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Green card and tax implications for UK property & rental income

Green card and tax implications for UK property & rental income

Old Jul 5th 2016, 8:16 pm
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Default Green card and tax implications for UK property & rental income

Hey folks,

My wife and I have been in the US for a few years now and are finally on our way to green cards that are hopefully just 6 months away. I hadn't really given it much thought but it seems there are going to be tax implications of this and I'm now wondering if there are things I should be doing in preparation.

The main issue is that I own a property back in central London. It has a large mortgage but also a lot of equity. It's been rented out since I bought it 10 years ago and the rental income more than covers the mortgage payments.

My main concerns are around 1) the tax liability post green card on the rental income which is approximately $30k/yr half of which is interest on the mortgage 2) what would happen if I decided to sell the property in the future, there would be capital gains payable in the UK, what kind of liability would I be on the hook for in the US? Are there any things I can realistically do now to try and negate double taxation in the future?

Any advice greatly appreciated!

Cheers
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Old Jul 5th 2016, 8:28 pm
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Default Re: Green card and tax implications for UK property & rental income

Welcome to BE and good luck with it!

Though have a look down a bit, as this subject has come up quite recently, quite a few times. Should be able to find those threads to get you going
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Old Jul 5th 2016, 9:25 pm
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Default Re: Green card and tax implications for UK property & rental income

I think you may have been liable for taxes against that rental income for prior years as a US resident. Hopefully someone else can clarify. Also you would probably be liable for US CGT. I assume you have been filing your UK taxes for your rental income.
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Old Jul 5th 2016, 9:27 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by programatic View Post
Hey folks,

My wife and I have been in the US for a few years now and are finally on our way to green cards that are hopefully just 6 months away. I hadn't really given it much thought but it seems there are going to be tax implications of this and I'm now wondering if there are things I should be doing in preparation.

The main issue is that I own a property back in central London. It has a large mortgage but also a lot of equity. It's been rented out since I bought it 10 years ago and the rental income more than covers the mortgage payments.

My main concerns are around 1) the tax liability post green card on the rental income which is approximately $30k/yr half of which is interest on the mortgage 2) what would happen if I decided to sell the property in the future, there would be capital gains payable in the UK, what kind of liability would I be on the hook for in the US? Are there any things I can realistically do now to try and negate double taxation in the future?

Any advice greatly appreciated!

Cheers
There are tax implications for the things you describe. However, those tax implications started when you became a US tax resident, which was when you first moved here, they don't start when you receive your green card.
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Old Jul 5th 2016, 9:30 pm
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Default Re: Green card and tax implications for UK property & rental income

You probably want to clean up your taxes before LPR, I am not sure if you have to declare that you have paid all taxes owed.
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Old Jul 5th 2016, 9:47 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by Owen778 View Post
There are tax implications for the things you describe. However, those tax implications started when you became a US tax resident, which was when you first moved here, they don't start when you receive your green card.
This is correct.
Originally Posted by mrken30 View Post
You probably want to clean up your taxes before LPR, I am not sure if you have to declare that you have paid all taxes owed.
As Owen said, becoming an LPR does change much, the "damage is already done" with respect to taxes.

For starters, if they moved out of their UK home more than three years ago they are already on the hook for a rather nasty CGT bill, not only on the increase in the value of their home, but also in respect of the fewer number of dollars needed to pay off the mortgage when the house is sold (as compared to the value of dollars they received when they took out the mortgage), thanks to the slide in the value of the pound over the past two years.
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Old Jul 5th 2016, 10:07 pm
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Default Re: Green card and tax implications for UK property & rental income

