Non-Resident CGT on Indirect Disposals: 2026 US Guide

Yes — HMRC can tax a US investor on the sale of shares, not just bricks. Since 6 April 2019, a non-resident who disposes of at least a 25% interest in a company that is “UK property rich” makes a taxable indirect disposal of UK land, reportable and payable within 60 days, even though the US return treats the very same sale as an ordinary share disposal.

The surprise is rarely the concept. It is the arithmetic. An American who sells an interest in a UK real estate holding company expects a clean US capital gain, a 20% federal rate plus net investment income tax, and nothing to do with HMRC at all. Instead a UK charge lands first, on a different number, in a different currency, on a different timetable — and the foreign tax credit that was supposed to neutralise it frequently does not. In our experience, non-resident CGT on indirect disposals is the single most under-modelled item we see in US–UK exit computations for high-net-worth investors, and Jungle Tax is usually brought in after the 60-day clock has already started running.

What is non-resident CGT on indirect disposals?

Before April 2019 the UK taxed non-residents on direct disposals of UK residential property (from April 2015) and left almost everything else alone. A non-resident could hold UK commercial real estate through an offshore company, sell the company, and walk away with no UK capital gains exposure at all. That structural advantage was closed by the extension of the non-resident capital gains regime to all UK land and, critically, to indirect disposals.

The charge now works on two limbs. The first asks a question about the entity: is it property rich? The second asks a question about you: is your interest substantial? Both must be answered yes before HMRC has a charge. Neither turns on the company being UK incorporated, UK resident, or UK managed. A Delaware LLC treated as a corporation, a Jersey company, a Luxembourg SARL and a plain English limited company are all capable of being UK property rich, and a US individual, a US trust and a US corporation are all capable of holding a substantial interest in one.

It is worth being precise about what is being taxed. The UK is not looking through the company and taxing you on the underlying land. It is taxing the gain on the shares, computed under UK capital gains rules, because those shares are treated as an interest in UK land. That distinction drives almost every mismatch discussed later in this guide.

What makes a company “UK property rich”?

The 75% gross asset test

A company is UK property rich if, at the date of disposal, 75% or more of the market value of its gross qualifying assets derives from UK land. Three features of that test catch people out.

• It is a gross test. Liabilities are ignored. A company with £100m of UK offices and £90m of bank debt is still property rich, even though the equity value is £10m and the debt-funded profile feels nothing like a property play.
• It uses market value, not book value. Historic cost in the statutory accounts is irrelevant. A property held at 2008 cost may today represent a far larger share of gross assets than the balance sheet suggests — or a far smaller one.
• It is tested at the moment of disposal. Not at acquisition, not as an average, not by reference to how the business describes itself. A company that was 40% UK land for a decade and 80% on completion day is property rich for this disposal.

HMRC's own guidance on the richness test sits in the Capital Gains Manual at CG73934, and it makes clear that the test is applied to qualifying assets — broadly, assets other than those matching related-party liabilities, a rule designed to stop groups inflating the non-land side of the balance sheet with intra-group receivables.

Tracing value through subsidiaries

The test is not confined to what the company you sold owns directly. Value is traced through subsidiaries, partnerships, trusts and other arrangements, with the company's proportionate share of underlying assets brought into the calculation at each layer. Selling the top company of a five-tier structure whose only real asset is a London industrial estate does not defeat the charge; it simply makes the computation longer.

The valuation problem nobody budgets for

Because the test is a market value test on gross assets on a single day, a genuinely borderline company needs a defensible valuation of every material asset at completion — UK land, foreign land, goodwill, plant, intangibles, cash and investments. Where a company sits at 70–80%, that valuation is the tax position. We routinely see deals where the seller assumed the company was outside the regime on a rough asset split, and where a proper gross-asset market value exercise puts it firmly inside.

What counts as a substantial interest, and over what look-back period?

The second limb is personal to you. Broadly, you have a substantial indirect interest if you hold, or have held at any point in the two years ending with the disposal, an investment of at least 25% in the company. Three points matter for wealthy shareholders in particular.

