Selling US Property as a UK Resident: FIRPTA and UK Tax

Both countries tax the same sale, but in a defined order. Under Article 13 of the UK-US double tax treaty, the country where the real property sits (the United States) has the right to tax gains on that property. The US exercises this right under Internal Revenue Code section 897 (the FIRPTA rules). The UK, as your country of residence, also taxes the gain because UK residents are charged UK Capital Gains Tax on their worldwide gains. To stop the same profit being taxed twice, the UK gives credit relief for the US tax you pay on the sale.

In practice, a sale runs through four steps. First, at closing the US buyer withholds FIRPTA (usually 15% of the gross price) and pays it to the IRS. Second, you file a US return to calculate the actual US tax on the real gain and reclaim any over-withheld amount. Third, you report the same gain on your UK Self Assessment return and work out the UK Capital Gains Tax. Fourth, you claim Foreign Tax Credit Relief in the UK for the US tax paid, so your total tax is broadly the higher of the two countries' charges rather than the sum of both.

The important mental model: FIRPTA is a cash-flow event, not a final tax. The final US tax is settled on your US return, and the UK sits on top with credit for what the US actually keeps.

FIRPTA (the Foreign Investment in Real Property Tax Act) requires the buyer of US real estate from a foreign person to withhold a percentage of the amount realised (broadly the gross sale price) and remit it to the IRS. For a UK resident who is not a US person, this withholding almost always applies. The standard rate, confirmed on IRS.gov, is 15% of the amount realised.

There are reduced rates and an exemption, all tied to an individual buyer using the property as a residence:

• No withholding where an individual buyer will use the property as a residence and the amount realised is $300,000 or less.
• A reduced rate of 10% where an individual buyer will use it as a residence and the amount realised is more than $300,000 but not more than $1,000,000.
• The standard 15% in all other cases, including higher-value residences and any non-residential or investment purchase.

The buyer (the transferee) is the withholding agent and is personally liable if they fail to withhold, which is why closing agents apply FIRPTA strictly. The withholding is reported on Forms 8288 and 8288-A, generally due within 20 days of the transfer, and you receive a stamped Form 8288-A as evidence of the tax withheld.

The trap is that 15% of the gross price can far exceed the actual US tax on the gain, especially if the property has not risen much in value or you are selling at a modest profit. To avoid tying up cash for months, you can apply for a withholding certificate on Form 8288-B before closing. If the IRS agrees your maximum US tax is lower than the amount that would otherwise be withheld, it authorises a reduced or nil withholding. File Form 8288-B early (the IRS aims to act within about 90 days), because until the certificate is issued the buyer must still calculate the full withholding, although remittance can be held pending the IRS decision.

FIRPTA withholding is a deposit, not the tax itself. To settle the real liability and reclaim any excess, you file a US non-resident income tax return, normally Form 1040-NR, for the year of the sale. On that return you report the disposal, calculate the actual gain, apply the FIRPTA amount withheld as a credit against your US tax, and either pay the balance or claim the refund of the over-withheld amount.

The US gain is your net sale proceeds less your cost basis (original purchase price plus qualifying capital improvements and certain acquisition and selling costs). If you held the property for more than a year, the gain is generally a long-term capital gain taxed at preferential federal rates (0%, 15% or 20% depending on your US taxable income, with the top 20% rate applying to higher gains; the exact bracket thresholds are set annually, to confirm for your year). Any depreciation claimed while the property was let is subject to recapture, with the unrecaptured element taxed at a maximum federal rate of 25%. There is no US personal allowance sheltering the gain for a non-resident in the way UK residents get an annual exempt amount.

State tax may also apply. Several states (for example California) tax the gain on real estate within their borders and some operate their own withholding on sales by out-of-state or foreign sellers, separate from federal FIRPTA. Whether a state charge arises, and at what rate, depends on where the property is (to confirm state by state). Any state tax paid is generally also creditable in the UK as foreign tax on the same gain.

You will need a US taxpayer identification number (an ITIN) to file Form 1040-NR and to process the FIRPTA credit, so apply for one in good time if you do not already hold one.

