Owning US property from Britain: FIRPTA, withholding and the non-resident return

Figures relate to tax year 2025-26 (UK) / 2025 (US)

Selling a Florida villa from Britain can see 15% of the price withheld before you receive a penny. Letting it can see 30% of every rent cheque disappear first. Both rules exist because the owner lives abroad, not because of any tax actually owed.

Owning US property from Britain works well once those rules are handled. So this guide covers FIRPTA on a sale, withholding on rent, the non-resident return, and the estate tax exposure most British owners never hear about.

Key takeaways

• Rent paid to a foreign owner faces 30% withholding on the gross amount by default.
• An election to treat rent as business income lets you pay tax on net profit instead.
• You file a US non-resident return each year once the election is in place.
• Buyers withhold 15% of the sale price under FIRPTA when you sell.
• Britain taxes the same income and gains, with credit for the US tax.

What does FIRPTA take when you sell?

When a foreign person sells US property, the buyer must generally withhold 15% of the gross sale price. According to the IRS guidance on FIRPTA withholding (opens in a new tab), that applies whatever your actual gain, and the buyer sends the money to the IRS.

The withholding is a prepayment, not the final tax. You file a non-resident return for the year of sale, report the real gain, and reclaim any excess. On a $500,000 sale that means $75,000 held back while the paperwork catches up.

You can apply in advance to reduce the withholding to your expected tax. The application takes time, so it belongs in the plan months before completion, not in the final week.

What is the default tax on US property rent?

The default is a flat 30% of the gross rent, withheld by the tenant or property manager before you see the money. No deductions apply. Mortgage interest, repairs, management fees and depreciation all count for nothing under this treatment.

On a property earning $30,000 a year, that means $9,000 gone, even if the property makes a loss after costs. For most landlords the default is simply the wrong answer, and it applies until you choose otherwise.

The default rule taxes your rent. The election taxes your profit. Only one of those resembles what you actually earned.

How does the net election work?

You elect to treat the rental as income connected with a US trade or business. That lets you deduct your expenses and pay tax on the net figure at graduated rates. Per the IRS guidance on Form W-8ECI (opens in a new tab), you give that form to your tenant or manager so they stop withholding.

The election binds future years too, and it comes with a filing duty. You file a US non-resident return each year, reporting the income and claiming the deductions. Depreciation usually turns a modest profit into little or no taxable income.

Missing the return has a real cost. A foreign owner who files late can lose the right to deductions altogether, which quietly restores the gross-basis result the election was meant to avoid.

Should you own it personally or through a company?

It depends on your plans and your estate. Personal ownership of US property keeps the annual filings simple and gives access to lower US rates on long-term gains. A structure can reduce estate tax exposure, but it adds cost and filings in both countries.

A US limited liability company is the most common choice, and the most misunderstood. America often ignores it for income tax, while Britain treats it as a company. That mismatch can deny credit for the US tax in the UK, producing double tax on the same rent.

UK companies and trusts bring different trade-offs again. Take advice before buying, because moving a property into a structure later usually counts as a sale.

What about US estate tax?

This is the risk most British owners never hear about. US property counts as an American asset for estate tax, and a non-resident who is not a citizen receives only a $60,000 exemption. Above that, estate tax can apply on death. A mortgage can reduce the taxable value in some cases, which is another reason to review the position properly.

The US UK estate tax treaty often reduces the exposure, and ownership structure can change the answer again. Our guide to US UK inheritance tax explains how the two systems interact, and why ownership deserves thought before you buy.

Holiday homes you use yourself

A property you only use for holidays produces no rent, so the withholding rules never start. The US tax question then arrives on sale, through FIRPTA and the gain.

Occasional letting changes that. Once rent flows, even for a few weeks a year, the foreign-owner rules apply to that income, and expenses must be split between personal and rental use.

Many British owners of US property start as holiday users and drift into letting. Keep a record of the switch, because it affects both the deductions and the eventual gain.

Do states tax foreign landlords too?