• The two-year look-back defeats the obvious plan. Diluting from 30% to 20% shortly before signing does not remove you from the charge, because the test reaches back across the preceding two years.
• Connected persons are aggregated. Interests held by a spouse or civil partner and by certain lineal relatives are added to yours in testing the 25%. Family holdings that look individually modest are frequently substantial in aggregate.
• “Investment” is broader than share count. It looks at economic and control rights — entitlement to profits, to assets on a winding up, and to voting power — so carried interest style ratchets, preference structures and shareholder agreements can push a nominally small equity stake over the line.

There is a narrow relieving rule where the 25% level was held only for an insignificant part of the two-year period, aimed at fleeting positions during a fundraising or a staged exit rather than at planned dilution. HMRC's approach to the substantial interest test, including the treatment of connected persons, is set out at CG73936. Note too that the 25% test is disapplied for interests in certain collective investment vehicles, so a small holding in an offshore property fund can be caught where an equivalent holding in a trading group would not be.

Which indirect disposals escape the charge?

The main statutory carve-out is the trading exemption. Where all, or all but an insignificant part, of the UK land held by the company is used in a qualifying trade — and that trade has been carried on for a meaningful period and is expected to continue — an indirect disposal can fall outside the charge. The classic candidates are hotels, care homes, retailers, and operating businesses that happen to own their premises. The classic failures are property investment companies that describe themselves as trading, and mixed groups where a genuine trade sits alongside a material investment estate.

Certain widely held and institutional structures have their own regime, including elections available to offshore collective investment vehicles that change how gains are taxed at fund and investor level. Anti-forestalling rules also exist to counter arrangements entered into to sidestep the charge, and treaty-based planning is expressly within their sights. In short: the exemptions are real, but they are drafted narrowly and they are policed.

How is the UK gain calculated on an indirect disposal?

For shares held before the regime began, the default is rebasing: you compute the gain by reference to the market value of the shares at 5 April 2019 rather than original cost. That is a genuine relief — pre-April 2019 appreciation is generally outside the UK charge — but it creates the single largest US mismatch in this whole area, because the IRS grants no such step-up.

An election is available to compute the gain over the entire period of ownership instead. That is usually only attractive where the whole-period computation produces a loss, or where a low April 2019 valuation would otherwise crystallise a large UK gain. The election is irrevocable in effect once made on the return, and it requires a supportable 2019 valuation of the shares — not the land — which for a leveraged company is an equity valuation exercise, not a red book exercise.

Rates and allowances then follow the mainstream capital gains code: the annual exempt amount, currently £3,000, is available to non-resident individuals, and gains are taxed at 18% and 24% depending on where they fall against the UK basic rate band, following the alignment of rates from 30 October 2024. Non-resident companies are outside capital gains tax altogether and pay corporation tax on the gain instead, at the prevailing main rate, with different notification and filing mechanics.

Reporting and paying: the 60-day clock

A non-resident individual or trustee must report an indirect disposal to HMRC and pay the tax within 60 days of completion, through the UK Property Disposal (Capital Gains Tax on UK property) service. Several features of this obligation are unforgiving:

• The return is required even where there is no tax to pay, and even where the disposal produces a loss. Non-residents do not get the “only if tax is due” concession available to UK residents.
• Payment is due on the same 60-day timetable. Being inside Self Assessment does not defer it.
• A UK tax reference is not a prerequisite for having the obligation. If you have never filed in the UK, you still need to register, obtain credentials, and file — a process that can itself take weeks, which is why the practical deadline is nearer 30 days than 60.
• Where you are also within Self Assessment, the disposal is reported again on the annual return, with the 60-day payment treated as tax already paid.
• Late filing attracts fixed and escalating penalties, with late payment interest and penalties running separately. Multiple tranches of a staged sale can generate multiple returns and multiple penalties.

HMRC's helpsheet for the regime, HS307, is the starting point for the filing mechanics. Our UK tax compliance team prepares these returns for non-resident sellers, including the valuation support that a rebased computation requires.

