Specialist US UK Tax Services: Off-Plan London Assignments

Assigning an off-plan London contract before completion is a disposal of a chargeable contractual right. In the UK it can trigger Capital Gains Tax from the date the assignment contract is made, and non-residents report within 60 days. In the US it is a capital asset sale on Form 8949, with currency effects and possible FBAR exposure.

For American buyers of prime London new-build, the economics of an off-plan purchase are rarely the hard part. The tax reporting is. A deposit wired in sterling two or three years ago, a contract that rose in value while the tower went up, and an assignment to a new buyer shortly before practical completion together create a transaction that both HMRC and the IRS expect to see, on different forms, in different tax years and often in different currencies. Our Specialist US UK Tax Services team prepares exactly these returns for US citizens and green card holders, whether they live in London, New York or elsewhere. This guide explains how each country treats the assignment, where the two systems disagree, and how to put things right if the sale was never declared.

What does it mean to assign an off-plan contract?

When you reserve a unit in a new-build scheme, you typically pay a reservation fee, then exchange contracts and pay a deposit, commonly 10% of the price and sometimes 20% or more in staged payments for prime schemes. Completion follows when the building is finished, which in central London is frequently two to four years later. Until completion you do not own the flat. You own a contractual right to acquire it on completion, protected by the deposit you have paid.

An assignment (sometimes called a contract sale or sub-sale) is the transfer of that right to a third party before completion, usually with the developer's consent and often for an administration fee. The incoming buyer typically reimburses your deposit and pays you a premium reflecting any uplift in value; they then complete the original purchase directly with the developer. The alternative exit is to complete the purchase yourself and resell the flat soon afterwards, which is a different transaction with different tax consequences in both countries.

Both routes are common among international investors in prime London stock. Both are frequently mis-reported by American owners, because the assignment route in particular never produces a land registry entry in the seller's name, and many assume that if they never owned the flat, there is nothing to declare.

How does HMRC tax the assignment of an off-plan contract?

The asset is the contractual right

For UK Capital Gains Tax purposes, the benefit of a contract to buy property is itself an asset. Until the building is constructed and conveyed, HMRC's guidance describes the buyer's asset as a right to acquire the property, and a disposal of that right before, during or after construction is a chargeable event (see HMRC's Capital Gains Manual at CG73758). Tribunal case law points the same way: decisions involving off-plan purchasers have treated the contractual rights as the asset acquired, which is why a forfeited deposit or a failed scheme can sometimes produce an allowable loss, and why a profitable assignment produces a gain.

When is the date of disposal?

Under the general rule in section 28 of the Taxation of Chargeable Gains Act 1992, where an asset is disposed of under a contract, the time of disposal is when the contract is made, not when it completes. If the contract is conditional, the date is when the condition is satisfied. HMRC sets this out at CG14261. For an assignment, that usually means the date the deed or agreement of assignment becomes unconditional, which may fall in a different UK tax year (6 April to 5 April) from the date the money actually moves. Getting this date right matters, because it decides which year's return the gain belongs on and which rates and annual exempt amount apply.

Computing the gain

The starting point is straightforward: consideration received for the assignment (the premium plus any reimbursement of your deposit) less the allowable cost of the right (the deposit and any staged payments made, the reservation fee where it formed part of the price, and incidental costs such as legal fees on exchange and on the assignment, and the developer's consent fee). In practice the deposit reimbursement and the deposit cost cancel out, leaving the premium less costs as the gain. Allowable incidental costs must be wholly and exclusively for the acquisition or disposal; general investment advice and finance costs are not.

Gains on residential property interests are currently charged at 18% for basic-rate taxpayers and 24% at the higher and additional rates, after the annual exempt amount, which is now modest. Private residence relief will not ordinarily be available on an assignment, because you never occupied the flat.

Could HMRC treat it as trading instead?

This is the risk that sophisticated buyers most often underestimate. If the facts suggest you acquired the contract with the intention of selling it at a profit rather than holding the property as an investment or home, HMRC may argue the profit is a trading or "transactions in UK land" receipt charged to income tax at up to 45%, not a capital gain at 24%. Indicators include a pattern of multiple off-plan purchases, assignments arranged before or soon after exchange, marketing the contract immediately, finance that only works on resale, and no realistic plan to complete. A single purchase, documented as a long-term investment or intended residence and sold because circumstances changed, sits comfortably within CGT. Several purchases across schemes, each flipped before completion, may not. We flag this risk when preparing the return so the disclosure reflects the facts; we do not structure transactions to avoid it.

