Do I pay UK capital gains tax if I sell shares in a company that owns UK property?

Yes, potentially. Since 6 April 2019 non-residents are within UK capital gains tax on indirect disposals where the entity is UK property-rich, meaning at least 75% of its gross asset value derives from UK land, and you hold or held a 25% or greater investment at some point in the two years before the sale. Related-party holdings are aggregated. A trading exemption can apply to genuine operating businesses.

What is the 60 day rule for reporting UK property disposals?

Non-residents must file a UK property return with HMRC within 60 days of completion on disposals of UK land and on indirect disposals of property-rich entities. The return is required even if there is no tax to pay or the disposal produces a loss. Tax is usually payable at the same time. File through HMRC's online UK Property Account, which requires a Government Gateway identity.

How is the gain calculated for non-resident CGT on an indirect disposal?

The default is rebasing: you are treated as acquiring your interest at its market value on 5 April 2019, so only value growth after that date is taxed. You can instead elect to use your actual original cost across the whole holding period, which sometimes produces a loss. Older residential holdings use 5 April 2015 instead. Obtain a professional valuation to support whichever basis you use.

Can I claim a US foreign tax credit for UK tax on a property-rich company sale?

Usually yes, but only via the treaty. Gain on stock is normally US source under the general sourcing rule, which would block a credit. The US-UK treaty gains article lets the UK tax gains from interests deriving their value mainly from UK immovable property, and the relief article re-sources that income as foreign. Report it in the separate treaty re-sourced category on Form 1116 and disclose on Form 8833.

Does the net investment income tax apply to UK property gains?

Yes. The 3.8% net investment income tax applies to capital gains once your modified adjusted gross income exceeds the statutory threshold, and UK tax paid cannot be credited against it. That makes the NIIT an unavoidable additional cost on a UK property-rich disposal. Build it into your net proceeds model from the start rather than discovering it when the US return is prepared.

Is an offshore company holding UK rental property a PFIC?

Often, yes. Rental income that is not derived from an active business is passive, so a non-US company holding UK let property commonly meets the PFIC income or asset test. Without a timely qualified electing fund or mark-to-market election, gain on sale falls into the excess distribution regime, taxed at top ordinary rates with an interest charge. Determine PFIC status before investing and file Form 8621.

Non-Resident Capital Gains Tax on UK Property-Rich Cos

If you are a US person selling shares in a company whose value comes mainly from UK land, the United Kingdom can tax your gain even though you have never lived there. Since 6 April 2019 the UK's **non-resident capital gains tax** rules reach beyond direct sales of buildings and land and catch indirect disposals: sales of interests in "property-rich" entities, broadly those deriving 75% or more of their gross asset value from UK land, where you hold or have recently held a 25% or greater investment. The gain is computed by reference to a rebased value rather than your original cost in most cases, it must be reported to HMRC on a UK property return within 60 days of completion, and the same economic gain is separately taxable in the United States. Whether the UK tax you pay actually shelters the US tax depends on sourcing, treaty re-sourcing under the gains article, and which foreign tax credit basket the income lands in. Those three points are where most cross-border planning succeeds or fails.

What exactly is a "UK property-rich" company?

An entity is property-rich when, at the time of disposal, at least 75% of the total market value of its qualifying assets derives directly or indirectly from UK land. The test looks at gross asset value. Debt is ignored. A company with a single London office block worth £100m and a £90m mortgage is still property-rich, because the mortgage does not reduce the numerator or the denominator.

The test also looks through structures. You cannot avoid it by holding the property two or three companies down, or by inserting a partnership, unit trust or non-UK holding vehicle. HMRC traces value to the underlying UK land.

The measurement date is the date of disposal, not an average over the holding period, so the ratio can move in and out of the 75% threshold over time.
Cash held in the structure counts in the denominator, which is why a company sitting on large sale proceeds may temporarily fall below 75%.
Assets held for the purposes of a trade may be excluded from the calculation in defined circumstances, so a mixed trading and property group needs a careful line-by-line valuation.
Overseas land and non-land assets dilute the ratio; UK land held indirectly does not.

