February 2023 Sale of US house by UK resident. How to report Special Withholding Tax

Clients are UK residents who owned a home in US that was sold in February 2023. 15% tax was withheld by IRS on gross sale price. Due to differences in US reporting, the exact amount owed will not be calculated and submitted by the US accountants until early 2024 (as US tax is based on a calendar year). The house was rented out for some of the duration of 15 years ownership, but not since 2018 calendar year. My understanding is that when the final US tax return is submitted for 2023, the calculation will take account of the cumulative rental account (including depreciation claimed) as well as the dollar capital gain. It is not a straightforward calculation and although it is likely that the client will receive a refund in tax, the exact amount remains to be calculated. As this is not an area that I have dealt with, I would like some guidance on how to proceed, given that the gain presumably needs to be reported by January 2024. As the client has paid a substantial sum in withholding tax, presumably they will get credit under the US/UK double taxation treaty. It would be most welcome to have an explanation of how to proceed with this in terms of process and reporting.

Hi,

Yes, the gain will need to be reported by 31 January 2024 in the UK.

As the tax paid in the US will not be known then no credit can be given when the return is submitted. Any credit for US tax will be based on the gain only, as the rental income should have already been declared and the credit claimed up to 2018.

Once the US tax figure is known, you can submit an amendment to claim Foreign Tax Credit Relief.

Thank you.