U.S. TAX GUIDE IN THE UK
Are you subject to US taxes when selling a home in the UK?
Yes, US citizens and Green Card holders must report the sale of their principal UK residence on their US tax return. While the UK may not tax the sale, it could be subject to US capital gains tax if the gains exceed the exclusion amount.
What is the Ownership and Use test?
To exclude up to $250,000 ($500,000 if married filing jointly) of the capital gain, you must have owned and lived in the home as your principal residence for at least two of the last five years.
Is there an exclusion for rental property sales?
No, the exclusion doesn’t apply to rental properties. Any profit from the sale is fully taxable, and you must also account for depreciation recapture taxes on previously claimed deductions.
What if you’re married to a non-US person?
You can file as married filing jointly by obtaining an Individual Taxpayer Identification Number (ITIN) for your spouse. If both meet the ownership and use test, you can exclude up to $500,000 of the gain.
How do you report the sale on your US tax return?
Report the sale on Schedule D of Form 1040 for the tax year the sale occurred. Provide details such as:
- Purchase and sale dates
- Purchase and sale prices
- Capital losses from improvements or related fees
Can you deduct capital gains from the sale?
Yes, you can deduct costs such as:
- Improvements: Significant upgrades that increase the home’s value.
- Selling Expenses: Commissions, legal fees, etc.
Does the exclusion change for a US citizen or Green Card Holder spouse?
If married to another US citizen or Green Card holder, the exclusion doubles to $500,000.
Can your spouse meet ownership requirements without being on the mortgage?
Yes, as long as their name is on the title deeds.
Are self-employed Americans in the UK subject to US tax?
Generally, they don’t owe US tax due to tax treaties and credits, but some income like tax-free dividends in the UK might be taxable in the US.
How are capital gains on stocks and shares reported?
Report all capital gains from stocks or shares on your US tax return. If living in the UK, you can claim a US foreign tax credit for taxes paid on these gains.
Can you claim foreign tax credits for UK taxes on capital gains?
Yes, but you may need to amend your US return due to different tax years.
How are dividends reported on a US tax return?
Dividends received in the UK are subject to US tax. The UK offers a capital gains tax allowance before tax is payable, but any excess is taxed in the US.
How are UK dividends taxed by the IRS?
UK dividends receive preferential US tax rates due to the tax treaty, generally taxed at 0-20%.
How are dividends for self-employed Americans taxed?
The first £12,300 is tax-free in the UK, but additional dividends are taxed at 7.5%. US taxes might still apply, especially after claiming foreign tax credits.
