Understanding US property taxes for UK buyers
Samuel Birnie July 25th 2024 - 5 minute read

When buying property in the US, it’s vital that you understand the tax implications.
You’ll need to factor in taxes for your initial budget and to decide whether purchasing American real estate is affordable in the long run. It could also impact your income or return on investment if you’re letting out or investing in US property.
Overall, you can expect to pay anywhere from 0% to 4% of the property price in tax when buying a property, up to 2.5% in annual property tax, and income tax starting at 10% if you rent it out.
In this article we break down the key property-related taxes you need to be aware of as a UK buyer of US property.
Initial tax considerations to be aware of
Before we take a look at the particular taxes that could apply to your property purchase, it’s important to be aware of some initial considerations.
The UK-USA tax treaty: what it means for British buyers of US property
The UK and the USA have a double taxation agreement to make sure that you don’t end up paying twice the tax you’re supposed to.
For those buying US property, the key impact will be on rental income, or if you eventually decide to sell the property.
The treaty typically allows for tax credits, ensuring you don’t pay more than the higher of the two countries’ tax rates. For instance, if you pay income tax in the US even though you’re a UK citizen, you’ll then get credits against any UK income tax due.
Reporting requirements in the UK and the USA
You’ll need to report any property income or gains to the IRS in the USA and potentially to HMRC in the UK, if you’re a UK resident.
Any tax payable in the US on income or capital gains will need to be reported on a US tax return (Form 1040-NR). If you’re a British resident, you’ll also need to report income on your tax Self Assessment using the SA106 form.
It’s also worth noting that the UK and US tax years differ. A UK tax year runs from 6 April to the following 5 April, while a US tax year runs from 1 January to 31 December.
Navigating international tax laws can be complicated, so you may choose to work with an expert advisor.
With those considerations covered, it’s time to look at the actual taxes.
Taxes related to buying American real estate
Property transfer taxes
The main taxes when buying US property are property transfer taxes, which are levied by local and state governments.
How much is US property transfer tax?
The transfer tax rates can vary significantly, from 0% to 4%. Some states impose a flat fee, others calculate the tax based on a percentage of the property’s sale price, and some don’t charge a transfer tax at all.
Missouri, Kansas and Texas do not charge transfer taxes. Meanwhile, Delaware has the highest transfer tax, reaching up to 4% of the property sale price.
The rate can vary within a state, too. In New York, transfer taxes can range from 0.4% to 2.9%, depending on factors such as property value and location.
Who pays property transfer tax in the US?
The responsibility for who pays these taxes also varies hugely across the US – it could be the buyer, the seller, or both parties.
There are often local customs in some states whereby the seller pays the state transfer tax and the buyer pays the city transfer tax. You’ll need to negotiate and decide who pays what as part of the sale agreement.
Local government recording fees
Although strictly not a tax, you’ll also have to pay a fee to have the real estate transaction recorded by the local government.
This fee is typically low, around $10 to $50. However, in rare cases complex transactions could attract fees anywhere from $200 to $1000.
Ongoing US taxes to factor in once you own a property
It’s important you understand the ongoing tax implications of owning a US property so you can budget for the long term.
Property taxes
You’ll need to pay a regular property tax based on the value of your property. This can range anywhere from around 0.3% to 2.5%, as tax rates vary by county and state.
Property taxes are usually paid annually or semi-annually, although some areas offer the option to pay quarterly.
Tax on US rental income
Any rental income from a property is subject to federal income tax, and you’ll need to report it on your US tax return.
Just like in the UK, US income is taxed in brackets, with the tax rate starting at 10% on earnings up to $11,000 and rising to 37% on earnings over $578,126. You can also deduct some expenses from your income, such as mortgage interest and operating costs.
You may also need to pay a state income tax, although this varies widely across the country. Many states don’t charge income tax, while others can levy up to around 10% to 13% on top of the federal tax.
Taxes around selling your US property
Selling your US property also comes with crucial tax considerations that you need to be aware of, whether you’re only just considering US real estate ownership or you’re ready to put your American property on the market.
Capital gains tax on American real estate
When you sell your US property, you may be liable for capital gains tax. In the US, there are two types: short-term capital gains and long-term capital gains.
If you’ve owned the property for one year or less, your short-term gains are taxed at income tax rates, along with the rest of your taxable US income.
Long-term capital gains are taxed at lower rates than short-term gains, with rates of 0%, 15%, or 20%, depending on the seller’s taxable income.
Here are the tax rate thresholds for 2024:
- 0% rate: For individuals with taxable income up to $47,025 ($94,050 for married couples filing jointly).
- 15% rate: For individuals with taxable income between $47,026 and $518,900 ($94,051 and $583,750 for married couples filing jointly).
- 20% rate: For individuals with taxable income above $518,900 ($583,750 for married couples filing jointly).
Foreign Investment in Real Property Tax Act (FIRPTA)
A key consideration when selling your US property is the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, the buyer of your property will send part of the sale price (typically 15%) to the IRS.
This withholding will go towards any federal capital gains tax you owe from the sale of the property.
Once the IRS has calculated your actual tax liability, you’ll be able to claim back any money if the amount withheld was more than you owed in tax.
For instance, if you bought a US property for $500,000 and sold it two years later for $600,000, then $90,000 (15% of $600,000) would be withheld under FIRPTA.
Because you sold the property for $100,000 more than you bought it for, your long-term capital gain would be $100,000.
This puts you in the 15% threshold, so you would owe $15,000 (15% of $100,000) in tax. Therefore, your FIRPTA refund should be $75,000 ($90,000 withholding minus $15,000 in tax).
Seeking expert help when dealing with US property tax
International property taxes can be complicated, especially in the US where the rules vary significantly from state to state.
It may be best to hire a financial advisor, or a similar expert, who has experience with international buyers of US real estate. They can help you navigate the complexities and ensure you’re complying with tax law.
Similarly, talk to us about claiming back your FIRPTA withholding once your tax liabilities are deducted. Rather than struggling to find somewhere to cash a US dollar cheque, you could have the money directly deposited into your Currencies Direct account and then exchange it back into pounds when the exchange rate is strong.
We can also help you save time and money when transferring funds from the UK to the US, whether this is a large amount to pay for your initial down payment or regular transfers for property tax or to repatriate rental income.
If you want to find out more, you can get in touch with us directly or create an account. It’s fast and free to open a Currencies Direct account, and you’ll get access to a dedicated account manager who can give you tailored guidance and expert support.
You can also take a look at our ultimate guide to buying property in the USA, which covers everything you need to know about purchasing American real estate.
Written by
Samuel Birnie