Tax implications of UK property investment as a US resident

Buying property in the UK while living in the United States is increasingly common. Some investors are British expats maintaining ties to the UK, while others are US-based buyers looking to diversify into international real estate. Whatever the motivation, one of the most important considerations is how taxation works across borders.

Many investors assume that UK property simply falls under UK tax rules. In reality, ownership can create obligations in more than one jurisdiction. Understanding how UK property taxation interacts with US reporting requirements can help avoid confusion and prevent costly surprises later.

Disclaimer

This article is for general information only and should not be treated as tax advice. Cross-border tax outcomes depend on personal circumstances including residency, citizenship and ownership structure. Professional advice should be obtained before making decisions.

The UK starting point: property is taxed where it sits

The UK tax position is relatively straightforward in principle. Property is generally taxed in the country where it is located, regardless of where the owner lives. This means that owning UK property creates a UK tax footprint even if you have not lived in Britain for many years.

Rental income generated from a UK property is usually taxable in the UK, and capital gains tax can apply if the property is sold. This applies whether the owner is a British expat, a US citizen or any other non-resident investor. In addition, UK inheritance tax can apply to UK-situs assets, which often surprises overseas owners who assume residency determines exposure.

In isolation, these rules are relatively easy to understand. The complexity tends to arise once US tax rules are layered on top.

Why the US tax system changes your obligations

The United States takes a different approach to taxation from most countries. Rather than focusing solely on where income arises, the US taxes based on citizenship and residency concepts that can extend tax obligations beyond national borders.

For US citizens and many US residents, this means worldwide income reporting. Rental income from a UK property does not fall outside the US tax net simply because the asset is located abroad. Instead, it often needs to be reported to both HMRC and the IRS.

This is one of the most common misunderstandings among first-time cross-border investors.

The UK system looks at where the property is, while the US system looks at who you are. The overlap between those two approaches creates the dual-reporting environment that many investors find unfamiliar.

Rental income and dual reporting

If a UK property is let while the owner lives in the United States, rental profits will typically need to be reported in both countries. In the UK, this is usually handled through the non-resident landlord framework and Self-Assessment reporting.

From a US perspective, the same rental activity may need to be disclosed as foreign rental income. Although the underlying economics are the same, the way income is calculated can differ between the two systems. Differences in allowable deductions, depreciation methods and currency conversion rules can all affect the final figures.

This does not necessarily mean paying tax twice, but it does mean maintaining a clearer paper trail and understanding how each system treats the same income stream.

The role of the UK–US tax treaty

To prevent being taxed twice in both the UK and the US, there is a long-standing tax treaty between both countries. In broad terms, the treaty recognises that property income is primarily taxed where the property is located, giving the UK primary taxing rights.

The US system then typically provides relief mechanisms, often through foreign tax credits. These credits can offset UK tax already paid against US liabilities on the same income. In many cases, this prevents investors from being taxed twice on the same profit.

However, the presence of a treaty does not remove the need for reporting. One of the most important distinctions for US-based investors is that treaty protection and compliance obligations are not the same thing. Even where tax is neutralised, reporting may still be required.

Capital gains reporting in both countries

Selling a UK property while living in the US introduces another layer of complexity. From a UK perspective, capital gains tax may apply to disposals of UK residential property even for non-residents. Reporting deadlines can also be tighter than many overseas investors expect.

From a US perspective, gains may also need to be recognised, but not always in the same way.

How capital gains are taxed in the US

If a UK property is sold while the owner is living in the United States, the gain may also need to be reported for US tax purposes. This can come as a surprise to investors who assume that property is only taxed where it is located. While the UK generally retains primary taxing rights, the US may still require the disposal to be declared.

The applicable US tax treatment depends on the investor’s circumstances. For individuals, gains on property held for more than a year are typically taxed under long-term capital gains rules rather than ordinary income tax rates. These rates are often lower, but the gain still forms part of the overall US tax calculation.

At the federal level, long-term capital gains in the United States are typically taxed at 0%, 15% or 20% depending on overall income. Higher earners may also be subject to a 3.8% Net Investment Income Tax, taking the effective federal rate to as much as 23.8%. In addition, some US states impose their own taxes on capital gains, meaning the total liability can vary depending on where the investor lives.

How capital gains are taxed in the UK

When a UK property is sold, capital gains tax can apply even if the owner is living overseas. The UK taxes property based on where it is located, which means non-residents remain within scope when disposing of UK residential real estate.

This can come as a surprise to overseas investors who assume that leaving the UK removes future tax exposure. In reality, UK residential property has been firmly within the capital gains tax regime for non-residents for several years, reflecting the principle that property is taxed where it sits.

If a gain arises, the tax is broadly calculated based on the increase in value between acquisition and disposal, subject to any available reliefs. At the time of writing, UK residential property gains for individuals are typically taxed at 18% for basic rate taxpayers and 24% for higher rate taxpayers, with the applicable rate depending on the seller’s wider UK income position in the year of disposal.

Most individuals are also entitled to an annual capital gains tax allowance, although this has reduced significantly in recent years. The allowance is currently £3,000, meaning only gains above this level are typically taxable.

One of the most important practical considerations for non-residents is the reporting timeframe. Disposals of UK residential property must usually be reported to HMRC within 60 days of completion, and any tax due is often payable within that same window. This applies even if the seller does not normally file a UK tax return. The compressed reporting timeline can catch overseas sellers off guard if they are unfamiliar with the process.

Capital gains and currency fluctuations

One of the most overlooked factors is currency. The UK calculates gains in pounds, while US reporting is based on dollar values. Exchange rate movements between purchase and sale can therefore influence the taxable gain in the United States, even if the sterling gain appears modest.

This currency translation effect can create outcomes that feel counterintuitive, particularly during periods of significant GBP–USD volatility.

Ownership structures and cross-border friction

Some investors explore holding UK property through corporate or trust structures, often influenced by domestic tax planning ideas. While this can sometimes be appropriate, cross-border ownership structures can introduce unexpected friction.

An entity that is tax-efficient in one country may be treated very differently in another. For example, certain structures recognised in the US may not receive the same treatment under UK tax rules, and vice versa. This can create mismatches that complicate reporting, financing or exit planning.

Because of this, structuring decisions made early in the investment lifecycle tend to have long-lasting consequences.

Inheritance tax and longer-term planning

Inheritance tax is another area where cross-border differences become apparent. The UK applies inheritance tax based largely on the location of assets, which means UK property can fall within scope even if the owner is not UK domiciled.

For US-based investors used to a different estate tax framework, this can come as a surprise. Owning property directly in the UK may create exposure that requires separate planning, particularly for those building multi-jurisdictional estates.

While not every investor needs complex planning, understanding that inheritance exposure exists is an important part of long-term decision making.

Why early clarity matters

None of this means that investing in UK property from the United States is inherently problematic. Many investors successfully manage cross-border ownership for decades. The key difference compared to domestic investing is simply the need for earlier clarity.

Understanding how two tax systems interact helps investors make more confident decisions about ownership structure, timing and exit strategy. It can also prevent reactive planning later, which is often more expensive and restrictive.

In practice, most of the challenges arise not from the rules themselves but from unfamiliarity. Once the interaction between UK and US taxation is understood, the landscape becomes much easier to navigate.