Hedge

Hi all,
I remember being told that it's preferable to sell an overseas home before returning and establishing tax residency in the UK. I can't remember why, hopefully someone can help.

The house we're selling won't make a profit (fetch same as we paid). So for us the question is if we return to UK before its sold, then once sold (after our return) is that a taxable event even if there's no profit on sale?

Thanks for any thoughts on the matter

Hedge

durham_lad

If you sell your house in the USA while you are resident in the UK you will have more complicated calculations to provide to show what gains or losses were made.

You must value the house in GBP at time of purchase and sale. Historical exchange rates are available on XE.com. For example if you bought the house for $100,000 while the exchange rate was 1.6 then the initial cost was £62,500. If you sold it now for the same price of $100,000 with the exchange rate at 1.2 that would be £83,333 giving a capital gain of £20,833.

The same goes for any mortgage. You may end up with an unwanted large foreign exchange gain that you owe taxes on.

So, to answer your question then it is a lot simpler to complete the sale before moving particularly since the exchange rates have been moving steadily in favor of the $ this last 7 years or so.

I don’t see which country you are moving from, I just gave the USA as an example since our daughter is currently selling her house there in readiness of a move back later this year.

Hedge

DL

Thanks for taking the time DL. That makes sense. Moving back from Malaysia. We'll endeavour to tough it out until after the sale.

Another factor once we return to the UK will be paying the extra 2% non resident stamp duty. I guess that can be mitigated by renting for 180+ days to become tax resident before purchasing a home. Although I'm sure that's not as easy as it sounds. All good fun.

Thanks again

H

christmasoompa

You can claim that back once resident - https://www.gov.uk/guidance/rates-of...and-how-refund

Don't forget that if you do still own your home in Malaysia, there will be an additional 3% stamp duty as well for second home. Another reason to sell before you return maybe?

Hedge

Thanks for that! Yes that is also a powerful motivator to sell first.

We still have a long term rental flat in UK for which we paid the extra Stamp Duty (as at the time we had a home in the UK, home sold now). As the flat was itself always designated a second home and the extra 2nd home Stamp paid on purchase; will the eventual purchase of our actual future home be 'Stamped' as 2nd home too just because of the flat that we've never lived in? I hope that makes sense. Again, appreciate your views.

H

durham_lad

If you are a UK citizen you will be resident from day 1 I believe. We certainly were, and our son who returned a year after us. He had never owned a house anywhere, always rented, bought a house and moved in within 3 months of arriving and benefited from the lower stamp duty first time buyers can get.

Spenser

I am moving back to the Uk from the US after 35 years. I have dual nationality but was born in the UK . I have various investments and want advice on the best way of doing all this while keeping my tax liability and costs lower. Is it better to sell everything including stocks i and move in a new GB tax year or can I keep some investments here but be a resident in the UK
I did look at companies that deal with this but they were out of my league cost wise - any advice ?

durham_lad

We were in almost exactly the same situation when we moved back after 30 years. Been resident in the UK for 6 years now.

No need to move back at start of new tax year, simply choose “split year” treatment when you file your first HMRC return.

Probably no need to sell your investments before moving back. We have IRAs invested in mutual funds, plus after tax mutual funds. We did convert our mutual funds to ETFs listed as HMRC reporting funds so they receive the lower tax rates for dividends and capital gains. Otherwise all distributions are taxed as regular income. Our investments are with Vanguard who have no problems in supporting overseas customers. They even accept our UK phones for verification sending security codes for logins from time to time.

see this recent thread on links to HMRC reporting funds

Moving back in the UK - Financials

Spenser

Thank you for your reply really appreciate it. Was there a website/ book that explained how best to do all this as I feel rather overwhelmed with all the ramifications and I haven’t even looked into if I should transfer my social security back to the UK or keep it here. As a US citizen I know that I will still have to file a US tax return even when I am resident of the UK but that there is the tax treaty so not double tax but need to know more .
Also as I purchased a house in the UK I can only visit 4 months a year but if I wanted to spend 6 months in each country how does that work tax wise? Sorry so many question, that’s why I wondered if you used an adviser to navigate all this?
Hope you are enjoying being back / I spent 4 months there this year and loved it.

durham_lad

It was the kind and knowledgeable folks on this website and UK Yankee website that helped me learn what I did.

I don’t believe you can transfer your SS to the UK but it is fine to leave it where it is, my wife has hers paid directly into our UK bank, I will be claiming mine in a couple of years. The tax treaty states that for a USC resident in the UK that the SS and OAP is ONLY taxed in the UK. Having been through this recently then when filing the IRS return you need to report the SS received on the 1040 but show the taxable portion as zero. For the OAP you don’t even mention it on the IRS return. You only need to report the SS because the IRS will have received a copy of the SSA benefits statement.

For spending 6 months a year in each country you need to go through the “Statutory Residence Test” to determine who the primary taxing authority is. When I looked into doing this I decided that the UK would be the place of “domicile “ since we had a lot more ties to the UK than the USA. You may find the opposite is true.

Helen1964

As long as you’re replacing one main residence with another main residence, you’ll be able to pay stamp duty at the lower rate.

If however you were to sell your main residence in Malaysia, give notice to your tenants and move into your rental flat in the UK and use it as a base while you looked around for another house (I don’t know whether this is something you’ve considered) then I think the rental flat would become your main residence.

If you were then to buy another house, you would have to pay the higher stamp duty.
Which you could then claim back if you sold the rental flat within 3 years of purchasing the new house.

So - assuming you don’t want to sell the rental anytime soon - maybe weigh up the cost of renting an Airbnb and putting your stuff in storage for however long it’s likely to take you to buy a house against the cost of paying an extra 2% in stamp duty on the new house, the rental income foregone and - if you have good tenants now - the possibility that the next ones (ie the ones who would move in after you move into the new house) might be less good.

Hedge

Helen: thanks very much for that clarification!! That's exactly what we'll do (keep the rental) and rent until we find suitable something we'd like to buy. Mrs H is still aiming for a new build that ticks all the boxes that we can buy and move straight into : ) Hopefully she'll realise that renting and testing areas for 'feel' and including older properties will eventually yield a happier result. Again thanks.