UK versus US: the same disposal, two different transactions

Feature	UK (HMRC)	US (IRS)
Characterisation	Deemed disposal of an interest in UK land	Ordinary sale of stock in a foreign corporation
Trigger threshold	75% property rich and 25% interest (2-year look-back)	No threshold — any share sale is taxable
Base cost	Market value at 5 April 2019 by default	Actual historic cost, no rebasing
Currency	Computed in sterling	Computed in US dollars at acquisition and disposal spot rates
Rate	18% / 24% (individuals); corporation tax for companies	0/15/20% long-term, plus 3.8% net investment income tax
Deadline	Report and pay within 60 days of completion	Annual return, with estimated tax payments
Tax year	6 April – 5 April	1 January – 31 December
Deferred consideration	Separate chargeable asset for the right to future payments	Instalment method potentially available

How does the US return treat the same disposal?

To the IRS, nothing unusual has happened. A US person sold stock in a foreign corporation. Gain is proceeds less adjusted basis, translated into dollars, taxed at long-term capital gains rates if held more than a year, with the 3.8% net investment income tax on top for most sellers at this level. There is no April 2019 step-up, no 25% threshold, no property richness test, and no 60-day return.

Why the gain is US-source — and what the treaty does about it

Under the general US sourcing rule, gain on the sale of personal property, including stock, is sourced by reference to the residence of the seller. For a US-resident or US-citizen seller, that makes the gain US-source. A foreign tax credit, however, can only shelter foreign-source income. Left alone, you would pay UK tax on a gain the US treats as domestic, with no credit available at all — classic double taxation.

The US–UK income tax treaty is what rescues the position. Its capital gains article permits the UK to tax gains on shares deriving their value, or the greater part of their value, from UK real property, and the relief-from-double-taxation article contains a re-sourcing rule that treats income the UK may tax under the treaty as arising in the UK for credit purposes. Two practical consequences follow. First, the credit must be claimed in the separate Form 1116 category for income re-sourced by treaty — not lumped into the passive or general baskets. Second, the treaty threshold (greater part of value) and the domestic UK threshold (75%) are not the same test, so it is possible to be inside the treaty's permission but outside the UK charge, and the analysis must be done under both. Form 1116 guidance is at irs.gov.

When the company is a PFIC

This is the trap within the trap. A non-US company whose income is predominantly rent and whose assets are predominantly rental property will often be a passive foreign investment company. If it is, and no qualified electing fund or mark-to-market election was in place, the gain on sale falls into the excess distribution regime: allocated rateably across your holding period, taxed at the highest ordinary rates for prior years, and grossed up by an interest charge. Long-term capital gains rates disappear. A UK charge computed at 24% on a rebased gain, set against a US charge computed at ordinary rates plus interest on the whole gain, is a wide gap. Reporting runs on Form 8621, and the foreign tax credit interaction under the excess distribution rules is materially worse than under the ordinary capital gains rules.

When the company is a CFC

If US shareholders control the company, it may be a controlled foreign corporation, in which case a US shareholder's gain can be recharacterised as a dividend to the extent of the company's earnings and profits. That changes rate, character, sourcing and basket — sometimes helpfully, because a dividend may be foreign-source in a way the share gain was not, and sometimes unhelpfully, because it can strand credits elsewhere. Annual reporting on Form 5471 is a precondition for getting any of this right, and missing years are common in exactly the structures this regime catches.

What the mismatch does to your foreign tax credit

Take an illustrative case. Shares in a UK property rich company acquired in 2016 for £2m; market value at 5 April 2019 of £5m; sold in 2026 for £8m.

• UK: rebased gain of £3m, tax at 24% ≈ £720,000, payable within 60 days of completion.
• US: gain of roughly $7.5m measured from actual dollar basis, at 20% plus 3.8% net investment income tax ≈ $1.79m.