Do non-residents have to report an off-plan assignment to HMRC?

Yes, generally. Since April 2019 non-UK residents have been within UK CGT on disposals of UK land and property, and HMRC's guidance confirms that a right to acquire a UK residential property interest under an off-plan contract is within the charge. A US-resident American who assigns a London off-plan contract will typically need to file a non-resident UK property return and pay any tax within 60 days of completion of the disposal, and must file the report even where there is no tax to pay, for example because the assignment produced a loss. See HMRC's guidance on Capital Gains Tax for non-residents.

Two further points catch non-residents out. First, only the gain arising after 5 April 2015 is chargeable for residential interests held by non-residents, so contracts exchanged before that date may qualify for rebasing or time apportionment. Second, a non-resident who later becomes UK resident within the temporary non-residence window may find gains revisited. Both need checking against the specific contract dates.

And UK residents?

UK-resident Americans report the gain on their Self Assessment return. The separate 60-day UK property return applies to UK residents only where there is residential property CGT to pay; whether a particular assignment falls inside that regime depends on the facts and should be confirmed at the time. When in doubt, filing within the 60-day window is the cautious approach, and HMRC's report and pay service is the route. Late 60-day returns attract automatic penalties, and interest runs on unpaid tax from the 60-day deadline.

How does the IRS treat the sale of an off-plan contract?

As a US citizen or green card holder you are taxed on worldwide income regardless of where you live, so the assignment must also appear on your Form 1040. From the American perspective, the contract to purchase real property is generally a capital asset in the hands of an investor. Its sale or assignment produces a capital gain or loss, reported on Form 8949 and carried to Schedule D. Where a contract right is cancelled or released rather than sold, section 1234A generally preserves capital treatment. If you hold yourself out as a dealer in property, ordinary income treatment can apply, mirroring the UK trading risk described above.

Holding period starts at the contract date

The holding period for the contract right generally runs from the date you acquired it, usually exchange, to the date of the assignment. Because London off-plan schemes often take two years or more to complete, many assignments qualify for long-term capital gain treatment (held more than one year), taxed federally at 0%, 15% or 20% depending on income, plus the 3.8% Net Investment Income Tax for higher earners. An assignment made within twelve months of exchange is short-term and taxed at ordinary income rates.

Basis: the deposit plus costs, in dollars

Your US basis is the dollar cost of what you paid for the right: the deposit and any staged payments, converted at the exchange rate on the date each payment was made, plus acquisition costs. Proceeds are converted at the rate on the date of sale. The result can differ materially from the sterling gain reported to HMRC. If sterling weakened against the dollar between exchange and assignment, a sterling gain can shrink or even become a dollar loss; if sterling strengthened, the dollar gain is larger than the sterling one.

The currency flag: section 988

Currency is where generalist preparers go wrong. The gain on the contract right itself is measured in dollars as above. Separately, if you held sterling in your own account before paying the deposit, or received sterling on the assignment and held it before converting, the movement in the value of that sterling can create a distinct foreign currency gain or loss under section 988, which is generally ordinary rather than capital. A limited exclusion exists for small gains on personal transactions, but investment property transactions are not personal. Large sterling balances held for months around a prime London transaction therefore need their own calculation, not a single blended exchange rate.

Completing and reselling quickly: a different set of rules

Some buyers complete the purchase and resell within months. Here the two systems diverge sharply.

• UK: Under section 28, the acquisition date of the flat is generally the date of the original unconditional exchange, not completion. So a flat completed in March and resold in June may have been "held" for UK CGT purposes for three years. The full purchase price, Stamp Duty Land Tax (including the higher rates surcharge for additional dwellings and the non-resident surcharge where applicable), and legal costs form the base cost.
• US: The IRS generally starts the holding period of real property when the benefits and burdens of ownership pass, which is typically completion. The time you spent holding the contract does not usually tack on. A flat completed in March and resold in June is therefore likely to be a short-term gain taxed at ordinary rates, even though HMRC sees a three-year holding.
• Mortgage: If you financed completion with a sterling mortgage and repaid it on resale, the repayment can produce a separate section 988 exchange gain on the debt if sterling weakened, even where the property itself made no dollar gain.
• Exclusion: The US home sale exclusion requires ownership and use as a principal residence for two of the previous five years, so it will rarely help on a quick resale.

US vs UK treatment at a glance

How do you avoid paying tax twice on the same gain?

