Moving to US early next year - UK Mortgage and Property
 

Hi folks.

So we are hopefully moving to US next year - I'm moving on an L1-B transfer visa with my firm, and we've been reading lots to understand the best practice and challenges of this move.

Still got a number of questions but want to start with our current UK property. We have 5 yrs of mortgage left on the property, and we could settle that now, and the financial impact in terms of completing the mortgage now is around £50K. We would make some of that back by not having 5 yrs of payments, of course. Our net loss would be around £20,000, compared with if we paid the mortgage for the next 5 years.

Our mortgage firm has told us that we cannot fund a UK Mortgage from overseas proceeds - i.e. because we will be paid in Dollars - is that correct - has anyone else had similar advice? We even mentioned Transferwise and the fact it would be seemless to them but they are not interested.

So - what to do? We have just sold our UK house, but we want to buy another property for our daughter to stay in, and also release some funds for a potential mortgage in the US in the future (We would rent for the first year). I am on an L1 process with an agreement for GC application after one year.

If we could retain our current mortgage we can afford a larger UK property, and still have the funds we need for the US.

So second question - what are the actual risks of doing this in terms of Capital Gains in the US. Are we better settling up anyway, getting a smaller property in the UK? Is that also a risk in terms of CG? Any thoughts appreciated.

Thanks.

Re: Moving to US early next year - UK Mortgage and Property
 

Hi - with a disclaimer that I am not an expert. but have made the move over , I have looked at the UK house issue and it is complicated.

The first thing to appreciate is once you become a US resident that all your income/assets are looked at in $ by the IRS. If you are earning $ then this is ok ( apart from the highly over complicated USA tax system).

The issues with a UK house gets complicated if you plan to sell whilst subject to US Tax - gains of $250K per person ($500K per couple) are exempt BUT there are rules about having lived in it which are on the IRS site. Where it gets ugly is in regard to the £/$ rates at time of borrowing, buying and selling. As an example:

You have a mortgage of £100K when the exchange is $1. 65 so you borrowed $165K but say you repaid £100K it now at $1.30 you actually have a $ gain as you only needed to "use" $130K to pay it off. Remortgaging before becoming a US resident resets the $ amounts.

When you sell, again the exchange rate at purchase and exchange rate as sale are key as this can give you a $ loss or gain, purely on the exchange rate as obviously the deal is done in £. There are also different deductions allowed for property sales than in the UK - there is a good IRS document on selling your house.

As your firm is sending you over I would ask ( demand) expert accounting advice as the move has a lot of tax/ finance implications which you may not be aware of. Such as
Owning property in the UK as above - don't forget the issues now with UK CGT for periods of non residence in the UK
Holding UK based investment funds are a big headache- advice is not to hold non $ investments. If you have these selling then moving £ to $ at £1.3 is a tough call
Holding/ keeping UK bank accounts ( you need one) can be tricky
ISA's are taxed in the USA
Worth looking at property tax levels and house insurance costs in the area you are going to - Property tax can be $10K plus per year ( $30K in the bay area) House insurance is going to be 10X UK rates if you are in a higher risk area ( which covers most of the USA it seems).
Getting credit will be hard - Amex allow you to have a $ card if you have a UK one and Amex are much more widely taken in the US.


A good UK dual tax regime expert will guide you through this but charge highly for it - hence get the firm to pay
SIPP pensions are a complicated area with divided opinion on what forms to report these on to the IRS.
Happy for you to privately message me.

Best of luck

Re: Moving to US early next year - UK Mortgage and Property
 

Are you saying you sold your house but still have a mortgage balance left on it you don’t need to settle off immediately? What is it secured against then at this time? Presuming you didn’t buy a new place just yet.

for new property be aware foreign currency gains, however since the exchange rate is terrible right now you might be ok, it’s hardly 2/1 like it was 10 years ago but beware if it falls more you have to pay tax on the gain (reduction in loan in dollars), Pretty easy to work out though.

paying mortgage in U.K. from US is simple enough, just allowing for the exchange rate tax if it kicks in.

with new place, will it be treated as a rental? I rent my UK house and US tax law is quite favourable on it overall. I wouldn’t personally be over worried about keeping the UK mortgage, assuming you’re not so risk adverse about foreign currency gains tax. On 50k it’s unlikely to be loads.