How does the 25% interest test work?

Being property-rich is not enough on its own. You are only within the charge if you hold, or have held at some point in the two years ending with the disposal, an investment of at least 25% in the entity. The look-back period stops investors from selling down to 24% shortly before a sale and claiming to be outside the rules.

Interests held by related parties are aggregated with yours. Family members, connected companies, partnerships and certain trusts are pulled together, so a widely held club deal in which each US family office holds 10% can still be caught if the families are connected or acting as a group in the relevant sense. Do not assume a small individual stake means no exposure until you have mapped the related-party group.

The 25% measure is of the investment in the entity, taking account of rights to profits, assets on a winding up and voting power, not simply the percentage of ordinary shares.
Options, convertible instruments and shareholder loans with equity-like rights need to be reviewed rather than ignored.
Holding above 25% for only a short window inside the two-year period is sufficient to bring the later disposal into charge.
A disposal of part of a holding is caught, not only a complete exit.

What changed in April 2015 and April 2019?

Before April 2015 non-residents were largely outside UK capital gains tax on UK real estate. Three waves of change closed that door.

From 6 April 2015 non-residents became chargeable on disposals of UK residential property, with the default position that gains are measured from the property's market value on 5 April 2015.
From 6 April 2019 the charge was extended to all UK land, including commercial and mixed-use property, with a default rebasing to market value on 5 April 2019.
From the same date indirect disposals of interests in UK property-rich entities came into charge for the first time, again with April 2019 as the reference point.
The old ATED-related CGT charge was withdrawn as part of the 2019 reforms, so the mainstream rules now do the work.

The practical effect is that value built up in a UK property structure before the relevant date is generally outside the UK net, and value built up afterwards is inside it. That single fact drives most of the computational work on a sale.

How do the rebasing options work on an indirect disposal?

For an indirect disposal of a property-rich entity, the default is that you are treated as having acquired your interest at its market value on 5 April 2019. Only the post-April 2019 movement in the value of the shares or interest is taxed. That requires a defensible valuation of the entity's shares at that date, which for a private structure means a professional valuation rather than a back-of-envelope net asset calculation.

Default rebasing: market value of your interest at 5 April 2019, with the pre-2019 gain falling out of charge.
Election to use original cost: you can elect to compute the gain by reference to actual acquisition cost over the whole holding period.
For direct disposals of non-residential UK land, a straight-line time apportionment of the whole gain is also available by election.
For pre-April 2015 residential property, the equivalent choices run from the 5 April 2015 value, with time apportionment or actual cost as elective alternatives.

When would you elect away from rebasing?

Rebasing is not always favourable. If the interest was acquired near the top of a cycle and had fallen in value by the rebasing date, default rebasing can convert a genuine economic loss into a taxable gain. Electing for actual cost can produce an allowable loss instead. The election is irrevocable and, importantly, can crystallise a loss that becomes usable against other UK gains. Model both bases before you file. Once the return is submitted the choice is difficult to unwind.

How does the trading exemption work?

Indirect disposals are exempt where the UK land held by the entity is used in a qualifying trade. This is aimed at operating businesses that happen to own their premises: hotels, care homes, retail chains, logistics operators and similar. It is not available to property investment or letting businesses, which is where most US investor structures sit.

All or substantially all of the UK land must be used in a trade carried on commercially and with a view to profit.
The trade must generally have been carried on for at least a year before the disposal.
It must be reasonable to conclude that the trade will continue for at least a year after the disposal.
The exemption applies to indirect disposals only. A direct sale of the land itself is not sheltered by it.
Property development and property letting are not treated as qualifying uses for this purpose.

Do funds and collective investment vehicles have special rules?