Even with perfect treaty re-sourcing, the UK credit of roughly $900,000 covers barely half the US charge, because the UK taxed £3m and the US taxed the equivalent of about £6m. Three further leaks compound it:

• The net investment income tax cannot be offset by foreign tax credits under the Code, so 3.8% of the entire gain is payable regardless of how much UK tax you paid.
• Timing. UK tax paid within 60 days of a February completion falls in the UK 2025–26 year but the US 2026 year. Whether you claim credits on a paid or accrued basis determines which US year gets the benefit, and an election to accrue is generally binding for later years.
• State tax. Most US states give no credit for foreign taxes at all. A seller still domiciled in a high-tax state can face a state charge on the full gain with no UK relief whatsoever — a point we cover in our wider US tax compliance work.

Unused credits can be carried back one year and forward ten within the same category, so the excess is not always lost — but it is only usable against future re-sourced treaty income, which most investors never have again.

Earn-outs, escrow and deferred consideration

Cross-border mismatch peaks where the price is not all paid on day one. The UK generally treats an unascertainable right to future consideration as a separate chargeable asset valued at completion, with a second disposal when the earn-out is received. The US may permit instalment reporting, spreading gain as cash arrives. The result is that UK tax is paid early on a valuation and US tax is paid later on cash — so the UK tax may be paid in a year with no corresponding US income to credit it against, and the US tax may fall in years when no UK tax remains to be credited. Modelling this before signing, rather than after, is where the money is.

Currency: two gains from one transaction

The UK computes in sterling. The US computes in dollars, translating cost at the acquisition-date rate and proceeds at the disposal-date rate. A holding that produced a modest sterling gain over a decade of dollar strength can produce a substantially larger dollar gain, or vice versa. The dollar gain is not a currency item you can strip out; it is simply part of the US capital gain. Sellers who model only the sterling outcome are routinely surprised by the size of the US number.

What if you have already missed the 60-day return — or the US forms?

This is how most of these cases reach us. The deal completed, no one flagged the indirect disposal rules, and the 60-day window closed months ago. Two clean-ups usually run in parallel.

On the UK side, the late return should be filed promptly with the tax and interest, with a reasonable excuse position considered where the failure genuinely stems from the obscurity of the rules for a first-time non-resident filer. Penalties escalate with delay, so the calculus almost always favours filing now.

On the US side, the exposure is rarely limited to the gain. It is the unfiled Form 8621 for a PFIC held for years, the missing Form 5471, the unreported foreign accounts holding the sale proceeds, and often a run of unfiled returns behind them. Where the failure was non-wilful, the IRS streamlined filing procedures remain the orderly route back into compliance, and a disposal year is generally the worst possible year to enter them without preparation, because the gain sits inside the amended period. Our guide to Americans selling UK property directly covers the parallel issues for a direct disposal, and where the structure involves an offshore corporate wrapper, our guide to de-enveloping UK residential property deals with the unwind analysis.

A practical sequence for an indirect disposal

• Before signing: test property richness on gross market values at the expected completion date; test your interest, aggregated with connected persons, across the full two-year look-back; consider whether the trading exemption is genuinely available.
• Before signing: obtain or refresh the 5 April 2019 share valuation, and model the rebased gain against the whole-period alternative.
• Before signing: determine the US character of the company — PFIC, CFC, or neither — because that determines the US rate, not the UK one.
• At completion: diarise 60 days; register for the UK property disposal service immediately if you have no UK credentials.
• At completion: fix the dollar translation rates and retain the evidence.
• At year end: claim the credit in the correct re-sourced treaty category, reconcile UK and US years, and report the disposal again on any Self Assessment return.

Speak to us before the 60-day clock runs out

An indirect disposal of a UK property rich company is one of the few transactions where the UK charge, the US charge and the credit that links them are each computed on entirely different numbers. Getting it right is a preparation problem, not an advisory one: the right valuations, the right elections, the right forms, filed on two calendars that do not agree. If you are approaching a sale, have just completed one, or have discovered that a disposal from an earlier year was never reported, contact our cross-border team for a confidential consultation. We will tell you precisely what is due, where, and by when — and what can still be fixed.