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Where Taxpayers and Advisers Meet

Capital Gains Tax on sale of rental property in Calfornia

Joined:Fri May 22, 2020 3:42 pm
Capital Gains Tax on sale of rental property in Calfornia

Postby Dave.Newgass » Fri May 22, 2020 3:48 pm


I recently inherited a rental property back home in California. I'm a US citizen with Indefinite Right to Remain here in the UK. So I'm a resident of the UK but not yet a citizen.

I want to sell the house and invest the money in either property or another business here in the UK.

I also want to minimise the amount of taxes I pay. In California, you can do a 1031 exchange and invest the profit made from a home sale into another property and thus avoid paying CGT. Would the same be true if I buy property in the UK? Also, would I pay any kind of UK tax on the money made from the sale of the house?

I'm really lost with how this will play out!

Any thoughts would be appreciated.



Joined:Wed Aug 06, 2008 3:25 pm

Re: Capital Gains Tax on sale of rental property in Calfornia

Postby maths » Fri May 22, 2020 5:02 pm

For UK tax purposes you will be treated as inheriting the property at its market value at the date of death. On a subsequent sale UK capital gains tax (CGT) will apply to any gain; the gain is the difference between value at date of death (£ equivalent) and sale proceeds (£ equivalent) at date of sale). £12,500 of any gain is exempt, only the balance falling subject to CGT.

If as seems likely you are not UK domiciled (although UK resident) if you claim remittance basis treatment and leave the sale monies in the USA then no UK CGT arises. If you need the monies in the UK this is of course no help.

Whether any USA tax charge can be deferred by reinvesting in a UK property is a USA tax matter.

Joined:Thu Aug 16, 2012 4:31 pm

Re: Capital Gains Tax on sale of rental property in Calfornia

Postby DavidTreitel » Mon Jun 01, 2020 8:52 am

Dave - it is rare, very rare that it is helpful for a US citizen in the UK to elect to claim the remittance basis.

For Federal, California and UK tax purposes there is a step-up in basis as at the date of death.

Consequently the gain in all 3 jurisdictions is calculated only from the date of death. In practice, because the pound has fallen sharply, there is more likely to be a gain in Pounds than in US Dollars.

One HUGE word of caution. In California it is annoyingly common to hold property in trust; including but not limited to a living / revocable trust. If this property was held in trust the UK answer will be significantly more complex and UK legal advice may be appropriate as to the UK status of the trust.

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