FIRPTA for UK Sellers of US Rental Property: Withholding Tax and How to Reduce It

When a UK resident sells a US rental property, FIRPTA requires the buyer to withhold 15% of the sale price and pay it to the IRS. That withholding is a prepayment, not the final tax. The US tax is charged on the gain, so the seller can reduce the withholding with a certificate before closing or reclaim the excess on Form 1040-NR. This guide explains the rates, the exemptions, the forms and the UK side of the same sale.

FIRPTA is the Foreign Investment in Real Property Tax Act. It does two things. It treats a foreign person's gain on US real property as income connected with a US business, so it is taxable in the US. And because the IRS has little hold over a seller who lives abroad, it makes the buyer collect a deposit against that tax at closing.

What is FIRPTA withholding tax on a US rental property sale?

FIRPTA withholding tax is the amount the buyer must hold back from the purchase price when the seller of US real property is a foreign person. The IRS page on FIRPTA withholding states that the rate is generally 15%, and that in most cases the buyer is the withholding agent. In practice the title or escrow company handling the closing takes the money from the proceeds and sends it to the IRS.

Three features surprise UK sellers:

• It is charged on the price, not the profit. The Instructions for Form 8288 say the buyer must withhold 15% of the amount realized on the disposition. A sale at a loss still has 15% withheld.
• The buyer is on the hook. If the buyer fails to withhold, the instructions say the tax, with interest, may be collected from the buyer. Buyers and closing agents therefore err on the side of withholding.
• It is fast. The buyer must file Form 8288 and pay the tax by the 20th day after the date of transfer.

Whether the property was let or kept as a holiday home does not change the withholding. It changes the tax on the gain, because a rental property will have depreciation to account for.

Who counts as a foreign seller under FIRPTA?

FIRPTA applies to a seller who is a foreign person for US tax purposes. A British citizen living in the UK with no green card is a nonresident alien and is caught. A US citizen or green card holder living in the UK is a US person and is not, however long they have lived abroad.

A US person selling from the UK gives the buyer a certification of non-foreign status, signed under penalties of perjury, with their name, US taxpayer identification number and home address. The IRS lists this among its exceptions from FIRPTA withholding. Married couples where one spouse is American and the other is not need care: withholding is generally applied only to the foreign spouse's share of the proceeds, and the closing agent needs to be told how the property is owned.

FIRPTA withholding rates and exemptions at a glance

The rate depends on the price and on what the buyer intends to do with the property. The figures below are from the Instructions for Form 8288 (Rev. January 2026) and the IRS exceptions page.

Situation	FIRPTA withholding
Individual buyer will use the property as a residence, and the amount realized is $300,000 or less	None
Buyer will use the property as a residence, and the amount realized is over $300,000 but not over $1 million	10% of the amount realized
Any other sale, including a sale to an investor or a price over $1 million	15% of the amount realized
Seller certifies non-foreign status (a US citizen or resident)	None
IRS withholding certificate obtained	The reduced amount stated in the certificate, which can be nil

The residence test is specific. The buyer, or a member of the buyer's family, must have definite plans to live in the property for at least 50% of the days it is in use during each of the first two 12-month periods after the transfer. Days the property stands vacant are ignored. The exemption does not apply where the buyer is a company or other entity.

This matters for a let property. A rental house is often sold to another investor, and an investor buyer cannot use the residence exemption or the 10% rate. A UK seller of a tenanted US property should assume 15% unless a certificate is in hand.

How can a UK seller reduce FIRPTA withholding before closing?

The main tool is a withholding certificate, applied for on Form 8288-B. The IRS issues one where the tax actually due is less than the standard withholding, and the buyer then withholds only the amount the certificate allows.

Form 8288-B (Rev. December 2025) can be used where the application is based on one of three grounds:

1. the seller is entitled to nonrecognition treatment or is exempt from US tax on the sale;
2. a calculation shows the seller's maximum tax liability is less than the tax otherwise required to be withheld; or
3. the special instalment sale rules allow reduced withholding.

The second ground is the one most UK sellers use. The application sets out the sale price, the adjusted basis after depreciation, the selling costs and the resulting maximum tax, with supporting documents.

Timing is everything

The application must be submitted to the IRS on or before the date of transfer. If it is, the buyer still withholds the full 15% at closing, but does not have to pay it to the IRS straight away. The Instructions for Form 8288 say the buyer need not file and pay until the 20th day after the IRS mails the certificate or a notice of denial. The money usually sits with the closing agent in the meantime. When the certificate arrives, the agent sends the reduced amount to the IRS and releases the balance to the seller.

The IRS says it will normally act on an application within 90 days of receiving all the information it needs. An incomplete application does not start that clock. An application sent after closing is too late: the full 15% goes to the IRS and the seller waits for a refund through the tax return.

You need a US taxpayer identification number

The IRS guidance on reporting and paying tax on US real property interests requires foreign sellers to provide a taxpayer identification number on the withholding forms. A UK seller who is not eligible for a Social Security number needs an ITIN (Individual Taxpayer Identification Number). A seller without one can apply on Form W-7 attached to the Form 8288-B application. Without a number on the forms, the IRS does not issue the stamped receipt the seller needs to claim credit for the withholding.

