Sale of UK Property and USA UK Double Tax Treaty Tax Relief

Dear Forum:

I am an US Citizen considering purchasing a second home in Britain.  Per the USA UK Double Taxation Treaty, can I get capital gains tax relief on my USA tax return for the sale of a UK property?  If yes, do I have to be a UK resident to get tax relief in the USA?  Thank you very much for your time and assistance with this enquiry.

Dear Forum:

I am an US Citizen considering purchasing a second home in Britain.  Per the USA UK Double Taxation Treaty, can I get capital gains tax relief on my USA tax return for the sale of a UK property?  If yes, do I have to be a UK resident to get tax relief in the USA?  Thank you very much for your time and assistance with this enquiry.

You don't have to involve the treaty to get your answer. Just apply the US rules for capital gains taxes on sale of a property. If the property is your main residence....or has been within the time rules specified by the IRS....you get a $250k capital gains tax free allowance, $500k if you are married. You must calculate your capital gain in US$ and use the exchange rates at the time of purchase and sale....so your actual gain will depend on the purchase and sale price AND and change in exchange rates.

Thanks so much for your response.  I'll look into the time rules to see if I'll qualify when I plan sell the property.

Second home

I would like to add some comments to this interesting discussion, as regards UK capital gains tax when in due course the second home in the UK is sold.

The tax position at that stage depends on whether or not Luvbritain is UK resident for tax purposes.

Tax as a non-resident
If Luvbritain is not a UK resident then any again will be subject to UK capital gains tax. Until recently the general UK position was that it did not tax gains of non-residents, even in respect of UK situs property. This general position has however been changed in respect of UK situs residential property. This first change in this area was to charge tax on UK residential property which was in the ATED rules. This will not affect him. However from 6 April 2015 all non-residents are liable to UK capital gains tax on UK residential property, referred to as NRCGT. He can see more details about this for instance here-
https://www.gov.uk/capital-gains-tax-for-non-residents-uk-residential-property


Tax as a resident
If Luvbritain is a UK resident then any gain would be chargeable tax to UK capital gains tax, subject to the principal private residence rules. Since Luvbritain would have two residences the main aspect to note is the election which applies in these circumstances. The ppr election rules were amended in 2015 so that it is only possible to elect for a residence to be a ppr when the 90 day test is satisfied. Again, there is more detail available on HMRC website.

Other points
The UK US Double Tax treaty does not prevent the UK from taxing gains on UK real property. My reading of the treaty is that the UK has first taxing rights and that the US is obliged to give credit for UK tax against US tax.

I would be interested to hear the view of Luvbritain and others. I think that this topic will become more common.