Many do. Most states tax rental income from property within their borders, whatever the owner's residence. Florida and Texas charge no personal income tax, which is one reason they appeal to British buyers, but others charge rates that matter. Where a state return is due, it usually follows the federal figures with its own adjustments, so the federal return comes first.

Some states also run their own withholding on sales by non-residents. Our guide to US state tax for expats explains how state rules work alongside the federal system.

How do you set up US property properly?

Most of the cost in this area comes from setup mistakes in the first year. These steps, taken in order, avoid the common ones and keep both tax systems aligned from the start:

1. Apply for a US taxpayer identification number if you do not already hold one.
2. Give Form W-8ECI to your tenant or property manager before rent flows.
3. Keep US-style records of expenses and depreciation from day one.
4. File the US non-resident return every year, even at a loss.
5. Report the same property on your UK return under British rules.
6. Check whether the state where the property sits wants its own return.
7. Plan any sale early enough to apply for reduced FIRPTA withholding.

A worked example

Take an illustrative example. A couple in Surrey own an Orlando rental, earning $36,000 a year. Mortgage interest, management and repairs cost $22,000, and depreciation adds another $9,000.

Without the election, the manager withholds $10,800. With it, their US taxable profit is $5,000, producing a small bill. They file a non-resident return each year and claim credit for that tax on their UK return.

When they later sell for $450,000, the buyer withholds $67,500. Their real US tax on the gain is far lower, so they reclaim most of it after filing. Applying in advance would have kept that money in their hands. They also report the sterling gain to HMRC, which came out higher than the dollar gain because the pound weakened while they owned the flat.

How does Britain tax the same property?

As a UK resident you pay British tax on worldwide income and gains. The rental profit goes on your Self Assessment return, calculated under UK rules, and any gain on sale meets UK capital gains tax. Per the GOV.UK guidance on foreign income (opens in a new tab), you claim credit for the US tax on the same income.

The two calculations rarely match. Britain does not allow the same depreciation, and it works in sterling rather than dollars. So your UK profit and your US profit can differ widely for the same year.

Currency matters on the sale. HMRC measures the gain in pounds, using exchange rates at purchase and sale. A property that barely moved in dollars can show a large sterling gain if the pound weakened while you owned it.

Records that make both returns simple

Keep every invoice for repairs, management and insurance, plus the closing statement from your purchase. The closing statement fixes your cost basis for both countries. Scan them as you go, so nothing is lost between tax years.

Record improvements separately from repairs. Improvements add to the cost of the property, while repairs reduce the annual profit, and the distinction matters on both returns.

Keep exchange rates too. HMRC needs sterling figures for every transaction, so a spreadsheet with the date, dollar amount and rate saves hours at year end.

Mistakes and traps with US property

Nearly all of these happen because the property looks like an ordinary rental. The foreign-owner rules sit underneath and only surface later:

• Letting a manager withhold 30% of gross rent for years.
• Making the election but never filing the annual return.
• Leaving FIRPTA planning until the week of completion.
• Using US profit figures on the UK return instead of British rules.
• Ignoring the sterling gain when the pound moved during ownership.
• Overlooking US estate tax exposure on death.

Buying through a company or a trust changes several of these answers, sometimes for the better. That decision belongs before purchase, because unwinding a structure later usually triggers tax of its own.

How US UK Tax Accountants helps

We set up the election, file the non-resident return each year, and prepare the matching UK figures. Our property and capital gains service covers rentals, sales and FIRPTA planning, and our non-resident return service handles the annual US filing.

In our practice the largest savings come before the first rent payment and before the sale. We agree a fixed fee in writing before any work starts.

Plan before you buy or sell

If you own US property, or plan to buy or sell one, a short review sets up both countries correctly. Tell us where the property sits and how you hold it. You can book a consultation and hear back within one working day.

Last reviewed 14 September 2026 by the US UK Tax Accountants Tax Team. This article is general information, not personal tax advice — speak to a qualified US/UK tax adviser about your own position.

For the neighbouring question, Airbnb and holiday lets in Britain: what American hosts owe on both sides walks through it in detail.