Yes. A separate regime governs collective investment vehicles, including offshore funds, REIT-like structures and joint ventures with institutional investors. It contains elective transparency and exemption regimes designed so that tax-exempt investors, such as pension funds and sovereign investors, are not disadvantaged by an extra layer of tax inside the fund. These elections have strict conditions, deadlines and information-reporting obligations, and once made they bind the vehicle and its investors. If you are investing through a fund, ask the manager in writing which elections have been made before you buy, not when you sell.

What is the 60-day UK property return deadline?

Non-residents must report disposals of UK land and indirect disposals of property-rich entities to HMRC on a UK property return, generally within 60 days of the date of completion. The obligation applies even if no tax is due and even if the disposal produces a loss. This catches people out constantly, because in most other jurisdictions a nil liability means no filing.

The return is filed through HMRC's online UK Property Account, which requires a Government Gateway identity that can take time to obtain from overseas.
Tax is normally payable at the same time as the return is filed, so funds must be reserved at completion rather than at the end of the tax year.
If you are already within UK Self Assessment, different payment timing can apply. Check the current position on GOV.UK before assuming a deferral.
Late filing penalties accrue on a fixed and then escalating basis, with interest on late paid tax.
A UK Self Assessment return may also be required for the same tax year, with the property return figures carried through.

How is the UK tax on the gain calculated?

The chargeable gain is the disposal proceeds less the rebased or elected base cost, less incidental costs of acquisition and disposal such as legal and broker fees. Individuals then apply the annual exempt amount, to the extent available, and pay at the capital gains tax rates in force for the tax year. Both the annual exempt amount and the rates have moved more than once in recent years, so take the current figures from GOV.UK rather than from an older article. Losses on other UK land or property-rich interests can generally be offset, but as a non-resident your ability to use those losses is confined to UK chargeable gains.

What if the investor is a company rather than an individual?

Non-resident companies holding UK property are within UK corporation tax on their property gains rather than capital gains tax, and are also within corporation tax on UK rental profits. That brings the corporate interest restriction, loss restriction rules and anti-hybrid rules into play, and it changes the filing mechanics. A US LLC that is treated as a corporation for UK purposes but as a partnership or disregarded entity for US purposes creates a classic entity classification mismatch that can strand foreign tax credits at the wrong level.

How does the United States tax the same gain?

A US citizen, green card holder or resident is taxed on worldwide income, so the gain on the shares is reportable on Form 1040 regardless of where the company or the land sits. If the interest has been held for more than a year the long-term capital gain rates generally apply. The starting point is that the US computes its own gain from your actual US dollar cost basis. There is no US equivalent of the April 2019 rebasing. The UK and US gains will therefore almost never be the same number.

Why does the source rule create a foreign tax credit problem?

Under the general US sourcing rule for sales of personal property, gain on the sale of stock is sourced by reference to the residence of the seller. For a US resident that means the gain is US source. Foreign tax credits can only offset US tax on foreign source income. So without further relief you would pay UK tax on the disposal and have no US credit to claim against it, producing genuine double taxation on the same economic gain.

How does Article 13 of the US-UK treaty help?

Article 13 of the US-UK income tax treaty deals with gains. It preserves the right of the country where immovable property is situated to tax gains from that property, and it extends that right to gains from the alienation of shares and comparable interests deriving their value, or the greater part of their value, from immovable property in that country. The UK's 2019 indirect disposal rules were designed to fit within this. The relief valve is the treaty's double taxation relief article, which allows income that the UK may tax under the treaty to be treated as foreign source for US credit purposes. This is what converts an otherwise uncreditable UK tax into a usable credit.

Which foreign tax credit basket does the gain fall into?

Income re-sourced by treaty does not sit in the ordinary passive or general baskets. Form 1116 provides a separate limitation category for certain income re-sourced by treaty, and a separate limitation applies for each treaty country. That isolation is deliberate and it has consequences.