As a UK resident, you are within the scope of UK Capital Gains Tax on your worldwide gains, which includes the sale of US property. You report the disposal through Self Assessment: the capital gains summary (SA108) plus the foreign pages (SA106) to claim relief for the US tax, on the return for the tax year in which the sale completes.

For 2026/27, UK Capital Gains Tax on residential property is charged at 18% where the gain falls within your remaining basic-rate band and 24% on any part above it. The annual exempt amount is £3,000, deducted before tax is applied. If the US property was your only or main residence at some point, Private Residence Relief may reduce the UK gain, though this is unusual for a US holiday or investment home and needs checking on the facts.

One point specific to recent reform: the UK abolished the non-domicile remittance basis from 6 April 2025, replacing it with a four-year Foreign Income and Gains (FIG) regime for people who become UK resident after at least ten consecutive tax years of non-residence. If you qualify for and claim FIG relief in an eligible year, the US gain could fall outside UK tax for that year, changing the analysis entirely. Whether FIG applies depends on your UK residence history and is worth confirming before you assume the worldwide-gain default. For most settled long-term UK residents, the default worldwide-gain treatment applies.

Because the US taxes the gain first and the UK taxes it again, relief comes through Foreign Tax Credit Relief on your UK Self Assessment return. You claim a credit for the US federal (and any state) tax properly paid on the same gain, which reduces your UK Capital Gains Tax bill on that gain.

The relief is capped. HMRC allows the lower of two figures: the US tax paid on the gain, or the UK tax due on that same gain. So if the US tax is smaller than the UK tax, you credit the US tax and pay the difference to HMRC. If the US tax is larger, the credit is limited to the UK tax on the gain and the surplus US tax is not refunded by HMRC and generally cannot be used against UK tax on any other gain or income. The result is that you broadly pay the higher of the two countries' charges on the profit, not both in full. Where credit relief is not the best answer, HMRC also allows deduction relief, treating the US tax as a cost that reduces the chargeable gain, and you take whichever is more beneficial.

Two practical points. First, only the tax that is actually and finally due under US law and the treaty is creditable, so it is the settled US tax from your 1040-NR (not the raw FIRPTA withholding) that matters. Over-withheld FIRPTA that you reclaim is not creditable, because you did not ultimately bear it. Second, timing of the two returns rarely lines up, and HMRC has processes for adjusting a UK claim once the final US liability is known. The treaty's saving clause preserves each country's right to tax its own residents and citizens, but the relief articles are what deliver the credit, so the mismatch is resolved by credit rather than exemption.

The single biggest surprise for UK residents is currency. Each country computes the gain in its own money. The US works out the gain in dollars. The UK requires the gain to be computed in sterling: the proceeds are translated at the exchange rate on the completion date, and each cost (the purchase price and each item of allowable expenditure) is translated at the rate on its own date. HMRC does not accept taking the dollar gain and converting it once at the sale-date rate; every element must be brought into sterling separately.

The consequence is that a currency swing can create a UK gain that is much larger (or smaller) than the dollar gain. If sterling weakened against the dollar between purchase and sale, your sterling proceeds balloon and the UK taxable gain can exceed the economic dollar profit, even producing UK tax on what feels like a modest gain in dollar terms. HMRC accepts appropriate published exchange rates (for example a recognised published source) for each date.

Timing traps to plan for:

• FIRPTA cash is withheld at closing but the refund of any excess only comes after you file your US return, often many months later, so budget for the cash-flow gap or use a Form 8288-B certificate to reduce it upfront.
• The US and UK tax years differ (US calendar year; UK to 5 April), so a single sale can straddle different filing cycles and the two returns will be prepared at different times.
• UK Self Assessment for the year of sale is due by 31 January after the end of the UK tax year, but you may need the final US figures to claim the correct credit, so start the US side early.
• US real property is also within US estate tax for non-US persons above a low $60,000 US-situs threshold, though the UK-US estate tax treaty can substantially relieve this for UK-domiciled individuals; the UK now applies residence-based inheritance tax from 6 April 2025. Holding structures and death, not just sale, deserve separate advice (to confirm on your facts).