Big D

Oo - i didn't know you could do that! I do know that there are ways round it cos i know people that have managed it - or at least to minimize their bill - in similar position to OP. Which would make me look for some professional advice - or at least price it!!

BigDavyG

Despite our fumbling round the issue a half decent accountant could answer this in a matter of seconds - well the UK aspect anyway. As for being liable to tax on the US side I'm not sure, but I'll send my dad and sister a mail in the morning and see if they know anything if that helps from a UK perspective.

Big D

very good point - but the fumbling round and talking out of arses is what makes this forum great!!!

BritGuyTN

same here

declare it but do not pay tax in the uk

Lizzi

The house has to be your principal primary residence. As it is not, as you live in the states, you will be liable for CGT. You have to both live in the house as your primary residence for at least 6 months for you to negate CGT. The longer you have your uk house however, the lower the CGT % liability.
I think the website we used was called tax cafe, you pay them afew quid, and they send you a very detailed rsponse to your tax problem. If you give them specifics, they will also calculate your CGT liability, and they also make recommendations on how to minimise it. Once you have paid up, you can ask them as many questions as you like so long as it pertains to the initial tax query.

BritGuyTN

I have no idea why people keep bringing up non relavent info.

the OP is US tax resident - she will pay CGT here in the USA, and nothing in the UK - and in certain circumstances there will be no need to pay CGT in the USA for a while......

in the first year of ownership, any capital gains are taxed at your nominal federal tax rate, anywhere from mid-thirty per cent to fifteen percent

after the first year the capital gains tax is a FLAT 15%

http://www.moneychimp.com/features/capgain.htm

TO THE OP - I would look into buying a house in the US without using the funds from the UK house sale. I would then sell the UK house and take advantage of a 1031 exchange and invest the proceeds in an investment property, this should, if circumstances are right, mean that you can defer your CGT to a much later date

All the above is conjecture and opinion on my part

scrubbedexpat099

I always wondered if anybody with a UK property told Uncles Sam if they sold it.

Giantaxe

That's the way I'd do it. And at some later point, you can convert the property from investment to personal use. Or are the 1031 gains captured at that point? Not sure. Only problem is if you live in a high housing cost area. Almost certainly the carrying costs of the house (interest, taxes, insurance and maintenance) are going to exceed your rental income, giving you a negative cash flow. Of course, this is made up if you are renting a home as your residence as your rent will similarly be less than what it would cost to own a similar house.

BritGuyTN

the tax is just defered not eliminated unfortunately and their are depreciation figures to factor in also

In my local market I know I can very easily get positive cash flow, especially with a low LTV like the OP would probably have.

Giantaxe

Ok, but won't the residence once it's been converted get the $250/500k tax free cap gains for a primary residence? I don't know what their UK cap gains are, nor how much depreciation they've claimed, but if it's below the cap gains threshold, what's to stop them doing a 1031, renting it for a while, occupying the house as a principal residence for two years and then selling?
If their UK cap gains plus depreciation plus US cap gains and depreciation are under the threshhold, won't they avoid cap gains tax?

Lucky you. Maybe I should come and buy some investment property in your area Around here, prices have been bid so high, the after-tax carrying costs of buying are about twice the rents. You can thank Alan Greenspan for that.

Giantaxe

I guess those that don't wish to commit tax fraud do Plus those that made a capital loss.

BritGuyTN

I'm not entirely sure to be honest, the only perspective i've looked at it from is transitioning residential rental property.

i do know that the IRS does mention 'like property' but have no idea of how restrictive this is

syllk

http://www.hmrc.gov.uk/cnr/faqs_capgains.htm

scrubbedexpat099

I am not sure how often this topic has come up over the last 3 years, but many times.

UK position is clear, well it is to me.

Every one I have seen has included much theorising about whether and is so to what extent tax is payable in the US.

But no one has quoted a concrete example of tax paid by them. There must be somebody surely.

Hence my question.

ladylisa

Thanks everyone for taking the time to reply. I have alot of reading to do