Credits in the treaty re-sourced basket cannot be blended with excess credits sitting in your passive or general baskets.
A separate Form 1116 is required for the re-sourced category, in addition to any other categories you report.
Taking a treaty-based return position generally requires disclosure on Form 8833, and failing to file it carries its own penalty.
Unused credits carry back one year and forward ten years, but only within the same limitation category.
Because the UK gain is measured from a rebased cost and the US gain from actual cost, the UK tax can easily exceed the US tax on the same transaction, leaving an excess credit that expires unused.

Does the net investment income tax apply?

Yes. Gain on the sale of shares is net investment income, and the 3.8% net investment income tax applies where your modified adjusted gross income exceeds the statutory threshold. The critical point is that foreign tax credits are not allowed against this tax. UK tax paid on the disposal does not reduce it. For a large disposal this is a real and unavoidable cost that should be built into the net proceeds model from the outset.

How do timing mismatches destroy credits?

The UK tax year ends on 5 April. The US tax year for individuals ends on 31 December. A completion in, say, February creates a UK liability payable within 60 days but reported in a UK tax year straddling two US years. Credits must be matched to the US year in which the income is recognised, not the year the tax happens to be paid.

Consider the election to claim foreign tax credits on the accrual basis, which aligns the credit with the year the foreign tax relates to. The election is generally binding for later years.
A foreign tax refund or subsequent HMRC adjustment can require a redetermination and an amended US return.
Instalment or earn-out consideration is often taxed on different timetables in each country, so the credit and the income can fall in different years.
Where the UK gain crystallises on exchange of contracts rather than completion, confirm which date drives each country's recognition.

What if the company is a PFIC?

An offshore company holding UK rental property will often meet the passive foreign investment company income or asset tests, because rents that are not derived from an active business are passive. If the entity is a PFIC and no qualified electing fund or mark-to-market election was made in the first year of ownership, gain on sale is taxed under the punitive excess distribution regime: allocation across the holding period, tax at the highest ordinary rates for prior years, and an interest charge. That regime can consume a very large share of the gain, and it does not deliver capital gain treatment. Form 8621 reporting is required. Check PFIC status before you invest, not before you sell.

What if the structure is a controlled foreign corporation?

Where US shareholders control the entity, the CFC rules displace PFIC treatment for those shareholders and bring subpart F and global intangible low-taxed income into the picture. On sale, gain on the stock of a CFC can be recharacterised as a dividend to the extent of accumulated earnings and profits attributable to the shares. That recharacterisation changes both the US rate and the credit position. Earnings and profits must be tracked in US dollars from the beginning, which is a discipline many privately held structures neglect until a sale is imminent.

Does a check-the-box election help or hurt?

Electing on Form 8832 to treat the offshore holding company as transparent for US purposes can eliminate PFIC exposure and align US and UK treatment of the underlying property income. But it also means the US sees a sale of the underlying real estate where the UK sees a share sale. That can be helpful, because gain on real property situated in the UK is foreign source for US purposes without needing treaty re-sourcing. It can also be harmful, because the election itself is a deemed liquidation with its own consequences, and because the UK still treats the entity as opaque. Model the entity classification decision at acquisition. Retrofitting it around a sale rarely works cleanly.

How does currency affect the numbers?

The UK computes the gain in sterling. The US computes it in US dollars using the exchange rates applicable to acquisition and disposal. A sterling gain can become a dollar loss, or a modest sterling gain can become a large dollar gain, purely on currency movement. Separately, repayment of a foreign currency mortgage can generate a distinct US exchange gain under the foreign currency rules, taxed as ordinary income with no UK counterpart and therefore with no UK tax to credit against it. This is one of the most frequently missed items in a de-enveloping or refinancing.

What are the most common mistakes?

