How the One Big Beautiful Bill Continues the “Traditions” of the TCJA

The One Big Beautiful Bill (OB3) has arrived. From a tax standpoint, it seems that OB3 was inevitable: when the Tax Cuts and Job Act (TCJA) became effective 1^st January 2018, most of the tax provisions were set to expire on 31^st December 2025. As we get close to this date, how do we know whether any of the provisions would stick around? OB3 has provided answers to that and more.

The full scope of changes is too wide to mention here, but for those US taxpayers living in the UK, some of the most relevant provisions are listed below:

Top Tax Rate – After the top marginal rate was lowered from 39.6% to 37%, the rate will remain at 37%.

Standard Deduction – It will not return to 2017 levels. For example, the deduction amount will increase to $15,750 for single status taxpayers (compared to $6,500 in 2017) and $31,500 for married taxpayers filing jointly (compared to $13,000). All numbers are updated annually for inflation (effective after 31^st December 2024).

Estate and Gift Tax Exemption – The TCJA aimed to temporarily double the exemptions from $5.49 and $10.98 million for single and joint filers respectively in 2017 to $11.18 million and $22.4 million in 2018. OB3 has announced that the exemptions will continue to be indexed for inflation but not fall back to 2017 levels. For tax year 2026, they are expected to be $15 million for single filers, and $30 million for those filing jointly.

State and Local Taxes (SALT) – It was confirmed that the cap will be raised to $40,000 for those taxpayers with a modified AGI of $500,000. Once the amount exceeds $500,000, the limit will phase out, eventually to the original $10,000. Starting 2030, the limit will revert to $10,000 (effective after 31^st December 2024).

AMT Exemption and Phaseout – For 2018 through 2025, limits for both were temporarily increased. After 31^st December 2025, the exemption limit increase will remain permanent and the phaseout amount will increase from 25% to 50%.

Charitable Deductions – After 31^st December 2025, individuals who itemise can claim the deduction only once contributions exceed 0.5% of the taxpayer’s taxable income. For those taxpayers who do not itemise, there will be a permanent above-the-line deduction for up to$1,000 ($2,000 if filing jointly).

No more GILTI?

Global Intangible Low Tax Income, or GILTI, has been a thorn on the side of many clients who hold a certain level of shares in a Controlled Foreign Corporation, or CFC. Ultimately the goal of GILTI was to discourage multinational corporations from sheltering income from intangible assets by transferring those assets to low- to zero-tax jurisdictions. However, US citizens and residents who have set up their sole-member business as a limited company were also ensnared by its jaws. Although GILTI has not disappeared, some revisions have been made.

First, GILTI has a new name – it is now called the Net CFC Tested Income, or NCTI. Although the effective rate was due to increase from roughly 13.125% to 16.406% after 31^st December 2025 under the TCJA, this has now been effectively changed to 14% going forward under OB3.

There have been a number of changes to the way in which NCTI will be determined, which will potentially impact businesses with a large proportion of income-generating tangible assets, so taxpayers will need to take advice to understand the specific impact to their business.

NCTI and Pillar Two

The newly-named NCTI is not the only emerging minimum tax regime US taxpayers have to consider. New regulations under §899 were proposed in Spring 2025 and intended to be part of OB3. The original goal was to increase certain US tax rates for “applicable persons” of countries where “unfair foreign taxes” have been imposed on US persons: this has been referred to as the “revenge tax”.

After much protest, the G7 and US Treasury reached an agreement to remove the “revenge tax” from OB3, subject to certain exemptions from international agreements.

All in all, it seems that OB3 provides reassurance that many tax provisions will carry on, but it will be interesting to see how conflicts surrounding a global minimum tax regime will be resolved. Stay tuned.

It always feels a bit uncertain when there are sweeping changes to the tax code every few years. Several of them were expected, as they often change from year to year, but there are some provisions where we could provide more clarity:

Estate/gift planning – the uplifted estate and gift tax exemption amounts are now permanent meaning many taxpayers will be outside of estate and gift taxes although annual returns may still be required for significant gifts

GILTI/NCTI – If you are a significant shareholder of a foreign corporation (which includes limited companies), we can provide further guidance on how to report NCTI after tax year 2025; we could also give advice on how to avoid having to report NCTI/GILTI tax in the first place.

SALT – if you have real estate in certain states in the US, the increase in allowed deductions of state and local taxes can definitely impact the decision to claim the standard deduction or itemize deductions.

Our US team has a range of expertise, making us uniquely qualified to help US taxpayers living in the UK navigate the changes that are on the horizon.