through the income tax and estate tax conventions, which decide which country taxes first and which country gives credit. A convention does not select the lower of the two rates: the higher-taxing country, usually the new country of residence, sets the overall burden. Planning therefore starts from the destination, each family member’s citizenship (dual citizens are often treated differently), the state being left, and the assets that will move or stay behind.

Part II. Before the move

Before residence abroad begins, most arrangements can still be changed at a United States tax cost alone.

Retirement accounts. IRAs and 401(k) plans can generally be kept, although some custodians restrict accounts with a foreign address. Under most conventions, distributions are taxed in the country of residence. A Roth conversion completed before foreign residence begins is taxed in the United States only; after the move, the conversion may also be taxed abroad, and the treatment of Roth accounts differs from country to country.

Investment funds. Funds domiciled in Europe are passive foreign investment companies for United States purposes, taxed under sections 1291 to 1298 and reported on Form 8621. United States mutual funds and ETFs, in turn, are often not offered to retail clients of European banks, because they lack the key information document required by the PRIIPs Regulation (Regulation (EU) No 1286/2014). A United States brokerage account that accepts clients living abroad, or a portfolio of individual securities, is often the practical answer, best arranged before departure.

Trusts. A revocable living trust that works well in the United States may be treated abroad as a separate taxpayer, and transfers into and out of it as taxable gifts. Germany, France, Spain and Austria are not parties to the Hague Convention on the Law Applicable to Trusts; the United Kingdom, Italy, the Netherlands, Switzerland and Luxembourg are. Existing trusts, and the family’s position as grantors and beneficiaries, should be reviewed before residence begins.

Gifts and the home. A gift made while the family is resident only in the United States is measured against the $15,000,000 basic exclusion and the $19,000 annual exclusion for 2026. The same gift made after the move may also be taxed in the new country. A principal residence sold within three years after departure can still qualify for the $250,000 or $500,000 exclusion under section 121, but a sale after arrival is also reported in the new country under its own rules and the convention.

The state left behind. Leaving the United States does not by itself end state taxation. California in particular continues to tax a domiciliary who keeps ties to the state, with a limited safe harbor for employment-related absences of at least 546 consecutive days (Revenue and Taxation Code section 17014(d)). Evidence of the break is best assembled before departure.

Part III. Taxes in the new country

Western European countries generally treat a person as resident from the day a home is established there, or after a stay of more than 183 days, and tax worldwide income from then on. Their inheritance, gift and wealth taxes, and their regimes for new arrivals, differ considerably.

Status as of September 2026. Each regime has conditions not shown here.

Two further points apply to families who may later leave again. Germany taxes the unrealized gain on shareholdings of 1 percent or more when a person who has been resident for seven of the last twelve years moves away (section 6 of the Außensteuergesetz). France does the same after six of the last ten years for holdings above €800,000 or 50 percent of a company (article 167 bis CGI). A move of several years should be planned with the eventual departure in mind. For France, the firm’s French-language site patrimoine-americain.com covers United States assets and estates from the French side.

Part IV. Germany in more detail

An American becomes subject to unlimited German income tax liability as soon as a dwelling (Wohnsitz) is available in Germany or a habitual abode is established there (section 1 of the Einkommensteuergesetz). Where a person has homes in both countries, the tie-breaker of the income tax convention decides residence; the firm’s article on fiscal domicile under Article 4 explains the test.

German inheritance and gift tax applies to all assets transferred whenever the deceased, the donor or the recipient is resident in Germany (section 2 of the Erbschaftsteuergesetz), with allowances of €500,000 for a spouse and €400,000 for each child. The estate and gift tax convention modifies this for Americans. Under Article 4(3), a United States citizen who is not also a German national is treated as domiciled only in the United States for the first ten years of German residence, and Germany may then tax only German real estate and German business property, including partnership interests. The protection does not extend to heirs who live in Germany, who remain taxable under Article 11(1)(b), and it ends on naturalization. The post on the ten-year rule for Americans moving to Germany sets out the details, and families whose children already live in Germany will find the articles on German gift and inheritance tax for U.S. parents and on inheritance tax planning for American families relevant.

