British investors buying an investment property in the USA UK/UK Tax Treaty Americans moving to the UK IRS Physical Presence and Bona Fide Residence Tests American expats buying property in the UK Americans paying UK tax As UK/US ex-pat tax experts, we know that buying an investment property (house) in the USA can be daunting. This certainly applies to many of our clients looking to buy one or more properties as investments. Many of our clients ask the first and foremost question, ‘Can foreigners buy investment property in the USA?‘ This article seeks to address that question and related topics. Understanding everything you need to know about property investment in the USA is essential before committing time, energy and money into any real estate. The US property investment market bounced back in 2020 much faster than other sectors of the economy. It has sustained growth into 2021 despite the impact of Covid-19. The pandemic has affected every sector, but real estate has remained resilient. Low-interest rates have helped the USA housing market to stay buoyant. The USA’s property market experienced a record-breaking year in 2020, with the average home selling 8.4% more than the previous year. A total of 5.64 million homes were sold in 2020, representing a 5.6% rise from 2019 and the most since before the Great Recession. The US housing market has been struggling to keep up with demand for the last 10 years, with a boom in demand in the middle of the Covid-19 pandemic. Property sales during 2021 in the USA have seen house prices increase by double-digits, with houses selling rapidly in competitive market conditions. There is a tight supply of property on the market. Housing supply will ramp up during 2021, and house rental prices are also expected to rise this year. With housing shortages and fewer people buying property in the USA, we expect to see the demand for rented property grow. British citizens can enjoy the house as a home or a property investment. Understanding the basics of buying foreign property for investment in the US As US/UK expat tax experts, we know that buying property for investment in the US needs to be handled thoroughly and professionally for foreigners. You need to understand the basics of buying property in the USA for British expats. It is important to understand the overall US housing market before investing money. The real estate market in the USA has been exceptionally active throughout the Covid-19 pandemic. Although millions were laid off or furloughed, it didn’t prevent house hunters from buying homes across the USA. As a result, the housing market saw the highest sales growth since the unprecedented housing boom in 2005. The current housing boom has been driven by high demand and record-low mortgage rates in the USA. Both of these factors have been because of the pandemic. The housing market has seen record-breaking growth since June 2020, with prices continuing to grow despite an ongoing economic recession. The USA rental market has seen a surge in demand during 2021. This is a positive sign for foreigners looking for property investment opportunities. This is despite Covid-19 lockdowns and job losses. The IRS has produced a helpful guide for non-resident aliens and real estate investment which is worth reviewing. Can British people buy investment property in the USA? There are no restrictions on British investors buying real estate property in the USA. The United States welcomes British investors buying property in the USA. British people purchasing real estate property in the USA has certain advantages, such as a stable market, flexible financing options and tax benefits. There is no citizenship requirement for property sales in the US. Foreigners can also qualify for a mortgage if they meet specific criteria, which means that non-US citizens can actively seek to invest in property. Is the USA property sector a stable market to invest in? The USA is considered one of the most stable markets for property estate investment, with property experts predicting that house prices will increase by 8% in 2021. What are the key differences foreign investors need to be aware of? When it comes to buying property for investment in the USA, there are some key factors to consider. For a non-US citizen buying property, the IRS Publication 515 sets out basic rules for non-resident aliens. One of the main pieces of relevant legislation in this area, the Foreign Investment in Real Property Tax Act 1980 (FIRPTA), was enacted by Congress to impose taxation on foreigners when they sell or receive income from a USA-based property interest. Income generated by USA-based property owned by a foreign investor is taxed at 30% if not connected with a US trade or business concern. Different USA states have different tax treaties, which might provide a reduced tax rate. Please review the UK/US tax treaty for more details on this subject. When a foreigner sells a US-based property, any capital gain is taxed as if a US citizen or resident had sold the property. This means the gain might qualify for lower capital gains tax treatment as long as the foreign investor has held the property for over 12 months. Non-resident aliens are subject to a 15% withholding tax on the gross sale proceeds of the property. This is unless the foreigner has specific exemptions, which there are many to mitigate the FIRPTA tax. To be certain of understanding all the relevant US tax legislation, speak to an expert before investing. How to buy: Using a realtor to help foreigners buy US property How to buy real estate property in the United States as a foreigner? This is a great question. It is answered by using one key contact, a realtor. You must find a realtor in the United States, irrespective of which state in the US you wish to buy. We can help you find a realtor who will understand your US real estate property requirements and schedule appointments to see the property in person or on a virtual tour. Foreigners buying property may be used to using estate agents. They may have to contact many estate agents to enquire about many properties. This takes up valuable time and effort. a US realtor will look for the right property no matter where it is listed. Once you have identified a property to purchase, you may need finance. We have a great US mortgage broker that helps foreigners /expats find finance in the United States. Selling US real estate property and tax filing to the IRS You will need to submit a 1040 tax return to the IRS if you make rental income from US real estate property. If you leave the United States and move to a foreign country, it is possible that the seller’s attorney will keep a 15% withholding tax on the sale, which is often referred to as FIRPTA.
