# Who has priority on taxes regarding capital gains?



## Nivie (Apr 22, 2021)

USC with ILR in UK.

A few questions concerning capital gains and what order I am meant to pay tax between IRS, State and HMRC.

I sold my property located in the USA, but tax resident in the UK. 
Am I correct that the tax on capital gains is paid to the IRS and State first?

I then need to complete HMRC self assessment using their capital gains calculator and if the HMRC tax owed exceeds taxes paid to the IRS then HMRC receives the difference (subject to double taxation treaty rules?
If HMRC tax calculation is lower (unlikely) then no taxes would be payable to HMRC?.

Have I got that the right way around or does HMRC take priority?

Does HMRC take into account the capital gains tax paid to the State (NC)?

Thanks


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## Moulard (Feb 3, 2017)

I am not really familiar with the UK-US tax treaty.. but

Article 13 of the US UK tax treaty deals with gains.

Paragraph 1 allows the UK to tax gains attributed to the alienation of real property located in the US.

Article 24 deals with the relief from the double taxation that results.

This article deviates from the model a fair bit but if I read it correctly, then the UK will allow you a credit for US federal chargable gains as the property is located in the US under para 4(a)

The way these relief from double taxation clauses are written, you always end up paying the higher of the two tax rates.

So if for example US tax was 100k and the UK tax was 150k you would end up paying the US 100, and the UK 50. If it was the other way round, you would end up paying the US 150 and nothing to the UK.

However if you own the property through an LLC of which you are a shareholder, other clauses will also come into play.



As to any State CGT, US states are not party to the treaty, and so they can do what ever they like in terms of taxing gains of property located in that State.

Similarly, it is entirely up to UK law on whether or not they will offer any form of credit for State income taxes. 
If I read the UK double taxation relief manual correctly, then the UK will provide a credit for US State general income taxes.






DT19850PP - Double Taxation Relief Manual: Guidance by country: United States of America: Contents - HMRC internal manual - GOV.UK







www.gov.uk


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## Nivie (Apr 22, 2021)

Moulard said:


> I am not really familiar with the UK-US tax treaty.. but
> 
> Article 13 of the US UK tax treaty deals with gains.
> 
> ...


Thanks Moulard.

That is sort of what I thought.
As IRS filing and taxes are due before HMRC for the same tax year then I will file and pay the tax on capital gains then subsequently complete my HMRC self assessment to include the tax credit paid to IRS then pay HMRC the difference.


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