I’m not sure how you keep the current mortgage if you sold the house and are moving to the US, unless you’re selling and buying in the U.K. in one move with mortgage transfer and then relocating later?

anyway, I presume (not tried) getting a new mortgage on U.K. property once overseas is probably difficult and subject to additional restrictions, so if you need the cash loan still then keeping the mortgage going could make sense.

Re: Moving to US early next year - UK Mortgage and Property
 

Thanks both of you for your responses.

We have just sold and want to port our mortgage across to another property (looking for 1 right now), but our current provider (Nationwide) will not allow it as we are leaving the UK. They are saying that is not permissable under their terms. We could switch provider now before we move for the remainder of the term, so would be interested if anyone has managed to do this, and which mortgage provider they did it with.

We would effectively rent it to our daughter at reduced rent - keeps a UK base for us, and helps her out.

We're not talking about large property values - probably around £200K for a UK base, and that would free up circa £100K to put towards a US mortgage in a years time.

Re: Moving to US early next year - UK Mortgage and Property
 

I’m not a mortgage expert but in many ways it would seem easier to pay off the existing mortgage, same difference but without complications?

i.e.

pay of existing with proceeds of sale of house
find a new uk place to buy
got a mortgage on it with your sales money, on the difference allowing for now much extra you want to borrow/withhold from your sales proceeds.
ensure it’s a buy to rent mortgage.
move overseas and rent it, in either order...

report taxes as normal accordingly, you’ll have to report in U.K. and US although you’ll only be taxed once, in the US.

Selling your U.K. house before you move = no issues with US gains tax. Assuming you didn’t already become US tax resident with any previous trip in the year?

you have to keep in mind the things mentioned already, potential tax on gains due to foreign exchange rates + tax implications if you sell the UK property while in the US but these are standard things you have to live with, just be aware of them.

hope that helps?

i have a UK rental mortgage and pay from U.K. account while in US, is no issue although gathering all the details twice a year, for U.K. and US accountants is a bit of a bind, but it is what it is. As I say US rental terms seem quite favourable, well to me they do anyway.

Re: Moving to US early next year - UK Mortgage and Property
 

Thanks for the help everyone. We've decided to redeem the mortgage and take out a separate interest only mortgage which will be paid of with an investment sum due in 5 years time.

Appreciate the help folks.

Re: Moving to US early next year - UK Mortgage and Property
 

That’s probably easiest option, just keep the foreign gains tax in mind, it’ll be the difference when you first become tax resident (first day of first tax year you became resident in) vs. Redemption date, tax on any exchange rate gains. Although probably not likely to be large and the rates are already low anyway, after brexit fall.

Re: Moving to US early next year - UK Mortgage and Property
 

Hi Steve, you probably already have this covered but just in case, have you taken out landlord insurance if your daughter or anyone else will be living in the property and paying rent? Only reason I ask is that I'm a UK landlord myself, and one of the people on a landlord website did pretty much that, rented their UK home to a family member at a reduced rate when they migrated to Oz. They just kept up their 'normal' building and contents insurance, there was a fire at the property and their insurer found out that they'd been receiving rent from the family member (don't ask me how, but they did) and used that as a get out clause to not pay a penny for the damage. Just something to think about if you haven't already.

Re: Moving to US early next year - UK Mortgage and Property
 

It is unclear what you mean by an investment due in 5 years time. Most UK based investments do not have any form of US tax deferral and may be highly taxed by the United States.

If you daughter pays you less than market rent, you are effectively making gifts to your daughter - resulting in US gift tax filing. You would still need to register for the non-resident landlord scheme. Alternatively your daughter can withhold UK tax from the rent.