Are You a UK Citizen Selling US Property? Tax Issues to Consider
By Arvinder Matharu, Prager Metis International LLC
For UK citizens selling a property in the US, completing the sale is only your first hurdle. Your next challenge is tax – both in the UK and the US – neither set of rules being straightforward.
Taking UK tax first, if you are resident and domiciled in the UK, you will have capital gains tax (CGT) to pay on any gain achieved on the sale of US property. The gain is calculated by taking the gross proceeds, then deducting the original cost of the property and any other relevant expenses.
The resulting gain is then taxed at rates of 18%–28%. If, however, the costs exceed the proceeds, then there will instead be a capital loss.
As you would expect, there is also US tax to pay on the sale of property situated in the US, but you will be entitled to claim a credit for the US tax suffered. This is deducted from your UK liability, so you will not suffer double taxation. In recent years, HMRC have increased their scrutiny of claims for foreign tax credit relief. There is now a significant risk of them challenging claims where they believe the foreign tax credit relief claim is too high.
A successful challenge by HMRC will mean further tax to pay and other liabilities, including interest charges and possible penalties – not to mention the excess US tax that you have suffered.
There may be other issues to consider, including but not limited to the following:
- Possible US state taxes on any gain.
- Applying for an Individual Tax Identification Number (ITIN) in order to file a US tax return.
- Tax domicile: if you are not UK domiciled, you might be able to claim the remittance basis, where no UK tax is payable on the gain, provided you do not remit the proceeds to the UK.
- Whether it would be tax effcient to claim the US tax as a deduction instead of as a credit against the UK tax
- Whether the property disposal falls within one of the five exemptions from FIRPTA.
Arvinder MatharuGGI member firm
Prager Metis International LLC
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
With 17 offices, mostl throughout the USA
T: +1 212 643 00 99
Prager Metis is a top accounting firm providing a full range of accounting, audit, tax, and advisory services to domestic and international clientele in a wide range of industries. With 17 offices worldwide, they have a level of expertise and a unique global presence that makes their clients’ world, worth more.
Arvinder Matharu is a Senior Tax Manager at Prager Metis. He focuses on providing tax consultancy on a range of issues, including trusts and estates, inheritance tax planning, capital gains tax, remittance basis and non-domiciled planning, residency planning, advising on R&D tax credits, and review of tax minimisation strategies for US nationals living in the UK. Arvinder prides himself on explaining complex tax advice in a manner that the client can understand and take action from.
Published: International Taxation Newsletter, No. 12, Spring 2020 l Photo: tamas - stock.adobe.com