To be clear I've been in the US as a student on J visas up until this point and not working which means I have been a non-resident alien for tax purposes, although admittedly I probably need to consult an accountant about the tax liabilities. I am not planning to sell the UK property (although it is of course an option), just trying to understand my options and whether there is anything I should be considering in this period between becoming a permanent resident.
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Old Jul 5th 2016, 10:11 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by programatic View Post
.... I am not planning to sell the UK property, .
Unless you are pretty much certain that you won't become a US citizen and that you will return to the UK to live at some point, you should seriously consider selling your property in the UK if you haven't yet fallen under the US tax umbrella.
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Old Jul 5th 2016, 10:24 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by programatic View Post
To be clear I've been in the US as a student on J visas up until this point and not working which means I have been a non-resident alien for tax purposes, although admittedly I probably need to consult an accountant about the tax liabilities. I am not planning to sell the UK property (although it is of course an option), just trying to understand my options and whether there is anything I should be considering in this period between becoming a permanent resident.
If you've not been paying your US taxes as a J visa body but stay past that period allowed, you're liable for back pay of those taxes you would have paid, for not leaving the US. Something to be aware of.
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Old Jul 5th 2016, 10:24 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by programatic View Post
To be clear I've been in the US as a student on J visas up until this point and not working which means I have been a non-resident alien for tax purposes, although admittedly I probably need to consult an accountant about the tax liabilities. I am not planning to sell the UK property (although it is of course an option), just trying to understand my options and whether there is anything I should be considering in this period between becoming a permanent resident.
Ah, J-1 student status is an exception, as long as you've been in the US five calendar years or less. How long have you actually been in the US for, and are you still in J-1 status?

And hopefully someone with more knowledge of renting UK property as an expat will be along soon to help with your original question.
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Old Jul 5th 2016, 10:32 pm
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by Bob View Post
If you've not been paying your US taxes as a J visa body but stay past that period allowed, you're liable for back pay of those taxes you would have paid, for not leaving the US. Something to be aware of.
I've just been looking through a few related IRS documents, and I've seen no reference to that. Do you have a link?
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Old Jul 6th 2016, 3:41 am
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by programatic View Post
Hey folks,

My wife and I have been in the US for a few years now and are finally on our way to green cards that are hopefully just 6 months away. I hadn't really given it much thought but it seems there are going to be tax implications of this and I'm now wondering if there are things I should be doing in preparation.

The main issue is that I own a property back in central London. It has a large mortgage but also a lot of equity. It's been rented out since I bought it 10 years ago and the rental income more than covers the mortgage payments.

My main concerns are around 1) the tax liability post green card on the rental income which is approximately $30k/yr half of which is interest on the mortgage 2) what would happen if I decided to sell the property in the future, there would be capital gains payable in the UK, what kind of liability would I be on the hook for in the US? Are there any things I can realistically do now to try and negate double taxation in the future?

Any advice greatly appreciated!

Cheers
I was also surprised that getting a green card would change the tax situation but I do not know US tax well enough to comment further.

To your questions, the UK would continue to have first bite of the cherry of any tax due on rental income. The US gets second bite of the cherry, so you declare the profit and claim tax credit for any tax paid in the UK. If you didn't pay tax in the UK because it is below personal allowance, then you pay tax on the full profit in US. Capital gains tax will be much the same.

You don't need to do anything to negate double taxation because there is a dual tax treaty in place that does just that.

If however it is true that your US visa means you don't pay US tax then indeed it might be better to sell before that changes and hopefully UK personal allowances will cover much of the gain.
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Old Jul 6th 2016, 10:25 am
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by Bermudashorts View Post
.... To your questions, the UK would continue to have first bite of the cherry of any tax due on rental income. The US gets second bite of the cherry, so you declare the profit and claim tax credit for any tax paid in the UK. If you didn't pay tax in the UK because it is below personal allowance, then you pay tax on the full profit in US. .....
If you choose to hold and continue to rent out your property in the UK, the rules for calculating the taxable profit for US tax purposes are more generous, with pretty much anything you spend being deductible from gross revenue, and there also being a depreciation allowance of 1/40th of the value of the building (not the land - a rule of thumb is about 80% of the price of a property is the building, but it could be more, say if the property is a flat with several units on a small piece of land, or less, say if the land is near a city center, with high value). Depreciation is mandatory, and it can cause issues (extra taxation) if you "choose" not to depreciate a property during the time you own it.
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Old Jul 7th 2016, 12:44 am
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by Owen778 View Post
I've just been looking through a few related IRS documents, and I've seen no reference to that. Do you have a link?
You'll have to search out posts by Caleyjag, I think it was, who posted a fair bit of info on the subject, because he was caught out by it when he decided to stay on.
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Old Jul 7th 2016, 1:40 am
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Default Re: Green card and tax implications for UK property & rental income

Originally Posted by Bob View Post
You'll have to search out posts by Caleyjag, I think it was, who posted a fair bit of info on the subject, because he was caught out by it when he decided to stay on.
I believe that was for J-1 non-students under certain tax treaties. Students shouldn't have to worry about that detail.
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