Investing In Property in the US

People investing in property in the United States are often advised to invest via a Limited Liability Company (LLC).  This will give the owners the protection of limited liability, but also this will generally be treated in the US for tax purposes as though it was a partnership.

This means that the LLC is not liable for tax on the profits of the business, rather, each partner is taxed on his or her share of the profits of the LLC. When the profits are paid out to the partners, no further tax is payable. This is advantageous as it means that the income is only tax once, rather than paying corporate income tax and then being taxed again on the dividends.

However, HMRC do not regard the LLC as a partnership.  Instead HMRC regard the LLC as a company. This means that any tax paid in the US on the LLC’s profits is regarded as corporation tax.  When the profits are paid out to the owners of the LLC, the payments will be regarded as being a dividend.  This can then give rise to additional UK tax on the dividend, with no ability to offset the tax already paid in the US against the UK tax bill.

HMRC’s treatment of a US LLC has been challenged in court. However, in February 2013, the Court of Appeal upheld  HMRC’s long standing practice of regarding an LLC as “opaque” for UK tax purposes.

Investors should also be aware that when the investments are eventually sold – hopefully realising a capital gain – double taxation of capital gains could again arise due to a mismatch in how the LLC is regarded for US and UK tax purposes.

In addition, those who actively manage their LLC from the UK should be aware that the LLC may be regarded as UK tax resident for corporation tax purposes. This could give rise to additional complications. 

We can help individuals looking to invest in US property in a number of ways by:- 

• Advising on the tax implications from both a UK and a US perspective
• Preparing the necessary US and UK tax returns  both for the LLC and the necessary US State, Federal and UK personal tax returns