LouisB

Ah so if I get correctly, if I pay down mortgage after starting in the US I could be liable for tax on fx gains, I.e. If £ rises again?

Even though all the money is in £ against a £ loan that would also rise and fall by same fx to $ ?

LouisB

Hmmm confusing.

To be sure, say I had £100k loan
I've never been under us tax rules
Money to pay the loan is uk earnt £

If I pay off the loan after us rules apply, I have to pay gains tax on difference made in converting that £ to $ even though that all occurred long before arriving under US tax rules?

So £100k paid a day after arriving, say the rates went from 1.5 to 1.2 USD per GBP

That's a 25% gain in $ terms?

So 25% of £100k = £25k would be liable to gains tax? At what rate (NYC)?

theOAP

Yes.

No. You would have the problem because the £ against the $ has dropped (weakened) significantly since you originated the mortgage in 2001.


Once you enter the US for work, you'll be a US Person. Your functional currency (unless a QBU) will be the US$. The £ is only the basis for your conversion to US$'s.

But once you become a US Person, you are under US tax rules, and they include the rules for Section 988. You must use the amount (converted to US$) of the original loan with the exchange rate existing at the time the loan was obtained.

But the money you pay off the mortgage with will be subject to US tax rules, even if it is £'s earned in the UK, in the past. You'll now be a US Person.

Borrowed: £100,000 @ 1.5 = $150,000
Repaid: £100,000 @ 1.2 = $120,000
Gain subject to tax = $30,000

LouisB

Thanks, wow that was nearly a very expensive mistake.

I think I have no choice but to pay all or most of it off today before I travel and start then.

I rang mortgage company and they said money is received almost immediately using FASTER and back dated to receipt regardless of n business days processing time, so ought to be safe.

I did read there can be exemption if rented (business) which this will be, but if I pay some or most today at least that reduces risks a lot.

Ouch, wow what a trap that seems to be for the unsuspecting.

nun

This is why it's good to avoid cross border loans/payoffs/capital gains if possible. People should purge their finances before they move.

LouisB

Yikes!

So I've just actioned payment of most of it, leaving a little bit left.

I'm keeping the house, so even if I end up staying in US I could live with a small hit on remaining loan or waiting for rates to recover, if they ever do.

Or, since it will be rented, applying rental business rules to it once that's started after we've left.

Either way, should be much better now it's been massively reduced as a loan, before travel.

Who am I to criticise but that does seem daft for people moving to US afterwards, it could at least be Pro-rata.

Anyway, it is what it is so thank goodness I double checked and asked before hand.

Glad also I had the £ to close it out, otherwise would be in trouble here.

Also wouldn't normally be such a big deal, but then again we just had brexit! 🤦‍♂️