Buying property in the United States is one of the most popular cross-border investments for British buyers. A holiday home near Orlando, a rental condo in Florida, a long-term hold in a growth city. The numbers often look attractive against the UK market, and the process feels familiar.

The tax position is anything but familiar. The US and the UK each have their own rules for taxing the same property, and they do not always line up. The income can be taxed in both countries. The gain on sale can be taxed in both countries. And if you die owning US property in your own name, your family could face a US estate tax bill of up to 40% of its value.

None of this is a reason to avoid US property. It is a reason to plan before you buy. The structure you choose at the outset, before contracts are signed, decides how much tax you pay for the entire life of the investment.

Who this guide applies to

This page is for you if you are a UK tax resident and you are buying a holiday home or second home in the US, buying US property as a buy-to-let or short-term rental, already own US property and want to check your position, or about to sell and have heard about FIRPTA.

If you are a US citizen or green card holder living in the UK, your position is different and more complex, and you should take advice specific to that status.

The US tax issues

Rental income

The IRS taxes income from US property because the property sits on US soil. By default it applies a flat 30% withholding tax to your gross rent, with no deduction for mortgage interest, repairs, management fees or depreciation.

The remedy is an election under Section 871(d) to treat the rental activity as a US trade or business. You then file a US non-resident return (Form 1040-NR) and pay tax on the net profit at graduated rates, after expenses. For most British landlords this protects far more income than the default 30% charge.

Selling and FIRPTA

When a foreign person sells US real estate, the Foreign Investment in Real Property Tax Act requires the buyer to withhold 15% of the gross sale price and remit it to the IRS. That is 15% of the whole price, not of your profit. If the actual tax on your gain is lower, you can apply to reduce or recover the excess using Form 8288-B, but the application must be filed correctly and in good time.

The ITIN

To file any US return you need an Individual Taxpayer Identification Number, because you will not hold a US Social Security Number. The application is Form W-7. A Certifying Acceptance Agent can certify your passport directly, so you do not have to post your original passport to the IRS.

The state tax issues

US property tax is not only federal. Each state runs its own rules. Florida, the most popular destination for British buyers, has no state income tax, which is a genuine advantage. It still charges county property tax (set by local millage rates) and sales and tourist development tax on short-term and holiday rentals, with registration requirements for vacation lets. A structure that suits a Florida holiday let may need rethinking for a long-term rental in a state that does levy income tax.

The UK tax issues

As a UK resident taxed on the arising basis, you are taxed on your worldwide income and gains. The same US rental profit goes on the foreign pages of your UK Self Assessment return (SA106), and the gain on a future sale is reportable for UK Capital Gains Tax.

You are not taxed in full twice. Under the US-UK double taxation treaty, the US tax you have already paid is credited against your UK liability through foreign tax credit relief. The detail is where money is won or lost: the two tax years do not align, depreciation is treated differently in each country, and the credit has to be claimed in the right order.

The estate tax trap

US real estate is a US-situs asset. If a non-US person dies owning it, the US can charge estate tax on its value above an exemption of just $60,000, at rates rising to 40%. A US citizen enjoys a multi-million dollar exemption. A British owner does not, unless they plan for it.

There is relief. The US-UK estate and gift tax treaty can give a UK-domiciled individual access to a much larger pro-rated exemption, and the right ownership structure can remove the exposure altogether. The relief is not automatic, and the structure has to be in place before the purchase.

A practical example

Take a UK higher-rate taxpayer who buys a $400,000 condo near Orlando and lets it out. On the rental income, the default 30% gross withholding would tax the full rent with no deductions. After the Section 871(d) election and filing Form 1040-NR, the same landlord is taxed only on the net profit, usually a much smaller figure, then reports it in the UK with the US tax credited.

If that owner dies still holding the condo in their own name, US estate tax could apply to roughly $340,000 of value at rates up to 40%. With treaty planning and the right structure, that exposure can be cut sharply or removed.

Ownership routes compared

There is no single right answer. The correct route depends on use, ownership, funding and exit plan, which is why this is a planning decision rather than a default choice.

The most common mistakes

1. Buying in a personal name without considering estate tax. It feels simplest, but it leaves the largest exposure, up to 40% on death.
2. Setting up a US LLC because a forum recommended it. For a UK resident this is one of the most common and expensive errors, because of the HMRC/IRS mismatch.
3. Not making the Section 871(d) election. This leaves rent taxed at 30% gross with no deductions.
4. Discovering FIRPTA at the closing table. By then it is too late to apply for reduced withholding before the cash is held back.
5. Using two unconnected advisers. A UK accountant and a US accountant who never speak will rarely claim the treaty relief correctly.
6. Treating Florida as tax-free. No state income tax does not mean no property tax or no tourist tax on rentals.

Frequently asked questions

This page is general information and not advice. Tax thresholds and rates can change. Take specialist advice before acting.