Investing in US Real Estate from the UK: FIRPTA, LLCs and the Estate Tax Trap

The United States has long attracted international property investors. Stable legal title, deep liquidity in major markets, and dollar-denominated returns make it a natural complement to a UK-centric portfolio. Cities such as Miami, New York, Los Angeles, Austin, and the Sun Belt metros have delivered strong capital appreciation over the past decade, while rental yields in secondary cities can significantly exceed those available in London.

However, the US tax and legal framework for non-resident investors is materially more complex than most other markets. Failing to structure correctly before purchase can lead to withholding taxes, double taxation, and — most damagingly — exposure to US estate tax that could claim up to 40% of the property value on death. This article sets out the key issues every UK investor must understand.

FIRPTA: The Withholding Tax on Sale

The Foreign Investment in Real Property Tax Act (FIRPTA) is perhaps the first thing UK investors encounter. Under FIRPTA, when a foreign person sells US real property, the buyer is required to withhold 15% of the gross sale price (not the gain — the entire proceeds) and remit it to the IRS.

This creates a cash flow issue even for investors who are ultimately only liable for a much lower tax bill. The withheld amount can be reclaimed by filing a US tax return, but this takes time and requires a US tax identification number (ITIN or EIN — see below).

FIRPTA withholding can be reduced or eliminated in certain circumstances:

• If the property is sold for $300,000 or less and the buyer intends to use it as a primary residence
• Where a withholding certificate is obtained from the IRS in advance of closing, reflecting the actual expected tax liability

The underlying US tax on gain for non-resident aliens is calculated on the same basis as for US persons — long-term capital gains rates (0%, 15%, or 20% depending on the gain amount) for assets held more than one year. State income tax may also apply, depending on the location of the property.

ITIN Requirements

UK investors who receive US rental income or sell US property must file US tax returns. To do this, you need an Individual Taxpayer Identification Number (ITIN) — a nine-digit number issued by the IRS for individuals who are not eligible for a Social Security Number.

Obtaining an ITIN requires submitting Form W-7 along with certified identity documentation. The process can take 7–11 weeks via the IRS directly, or can be expedited through a Certified Acceptance Agent. Most US-focused accountants and tax preparers can assist.

Without an ITIN, rental income will be subject to a flat 30% withholding tax on gross rents — highly unfavourable compared to the effective rate achievable by filing a return and deducting expenses.

US Mortgage Access for Non-Residents

Getting a US mortgage as a UK resident is possible but more restrictive than for US citizens. Non-resident alien lending is a specialist niche.

Typical terms for non-resident mortgage:

• Loan-to-value typically capped at 60–70% (versus 80–90% for US residents)
• Higher interest rates than standard US mortgages
• Larger cash reserves required (often 12+ months of mortgage payments)
• US credit history not recognised — UK credit references and bank statements used instead
• Some lenders require a US bank account to be established first

Asset-based lending is increasingly popular for HNW non-residents, where the lending decision is based primarily on the value of assets held (globally or in the US) rather than income. Private banks and specialist lenders are the primary route here.

Portfolio loans — offered by some private banks to clients who custody assets with them — can be arranged at favourable rates for larger investments, particularly in the luxury residential sector.

LLC Structures: The Standard Non-Resident Vehicle

Most US-based advisers recommend that non-resident investors hold US real estate through a Limited Liability Company (LLC) rather than in personal name. An LLC provides:

1. Liability protection — the investor's personal assets are not exposed to claims arising from the property
2. Privacy — in many states, LLC ownership is not publicly disclosed
3. Flexibility — LLCs can be structured to distribute income or hold assets tax-efficiently
4. Estate planning — LLC interests can be transferred by bequest or gift without FIRPTA triggering on the property itself (though see caveats below)

Single-member LLCs (owned by one individual) are treated as "disregarded entities" for US federal tax purposes — the income flows directly to the individual's return. This is the simplest structure for a single investor.

Multi-member LLCs are treated as partnerships. These are common in joint ventures.

Important caveat: US estate tax (discussed below) applies to LLC interests owned by non-residents if the LLC's primary asset is US real property. The LLC alone does not solve the estate tax problem.