Under the US-UK income tax treaty, the UK keeps the primary right to tax gains from UK real property, and the US relieves double taxation through the foreign tax credit, claimed on Form 1116. Three practical frictions arise on off-plan assignments:

• Different gains. The sterling gain and the dollar gain differ because of exchange rates and, on a quick resale, holding period. The credit is limited to the US tax on the foreign-source gain, so a large UK tax bill on a small dollar gain can leave excess credits to carry forward or back.
• Different years. The UK tax year ends on 5 April; the US year ends on 31 December. A disposal in, say, February falls in the same calendar year but the UK tax is not due on the normal timetable until the following January (unless a 60-day payment applies). Matching the tax to the right US year, and choosing between accrual and paid methods for credits, needs care.
• NIIT. The IRS position is that foreign tax credits do not offset the 3.8% Net Investment Income Tax, so UK-resident Americans can face a residual US charge even where UK CGT exceeds the regular US tax. Treaty-based arguments exist but are contested.

Where the UK treats the profit as trading income and the US treats it as a capital gain, the character mismatch also affects which credit basket the UK tax sits in. These are precisely the interactions our US UK tax accountants reconcile line by line.

FBAR, Form 8938 and the deposit

An off-plan contract right is not itself a foreign financial account. However, the money trail around it frequently is. A UK current or savings account used to hold the deposit, receive the assignment proceeds, or service a mortgage is reportable on the FBAR (FinCEN Form 114) if your aggregate non-US account balances exceed $10,000 at any time in the year. Where the deposit was held in an escrow or designated deposit account in your own name, rather than in a solicitor's pooled client account, that account may also need reporting; the answer depends on who owns the account and who has signature authority. Higher-value filers should also consider whether Form 8938 thresholds are met by the same accounts. The IRS FBAR guidance sets out the rules, and our FBAR penalty calculator shows the exposure if prior years were missed.

What if you never declared the assignment?

Because no title was ever registered in the seller's name, assignments are among the most commonly omitted transactions we see in catch-up work. Both countries now receive information through solicitors' records, developer files and automatic exchange of financial account data, so an undeclared assignment is far more visible than it used to be.

Putting the UK side right

For the UK, an unreported gain is normally corrected through an amended Self Assessment return where the window is still open, a late non-resident property return, or HMRC's digital disclosure service for older years. Penalties depend on whether the omission was careless or deliberate and whether disclosure was unprompted; a prompt, voluntary and complete disclosure keeps them at the lower end of the range. Our UK tax services team prepares these returns and disclosures.

Putting the US side right

For the US, if the assignment and related accounts were omitted because of non-willful conduct, the IRS Streamlined Filing Compliance Procedures are usually the right route: three years of amended or delinquent returns and six years of FBARs, with a certification of non-willfulness. Taxpayers who meet the non-residency test can use the Streamlined Foreign Offshore Procedures, which carry no miscellaneous offshore penalty; US residents use the domestic version, which carries a 5% penalty on the relevant foreign assets. Where the UK tax paid exceeds the US liability on the gain, the amended returns often show little or no additional US tax, which makes prompt correction considerably less painful than many clients expect. Our IRS streamlined filing experts handle the US filings alongside the UK side so the figures reconcile.

Records to assemble before your returns are prepared

• Reservation agreement, sale contract and the date contracts were exchanged and became unconditional.
• Evidence of every deposit and staged payment, with dates and the bank account used.
• The deed or agreement of assignment, the developer's consent and the fee charged.
• Completion statements from your solicitor for exchange and for the assignment or resale.
• Statements for every UK account that held the deposit or proceeds, for FBAR and section 988 purposes.
• If you completed: SDLT return, mortgage offer and redemption statement, and the resale contract.
• Details of any other off-plan purchases, which are relevant to the trading question.

Our approach

At Jungle Tax we prepare the US and UK returns for the same transaction together, so the disposal date, the sterling computation, the dollar computation and the foreign tax credit tell one consistent story. We do not design investment structures; we make sure what you have already done is reported correctly in both countries, and that any past omissions are corrected on the most favourable terms the rules allow. For a broader view of our work with internationally mobile clients, see our high net worth tax return service.

If you have assigned or quickly resold an off-plan London flat, or are about to, the filing deadlines on both sides of the Atlantic may already be running. Arrange a confidential consultation and contact our cross-border team today; we will review your contract dates, payment trail and filing history and set out exactly what needs to be reported, and by when.