Source: Mansion Global
In an interview with Mansion Global, Private Wealth practice co-leader and partner Michael Kosnitzky says that if a citizen in the U.S. recognizes income from abroad, such as from foreign real estate rentals, the net rental income is subject to being taxed both in the United States and the UK. A U.S./UK tax treaty prevents U.S. residents from paying taxes twice, and also allows them to claim a foreign tax credit against their U.S. income taxes for income taxes paid in the UK.
“You have to structure things properly in order to make sure that you can take advantage of the foreign tax credit for taxes in the UK, so that you don’t double pay,” he says.
According to Mansion Global, corporations in the UK are subject to a lower tax rate than individuals, therefore many high net worth U.S. real estate investors acquire these UK properties through entities including foreign LLCs. Additionally, Kosnitzky says another potential tax trap is that paying off a mortgage is treated as a foreign currency transaction and subject to U.S. taxation. “That’s usually another little quirk,” he says.
While the UK’s “progressive” stamp duty land tax is a specific inconvenience for U.S. residents, Kosnitzky says, “It’s not based upon income, so you don’t get a foreign tax credit for that.”