For UK citizens living in the United States, selling a former primary residence in the UK can trigger complex tax consequences on both sides of the Atlantic. In this post, we explore what happens when you sell a UK home while resident in the US, including capital gains tax rules, available exclusions, and how the UK-US tax treaty fits in.
US Tax Implications
If you are a US tax resident, you are taxed on your worldwide income. That includes gains from selling foreign property, even if the sale took place in the UK and the home was never used while you lived in the US.
The IRS taxes capital gains on property sales, but you may be eligible for the Section 121 exclusion if the UK property was your principal residence. This exclusion allows you to exclude up to $250,000 of gain if single, or $500,000 if married filing jointly, provided you:
Owned the property for at least two of the last five years, and Used it as your main home for at least two of the last five years.
If you haven’t lived in the UK property since becoming a US resident, you likely won’t qualify for the full exclusion.
Example:
Emma, a UK citizen, moved to the US in 2020. She sells her London home in 2024, which she lived in from 2012 to 2020. While she meets the ownership test, she doesn’t meet the use test within the five-year window, so she won’t qualify for Section 121 exclusion.
In this case, the entire gain is potentially taxable in the US. Capital gains are taxed at 0%, 15%, or 20%, depending on your income level. You may also be subject to the 3.8% Net Investment Income Tax (NIIT).
UK Tax Implications
As a non-resident, you may still owe UK Capital Gains Tax (CGT) on the sale of UK residential property.
As of 6 April 2015, non-residents must report and may owe UK CGT on gains attributable to the rise in value since that date. You can choose to calculate the gain based on the property’s value as of April 2015, or use a time-apportioned basis or the entire gain, whichever is most beneficial.
You must report the sale to HMRC within 60 days, even if no tax is due.
Main Residence Relief (PRR)
You may qualify for Private Residence Relief (PRR) if you used the home as your main residence. But as a non-resident, relief is only available for periods when you were physically present in the property, or under limited deemed occupation rules.
Can You Be Taxed Twice?
Yes, but relief may be available. The UK-US tax treaty does not exempt this type of gain entirely in either country. However, it does provide for foreign tax credits, which may help mitigate double taxation.
If you pay UK CGT, you may be able to claim a foreign tax credit against your US tax liability. But note: differences in how and when gains are calculated can lead to mismatches, and timing differences may prevent a perfect credit.
Key Considerations
Section 121 may not apply if you’ve lived in the US for a while. You must report the sale to both HMRC and the IRS. UK CGT may be limited to post-April 2015 gains. Claiming foreign tax credits correctly is essential.
Final Thoughts
Selling a UK home as a US tax resident involves more than just the exchange rate. Overlooking either country’s tax rules or reporting obligations can lead to penalties or double taxation.
The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.
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