REAL ESTATE

FIRPTA (the Foreign Investment in Real Property Tax Act) requires a buyer to withhold a percentage of the gross sale price when a foreign person disposes of US real estate, as an advance against the seller’s US tax. The withholding rate is significant and applies to the price, not the profit. Sellers can apply for a reduced withholding certificate from the IRS where the actual tax due is lower.

Rental profits from UK property are taxable in the UK regardless of where the owner lives, and non-resident landlords may fall within the Non-resident Landlord Scheme. US citizens must also report the same income to the IRS on their worldwide return, using foreign tax credits to relieve double taxation. Allowable expenses and mortgage interest rules differ between the two systems, so parallel calculations are needed.

Stamp Duty Land Tax (SDLT) is charged on UK property purchases in England and Northern Ireland on a banded basis. Additional rates apply to second homes and buy-to-let, and a further surcharge applies to non-UK resident purchasers. Scotland and Wales operate their own equivalents. Because surcharges stack, the total rate on an investment purchase by an overseas buyer can be materially higher than the headline residential rate.

The Annual Tax on Enveloped Dwellings (ATED) is a yearly charge on UK residential property above a value threshold held by companies and certain other non-natural persons. Reliefs exist for genuine property rental or development businesses but must be claimed through an annual return. Investors holding UK homes through corporate structures should check ATED exposure, as missed returns can trigger penalties even when a relief applies.

The UK taxes gains on UK real estate for both residents and non-residents, and non-residents must report disposals within a set deadline. The US taxes its citizens on worldwide gains and applies FIRPTA to foreign sellers of US property. The US-UK tax treaty and foreign tax credits generally prevent the same gain being taxed twice, but timing, reporting, and currency effects need careful coordination.

The best holding structure depends on your residence, domicile, financing, and succession plans. Companies, partnerships, and trusts each carry different income tax, Capital Gains Tax, SDLT, ATED, and estate or Inheritance Tax consequences, and US anti-deferral rules can penalise some offshore structures for US persons. Because the wrong wrapper can create ongoing charges, structuring should be modelled before purchase rather than unwound later.