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CGT Liability for US Rental Property Disposal

HMRC SA reporting for US property disposal where IRS Witholding Tax refund in different tax year

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H & W (UK residents) disposed of US vacation home during 20/21 tax year. IRS withheld 15% of selling price and due to Covid have yet to determine the final tax situation but determination is imminent and a refund will be due.  How should the couple's Self Assessment for 20/21 be completed - should it include:

a) the full selling price (less selling expenses) which may result in a CGT loss; or

b) the net price received (which is less the Witholding Tax) and treat the Witholding Tax refund when its received in the 21/22 tax year. The difference will also impact the exchange rates as they will have changed +/- 10% between the 2 dates. 

Is there an expert out there who could advise? Thanks in advance 

Replies (3)

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By Wanderer
23rd Jun 2021 11:55

First you MUST reperform the CGT calculations using UK rules.
Make sure you do the exchange rate conversion of the costs of purchase & sale proceeds at the time of each transaction. Sometimes this results in a US loss turning into a UK profit and this point is often overlooked.
Regarding the tax credit look up the DTA and you'll probably find it's only the Federal Taxes that qualify for a tax credit. Only claim a credit on the net tax ultimately paid. Think I'd just use the exchange rate at the date paid. If neccessary estimate the tax ultimately paid and revise later. Can't see 2021/2022 comes into it.

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By David Ex
23rd Jun 2021 11:57

If the WHT is going to be repaid, I would have thought you account for the gross proceeds.

Is the a loss for US tax purposes?

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By David Treitel
24th Jun 2021 09:07

The US FIRPTA withholding tax has no relevance here. The clients will each file a US non-resident tax return, Form 1040-NR. The UK will only allow relief for any US tax due on any doubly taxed gain. Assuming the disposal was in 2021, the clients will apply for ITINs at this stage, and file Forms 1040-NR early in 2022. If - alternatively - the disposal was in 2020, the clients will hopefully already filed Forms 1040-NR for 2020. The US has a self-assessment system. The tax will have been calculated on the US returns. No waiting is required to know the outcome.

In the UK any gain or loss is calculated using spot exchange rates for the purchase and the sale. Is there a gain at all when the gain is calculated in pounds?

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