The US Estate Tax Trap for Non-Residents

This is the single most dangerous issue for UK investors and is frequently underestimated.

US estate tax applies to assets "situated in the United States" at the time of a non-resident alien's death. US real property — held directly or, in many cases, indirectly through a US LLC — is generally treated as US-situated.

For US citizens and residents, the federal estate tax exemption is $15 million per person (2026 figure, following the One Big Beautiful Bill Act which made the elevated TCJA exemption permanent and raised it further — there is no longer an impending sunset). For non-resident aliens, the exemption is only $60,000.

This means that a UK investor with a $2 million US property has approximately $1.94 million of the property value potentially subject to US estate tax at rates up to 40% — a liability of up to $776,000.

The UK-US Estate Tax Treaty provides some relief. Under the treaty, UK-domiciled individuals can claim a pro-rated credit based on the ratio of US assets to worldwide assets, but this does not eliminate the problem for most investors.

Structural solutions include:

• Holding US property through a foreign corporation (e.g., a UK or BVI company) — corporate shares are generally not considered US-sited assets for estate tax, though the corporate route has other costs (branch profits tax, loss of preferential capital gains rates)
• Purchasing life insurance to fund the estate tax liability
• Establishing a trust that holds the US property and is designed to pass outside the estate

Each solution has trade-offs and must be designed with both US and UK counsel involved.

EB-5 Investor Visa vs Direct Investment

The EB-5 Immigrant Investor Program offers US permanent residency in exchange for a qualifying investment — currently $800,000 in a Targeted Employment Area or $1,050,000 elsewhere — creating at least 10 full-time US jobs.

EB-5 is not a property investment route. It is a route to US residency that uses capital investment as the mechanism. The capital is typically pooled through a "Regional Center" and deployed into commercial real estate or development projects. Investors do not own the underlying property directly.

For UK investors considering EB-5:

• Processing times remain long (several years for certain nationalities)
• The capital is at risk — returns are not guaranteed
• Obtaining US residency triggers significant tax obligations, including worldwide income reporting

Direct property investment and EB-5 serve entirely different purposes and should not be conflated. If US residency is the goal, EB-5 (or other visa routes) is the subject; if rental income and capital appreciation are the goal, direct investment is the route.

UK Tax on US Property

UK residents must also consider UK tax on US property income and gains:

• Rental income is assessable for UK income tax (Schedule A rules for overseas property)
• Capital gains are subject to UK CGT on disposal, though FIRPTA withholding and US tax paid can generally be credited against the UK liability to avoid double taxation under the UK-US tax treaty
• Inheritance tax: following the move to a residence-based IHT system from 6 April 2025, a "long-term UK resident" (broadly, UK-resident for 10 of the last 20 tax years) is within UK IHT on their worldwide estate. US property held by such a person is included in their UK estate for IHT purposes at the same time as potentially attracting US estate tax — double exposure without careful structuring

Practical Considerations for UK Buyers

US bank account: most lenders and property managers require one. HSBC, Barclays (via their US operation), and specialist banks can open accounts for non-residents with proper documentation.

US tax return obligation: any US-source income (rental, interest, gains) creates a filing obligation. A good US tax preparer with cross-border experience is essential — costs vary from $500 to $3,000+ per year depending on complexity.

Property management: for non-resident investors, a professional property manager is almost always necessary. Fees of 8–12% of gross rents are typical.

State-level taxes: property tax, state income tax on rents, and state estate tax (in some states) add further layers. Florida has no state income tax — one reason it is popular with international investors. New York state and city taxes are significant.

How Global Investments Can Help

Investing in US real estate from the UK requires coordinated advice spanning property sourcing, legal structure, US tax compliance, and UK tax planning. Global Investments works with clients to identify appropriate structures before acquisition, connect them with specialist US and UK advisers, and integrate US property into a coherent international wealth plan. We also assist clients in understanding the estate tax exposure they may already have if they hold US assets in personal name.

This article is for general information only and does not constitute legal or tax advice. US tax and estate law is complex and changes frequently. Always seek qualified US and UK professional advice before acquiring US real estate. Investment values can fall as well as rise.