whatadiva

I would like to research for myself and for my parents on capital gains tax for UK and/or US.

What should I know about CGT?

Should they sell BEFORE GC approval? or should they sell AFTER entry to the US on their GC?

I don't have numbers/figures. All I know is they own their house. Not sure when they bought it or how much they bought it for, not sure house much it is worth now? (if anyone has a useful UK link for the value) I'd appreciate it.

I just want to know the basics of CGT, and selling prior to moving to the US?

edited to include: if parents receive a UK pension, is that seen as US income?

Glasgow Girl

When they sell their house there will be no capital gains to pay IF they have lived in the house for at least 2 out of the 5 years prior to the sale AND the gain is less than $500,000 if married ($250,000 single). It does not matter if the house is overseas, the same rules apply as if the property was is in the US. If the gain exceeds $500,000/$250,000 then they will have to pay tax on the amount over those limits.

However, if they sell while subject to US taxes and they have a mortgage then they will also have to pay tax on what the IRS considers to be a currency gain when the mortgage is paid off at the sale (the same thing applies upon a refinance). In short they calculate the value of the mortgage loan in USD when taken out, and the value of the original mortgage loan amount in USD when it is paid off. If the value in USD at pay off is lower than it was when it was when originally taken out then you have to pay tax on the difference. If the USD at pay off has weakened against the GBP since the mortgage originated then there will be tax to pay. The rational is that you need less USD to pay off the mortgage at pay off because of exchange rate movements and that is a taxable gain. Not really fair, but it is what it is.

If they have any savings in shared investment vehicles like unit trusts, OEICs, or investment trusts then they should liquidate them BEFORE moving over here, otherwise they will be subject to punitive taxes. The IRS will not recognize an ISA as tax free.

The UK state pension will be taxable income.

SanDiegogirl

It was my understanding that if one is living in the UK and sells their main residence (home) there is no capital gains to pay.

Therefore if the OP's parents sell their property in the UK before they either move to the US or get their Green card then they won't have to pay capital gains.

I certainly know of people who have done this and have had no interactions with the US IRS regarding a home they sold in the UK before they moved to the US.

Have I misunderstood?

durham_lad

+1

Since they are not US citizens, selling up before they leave will not involve any capital gains calculations at all.

whatadiva

ok thank you guys!

Glasgow Girl

I was not clear in my response that any tax due to the IRS only applies if you sell while subject to US taxes, I.e. you after they move over here.

SanDiegogirl

Thanks for clarifying.....