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Capital gains tax on sale of UK property?

Capital gains tax on sale of UK property?

Old May 8th 2017, 8:11 pm
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Default Capital gains tax on sale of UK property?

Good evening guys (UK time at least),

I'm due to move out to the US on an L-1b in a couple of weeks and my UK home is on the market. I've lived there for 3 years and regardless of the move, it is the right time to sell anyway for a number of reasons.

My question is if I'll have to pay any capital gains tax (15%?) on any proceeds above my purchase price if I were to ever need to bring that money over to the US.

I don't believe that I would owe anything in taxes had we still been in the UK as I would qualify for residences relief as the house in question is my home and not an investment property. But do the same rules apply in the US?

Thank you.
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Old May 8th 2017, 9:19 pm
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Default Re: Capital gains tax on sale of UK property?

Why would the same rules wrt capital gains tax apply in the US? The IRS has it's own rules. But to answer your question....if you sell the house before you become a US tax resident there's no way the US will be able to tax any gain from that sale.
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Old May 8th 2017, 10:15 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by nun View Post
Why would the same rules wrt capital gains tax apply in the US? The IRS has it's own rules. But to answer your question....if you sell the house before you become a US tax resident there's no way the US will be able to tax any gain from that sale.
There is zero chance I will sell the house before becoming a US tax resident.

So if I leave the money in my UK bank and never bring it into the country, I'm still liable for capital gains tax in the US?

And is there no allowance for the fact that the house was my home and not an investment property, like there is the UK?
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Old May 8th 2017, 10:18 pm
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Default Re: Capital gains tax on sale of UK property?

Sell before you become liable for US CGT tax on your primary him, which is three years after moving out of it (you still meet the "two of the last five years" rule for being exempt from tax on $250k/$500k of the gain.

Otherwise you face the double-whammy of a capital gain on the sale of the property and another, entirely separate gain on the repayment of the mortgage loan, caused because, from the IRS's US $ perspective, you are getting a bargain by paying off the mortgage with very cheap pounds compared to the expensive pounds you borrowed to buy the house.

From the IRS's perspective the gain on the loan may well be larger than the gain on the home itself, given that the home value in US$ fell when the pound fell.

Last edited by Pulaski; May 8th 2017 at 10:49 pm.
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Old May 8th 2017, 10:21 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by Pulaski View Post
Sell before you become US tax resident! You must because if you have become US tax resident you face the double-whammy of a capital gain on the sale of the property and another, entirely separate gain on the repayment of the mortgage loan, caused because, from the IRS'S US $ perspective, you are getting a bargain by paying off the mortgage with very cheap pounds compared to the expensive pounds you borrowed to buy the house.
And do I become as US tax resident the moment I live in the country?
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Old May 8th 2017, 10:45 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by jammiie View Post
And do I become as US tax resident the moment I live in the country?
Almost certainly. .... Thinking about it though, the US a "two of the last five years" rule for exemption from CGT for selling your primary home, and that exempts $250k of gain if you're single (or file taxes singly), and $500k if you're married and file jointly.
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Old May 9th 2017, 7:53 am
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Default Re: Capital gains tax on sale of UK property?

Will your employer cover the tax prep fees plus the additional tax since it is they that want you to move to the States and suffer this extra tax?
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Old May 9th 2017, 10:40 am
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by Cook_County View Post
Will your employer cover the tax prep fees plus the additional tax since it is they that want you to move to the States and suffer this extra tax?
Yes my employer are providing the services of a tax adviser to assist with the preparation of my UK and US tax returns for the year, but the decision to sell my house is mine alone so I have no right to ask them to cover any additional tax due from this.
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Old May 9th 2017, 10:42 am
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by Pulaski View Post
Almost certainly. .... Thinking about it though, the US a "two of the last five years" rule for exemption from CGT for selling your primary home, and that exempts $250k of gain if you're single (or file taxes singly), and $500k if you're married and file jointly.
Great, that is exactly what I was hoping.

Although as I'll have moved to the US before my UK home is sold, will it still be classed as my "primary home" even though I'm living in rented accommodation elsewhere?
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Old May 9th 2017, 11:58 am
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by jammiie View Post
.... Although as I'll have moved to the US before my UK home is sold, will it still be classed as my "primary home" even though I'm living in rented accommodation elsewhere?
"Two of the last five years."
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Old May 9th 2017, 12:05 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by Pulaski View Post
"Two of the last five years."
Magical, thank you.
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Old May 9th 2017, 12:09 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by jammiie View Post
Magical, thank you.
You're welcome.
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Old May 9th 2017, 12:22 pm
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Default Re: Capital gains tax on sale of UK property?

If you become US resident and you sell within 2 years you will get the $250k US tax free allowance as a single person and $500k if married if you sell it within 2 years. You are guaranteed full UK private residence relief if you sell within 18 months. Remember that the US gain could also include a foreign exchange gain. Also any rental income will be taxable in the US and you should make sure you file the appropriate UK tax forms for that income as well.

It's easier and cleaner if you can sell the house before you move to the US, but definitely do it before the UK 18 month primary residence limit is up.
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Old May 9th 2017, 12:43 pm
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Default Re: Capital gains tax on sale of UK property?

Originally Posted by nun View Post
If you become US resident and you sell within 2 years you will get the $250k US tax free allowance as a single person and $500k if married if you sell it within 2 years. ....
I believe that should be "three years" - you must have lived in it for two of the last five years to get the IRS's concessions on capital gains on your primary home.
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Old May 9th 2017, 8:53 pm
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Default Re: Capital gains tax on sale of UK property?

But there is still the huge Federal and MA tax on the foreign currency gain on the mortgage debt...have you estimated yet how much this will cost you?
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