A worked example: 15% of the price against the real tax

Illustrative example, with invented figures: a UK resident who is not a US citizen bought a rental house in Florida for $450,000 and claimed $60,000 of depreciation while it was let. She sells to an investor for $600,000, with selling costs of $36,000. FIRPTA withholding is 15% of $600,000, or $90,000. Her adjusted basis is $390,000 ($450,000 less $60,000), so her gain is $174,000 ($600,000 less $36,000 less $390,000). Taking the maximum US rates, the $60,000 of gain that reflects depreciation is taxed at no more than 25%, or $15,000, and the remaining $114,000 at no more than 20%, or $22,800. Her maximum federal tax is $37,800. The withholding exceeds it by at least $52,200.

With a withholding certificate based on that calculation, the buyer would withhold about $37,800 at most and she would receive the other $52,200 at or shortly after closing. Without one, she waits until she files Form 1040-NR after the end of the year and the IRS processes the refund. The rates used are the maximums in IRS Topic 409; her actual tax may be lower.

How do you reclaim FIRPTA withholding after the sale?

The seller reclaims FIRPTA withholding by filing a US nonresident return for the year of the sale. The steps are:

1. The buyer files Form 8288 with Form 8288-A and pays the withholding within 20 days of the transfer.
2. The IRS stamps Copy B of Form 8288-A and sends it to the seller.
3. The seller files Form 1040-NR for the calendar year of the sale, reports the gain and attaches the stamped Copy B to claim credit for the tax withheld.
4. The tax on the gain is deducted from the withholding and the IRS refunds the difference.

A return is required even when the withholding more than covers the tax. The withholding does not settle the liability, and the refund is not automatic.

Tax on the rent before the sale

A UK landlord's US filing position should be in order well before the sale. The IRS page on nonresident aliens with US real property explains that rental income is taxed at 30% with no deductions unless it is effectively connected with a US trade or business. A nonresident can elect to treat all income from US real property as effectively connected, which allows expenses and depreciation and taxes the net profit at graduated rates. The election is made by a statement attached to Form 1040-NR, and Form W-8ECI is given to the letting agent so that 30% is not withheld from the rent.

Sellers who never filed for the rental years find that the sale brings those years to the surface, because the basis calculation needs the depreciation history. That is far easier to resolve before a withholding certificate application than during one.

How the UK taxes the same sale

The US tax is only half the calculation for a UK resident. The UK taxes its residents on worldwide gains, so the sale of a US rental property is also reported to HMRC on the Self Assessment return. The gain is computed in pounds, converting the cost at the exchange rate when the property was bought and the proceeds at the rate when it was sold. A UK gain can exist where the dollar gain is small, simply because the dollar rose against the pound.

For 2026/27, UK Capital Gains Tax is charged at 18% on gains within the basic rate band and 24% above it, after an annual exempt amount of £3,000. The UK gives no deduction for depreciation on a residential building, so the UK gain is not increased by it in the way the US gain is.

The US/UK tax treaty allows the US to tax gains on real property situated in the US, and the UK then gives credit for the US tax. GOV.UK confirms that for assets such as land or a house you may pay tax in both countries and claim relief in the UK. The credit is for the final US tax on the gain shown on Form 1040-NR, not for the FIRPTA withholding. Claiming credit for the full 15% withheld, and then receiving a US refund, is a common and avoidable error. Our guide to double taxation relief between the US and the UK explains how the credit is limited.

What UK sellers of US rental property get wrong

• Treating the 15% as the tax. It is a deposit. The tax is on the gain and is settled on Form 1040-NR.
• Applying for the certificate too late. Form 8288-B has to be submitted by the date of transfer. Starting when an offer is accepted, not the week before closing, is the difference between holding the funds in escrow and waiting for a refund.
• Having no ITIN. The application and the refund both depend on a taxpayer identification number.
• Ignoring depreciation. US basis is reduced by depreciation allowed or allowable, so it counts on sale whether or not it was claimed on earlier returns.
• Forgetting state tax. Some US states have their own withholding on sales by non-residents of the state, separate from FIRPTA. Check the rules of the state where the property is located.
• Reporting only in the US. The gain is also reportable to HMRC, in pounds, with credit for the US tax.
• Assuming a US citizen spouse is caught. A US citizen living in the UK is not a foreign person and certifies non-foreign status instead.

Planning a sale of US rental property from the UK

A sale that is planned from the US and UK sides together runs in a clear order: confirm who the sellers are for US purposes, bring the rental year filings and depreciation schedule up to date, obtain ITINs, apply for the withholding certificate as soon as a contract is signed, then file Form 1040-NR and the UK Self Assessment return with matching figures. If you still own UK lets as well, our guide to UK rental property and US taxes covers the reverse case.

US/UK Cross Border Tax is a team of US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco. We handle FIRPTA and US tax on UK-owned rental property from the withholding certificate through to the UK credit claim. If you are one of the Brits with US property or US ties, or a landlord with property in both countries, contact us before you accept an offer and we will send a fixed fee quote.