Distributions from IRAs and 401(k) plans to a German resident are taxed in Germany, and since 2025 in full where the contributions were tax-relieved abroad. Roth accounts have no settled German treatment (see Roth IRA and Roth 401(k)). Investment funds of any origin are subject to the annual Vorabpauschale, while European funds remain PFICs for United States purposes. Trusts are not recognized under German private law, and their funding and distributions are taxed under their own rules (see Trusts). The full set of terms is in the Topics A-Z on germanyusalawtaxfinance.com.

Part V. Continuing United States obligations

A citizen living abroad files Form 1040 every year, with an automatic extension to June 15 (Treas. Reg. § 1.6081-5). Earned income is protected either by the foreign earned income exclusion, $132,900 for 2026 (section 911), or by the foreign tax credit. In the high-tax countries of Western Europe the credit is usually the better choice, since excess credits carry back one year and forward ten (section 904(c)), and revoking the exclusion bars a new election for five years (section 911(e)(2)).

Foreign accounts are reported on the FBAR (FinCEN Form 114) once their aggregate value exceeds $10,000 during the year, and on Form 8938 once specified foreign assets of a taxpayer living abroad exceed $200,000 at year end or $300,000 at any time ($400,000 and $600,000 on a joint return). Foreign companies, trusts and funds bring further forms (5471, 3520, 3520-A and 8621), and some European banks decline United States clients altogether. Social security coverage for work abroad is governed by the totalization agreements described on the Tax Treaty Analysis page.

Part VI. The estate plan and the treaties

A United States will generally remains formally valid in the European countries that are parties to the 1961 Hague Convention on the form of testamentary dispositions, but its content is judged under the succession law that applies. In every member state of the European Union except Denmark and Ireland, the European Succession Regulation applies the law of the last habitual residence unless the will chooses the law of the testator’s nationality (Articles 21 and 22). Without that choice, an American living in France, Germany, Italy or Spain becomes subject to forced heirship, such as the French réserve héréditaire or the German Pflichtteil. France has, since 2021, given children a compensatory claim against property in France where the applicable foreign law has no forced share (article 913 of the Code civil).

On the tax side, the domicile-type conventions with Germany, France, the United Kingdom, Austria, Denmark and the Netherlands assign the estate to one country of domicile and limit the other to real estate and business property. The conventions with Italy and Switzerland follow older situs rules, and there is no convention with Spain, Portugal, Belgium or Luxembourg. A spouse who is not a United States citizen needs a qualified domestic trust or treaty relief to defer estate tax (section 2056(d)). An American who considers giving up citizenship after the move should first read the firm’s posts on the exit tax on renouncing citizenship while living in Germany and on how Germany treats the section 877A exit tax.

Part VII. Practical steps

1. Identify the date on which residence in the new country will begin, and complete Roth conversions, gifts and trust changes before it.
2. Review every investment fund and move to holdings that work under both the PFIC rules and the new country’s fund rules.
3. Confirm that the United States brokerage and bank accounts will remain open with a foreign address.
4. Document the end of state residence, particularly when leaving California.
5. Check which estate and gift tax convention applies, and whether any family member’s dual citizenship changes the result.
6. Review wills and trusts under the Succession Regulation or the local succession law, and add a choice of law where appropriate.
7. Decide between the foreign earned income exclusion and the foreign tax credit before filing the first return from abroad.
8. Calendar the reporting forms and the local filing deadlines for the first year of residence.

How the firm helps

Ashford International Law PC advises American families before and after a move to Western Europe; its attorneys are licensed in Germany as well as in the United States. Related pages on this site cover tax planning with non-US assets, estate planning with non-US assets, tax compliance and tax treaty analysis. For Germany, the firm’s guides You Are Moving to Germany with a U.S. Trust and Your U.S. Trust Has a Beneficiary in Germany, and the free guides on the ten-year rule and on the taxation of retirement account distributions in Germany, are listed on the Articles and Guides page of germanyusalawtaxfinance.com. French-language information is on patrimoine-americain.com. The firm can be reached through the Contact page.

This page is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. The matters described depend on the specific facts, the countries and states concerned, and the law in effect at the relevant time. Figures are stated as of September 2026 and must be confirmed before any decision.