Assuming that because the entity is offshore and the seller is offshore, the UK has no interest in the transaction.
Missing the 60-day UK property return because no UK tax was ultimately payable, and collecting penalties for a nil return.
Testing the 25% threshold only at the disposal date and ignoring the two-year look-back and related-party aggregation.
Failing to obtain a contemporaneous 5 April 2019 valuation and trying to reconstruct one years later from incomplete records.
Treating rebasing as automatically beneficial without modelling the actual-cost election, particularly where value fell after acquisition.
Claiming the trading exemption for a letting or development business that does not qualify.
Omitting Form 8833 disclosure when relying on the treaty to re-source the gain.
Assuming UK tax paid shelters the net investment income tax. It does not.
Ignoring PFIC status until the year of sale, by which point the beneficial elections are unavailable.
Netting UK tax against US tax in the wrong year because the two tax years do not align.
Forgetting that a non-resident's UK capital losses are ring-fenced to UK gains.
Overlooking Stamp Duty Land Tax and UK reporting consequences when de-enveloping a property out of a company before sale.

What documentation and records should you keep?

A dated, professionally prepared valuation of your interest at 5 April 2019, and at 5 April 2015 for older residential holdings, with the underlying property valuations that support it.
Original acquisition documents: share purchase agreements, subscription documents, completion statements and evidence of funds paid, in both sterling and US dollars at the historic rate.
A continuous share register and cap table showing your percentage interest across the full two-year look-back and beyond, including related-party holdings.
Asset registers and balance sheets sufficient to evidence the 75% gross asset value test at the disposal date, on a look-through basis.
Trading records if you intend to rely on the trading exemption, including evidence the trade ran for the required period before and was expected to continue after.
Copies of any collective investment vehicle elections made by a fund in which you invest, obtained from the manager in writing.
Filed UK property returns, HMRC payment receipts and correspondence, which support the US credit claim.
Foreign tax credit workpapers reconciling the sterling UK gain to the US dollar gain, with the exchange rates used and their source.
Loan agreements, drawdown and repayment schedules to support any foreign currency gain or loss computation.
Copies of Form 8832, Form 8621, Form 8833 and any protective elections, with proof of timely filing.

How should you plan a disposal?

Start at least six months before an anticipated exit, and ideally at the point of acquisition. The decisions that matter most, entity classification, PFIC elections and the rebasing evidence file, are all made long before the sale.

Run a combined UK and US model of the transaction, not two separate national computations, and compare the net after-tax proceeds of a share sale against an asset sale.
Test whether an asset sale by the company, followed by a liquidation, produces a better combined result than a sale of the shares.
Confirm the property-rich ratio at the expected completion date and understand how cash inside the structure moves it.
Reserve the UK tax at completion so the 60-day payment does not depend on distributions from the buyer or the fund.
Obtain a Government Gateway identity well ahead of completion, or appoint a UK agent authorised to file for you.
Confirm the US recognition year and decide whether the accrual-basis credit election improves the match.

Where can you check the rules yourself?

For the UK position, GOV.UK sets out the current guidance on capital gains tax for non-residents and on reporting and paying through the UK Property Account, and HMRC's Capital Gains Manual contains the detailed technical treatment of property-rich entities, the rebasing rules and the trading exemption. For the US position, IRS Publication 519 covers US tax status, Publication 544 covers sales and dispositions of assets, and the instructions to Form 1116, Form 8621, Form 8832 and Form 8833 are the primary source on credits, PFICs, entity classification and treaty disclosure. The text of the US-UK income tax treaty, including the gains article, is published on both IRS.gov and GOV.UK. Where guidance and legislation diverge, the legislation governs.

This article is general commentary on a technical and fast-moving area, not advice. Rates, thresholds and reporting deadlines change, elections carry hard deadlines, and the correct answer turns entirely on the facts of your structure, your residence history and the terms of the transaction. Before you sign anything, take coordinated UK and US advice from advisers who are looking at both sides of the same deal at the same time.