Moving to US next year- uk property question.
#1
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Joined: Mar 2012
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Moving to US next year- uk property question.
Hi, I am a dual uk/us citizen and am planning on a permanent return to the US next year. I have to decide what to do with my UK house and am unsure of any US tax implications if I was to sell it and use the money to buy a property once in the US or if I was to rent it out.
If I sell my house and pay off the mortgage I will have about £200k to buy/put down deposit on a house in US, will there be any tax issues with moving that money over to US or is it ignored as it’s going straight into a US property?
If I was to rent it out for approx. £1000 per month I believe I would be under the UK tax threshold but would I be liable for any US tax? And if I sold the property years down the line, what would the tax situation be then?
Many thanks for any advice!
If I sell my house and pay off the mortgage I will have about £200k to buy/put down deposit on a house in US, will there be any tax issues with moving that money over to US or is it ignored as it’s going straight into a US property?
If I was to rent it out for approx. £1000 per month I believe I would be under the UK tax threshold but would I be liable for any US tax? And if I sold the property years down the line, what would the tax situation be then?
Many thanks for any advice!
#2
Re: Moving to US next year- uk property question.
Can't help you with the tax, but cross country landlording doesn't sound too fun to me.
#3
Re: Moving to US next year- uk property question.
Sell it before you leave. Under the circumstances you describe there are no good reasons to hang on to it.
Why?
The gain if you sell before you leave, or immediately after, will be tax free under UK CGT rules, and almost certainly under US rules (as a US citizen you are liable for US CGT.
The are no tax consequences of moving money you already have in an account.
Eighteen months after you move out, there will start to be a liability for UK CGT
Thirty-six months after you move out there will start to be a liability for US CGT
UK tax rules for rental property are not generous, you will be liable for UK income tax despite not making much income/ cash flow, and you won't get a tax break if you need to make major expenditures or upgrades.
Owning one rental home is putting all your eggs in one basket - one bad tenant who defaults on the rent and/or damages the property is going to be painful.
You will be almost entirely dependant on an agent to find tenants and manage the property, with little or no chance to monitor the home and keep an eye on the tenant yourself.
In short, if you are leaving the UK permanently, I can't think of one good reason to keep your home and rent it out.
Why?
The gain if you sell before you leave, or immediately after, will be tax free under UK CGT rules, and almost certainly under US rules (as a US citizen you are liable for US CGT.
The are no tax consequences of moving money you already have in an account.
Eighteen months after you move out, there will start to be a liability for UK CGT
Thirty-six months after you move out there will start to be a liability for US CGT
UK tax rules for rental property are not generous, you will be liable for UK income tax despite not making much income/ cash flow, and you won't get a tax break if you need to make major expenditures or upgrades.
Owning one rental home is putting all your eggs in one basket - one bad tenant who defaults on the rent and/or damages the property is going to be painful.
You will be almost entirely dependant on an agent to find tenants and manage the property, with little or no chance to monitor the home and keep an eye on the tenant yourself.
In short, if you are leaving the UK permanently, I can't think of one good reason to keep your home and rent it out.
#4
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Location: Nottingham UK to Boston MA to Orlando FL
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Re: Moving to US next year- uk property question.
No CGT implications as far as I'm aware, but you could have foreign currency gains that you should think about if you have a mortgage on the UK property.
https://blog.taxadvisorypartnership....ange-rate-gain
https://blog.taxadvisorypartnership....ange-rate-gain
#5
Re: Moving to US next year- uk property question.
Any home in the UK that you own and live(d) in becomes chargeable to CGT under UK tax law 18 months after you move out and under US tax law 36 months after you move out. ... And yes there can also be a taxable gain on the notional "profit" you make by repaying a mortgage loan with devalued currency i.e. with GBP at its current low value against USD.
#6
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Joined: Jan 2017
Location: Nottingham UK to Boston MA to Orlando FL
Posts: 185
Re: Moving to US next year- uk property question.
Any home in the UK that you own and live(d) in becomes chargeable to CGT under UK tax law 18 months after you move out and under US tax law 36 months after you move out. ... And yes there can also be a taxable gain on the notional "profit" you make by repaying a mortgage loan with devalued currency i.e. with GBP at its current low value against USD.
Secondly, a low GBP->USD exchange rate is likely to count against a seller, especially if the UK mortgage was taken out prior to the 2016 Brexit vote.
For example:
OP borrowed 100,000GBP in 2015 which in the eyes of the IRS was ~$153,000USD.
OP now sells UK house in preparation for the move, repays the 100,000GBP mortgage but in the eyes of the IRS only paid back $125,000USD due to the current exchange rate.
That is a $28,000 net gain that would be taxable income when OP comes to do first-year US taxes.
#7
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Joined: Mar 2012
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Re: Moving to US next year- uk property question.
I should have clarified that there are no CGT implications if OP were to sell the house now (as far as I'm aware).
Secondly, a low GBP->USD exchange rate is likely to count against a seller, especially if the UK mortgage was taken out prior to the 2016 Brexit vote.
For example:
OP borrowed 100,000GBP in 2015 which in the eyes of the IRS was ~$153,000USD.
OP now sells UK house in preparation for the move, repays the 100,000GBP mortgage but in the eyes of the IRS only paid back $125,000USD due to the current exchange rate.
That is a $28,000 net gain that would be taxable income when OP comes to do first-year US taxes.
Secondly, a low GBP->USD exchange rate is likely to count against a seller, especially if the UK mortgage was taken out prior to the 2016 Brexit vote.
For example:
OP borrowed 100,000GBP in 2015 which in the eyes of the IRS was ~$153,000USD.
OP now sells UK house in preparation for the move, repays the 100,000GBP mortgage but in the eyes of the IRS only paid back $125,000USD due to the current exchange rate.
That is a $28,000 net gain that would be taxable income when OP comes to do first-year US taxes.
#8
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Joined: Jan 2017
Location: Nottingham UK to Boston MA to Orlando FL
Posts: 185
Re: Moving to US next year- uk property question.
I'm not sure if you could potentially time the move so that you didn't pass the substantial presence test and therefore were not considered a US tax resident for the year and so don't have to disclose non-US earnings. You'd have to consult a tax specialist about that, but also if you're a dual citizen you may not be able to get away from your worldwide income reporting obligations regardless. I'm not sure.
I went through the exact same thing when I moved, however by pure luck I'd refinanced my mortgage in 2016 after the Brexit vote so the exchange rate had already tanked. That meant that my currency gain was ~$5k instead of ~$50k.
#9
Re: Moving to US next year- uk property question.
That's what I said .... "repaying with devalued currency", i.e. GBP since 2016. .... And here's no "likely" about it, it will if the pound has fallen against the dollar since the mortgage was take out.
Last edited by Pulaski; Apr 9th 2020 at 8:43 pm.
#10
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Joined: Jun 2015
Posts: 65
Re: Moving to US next year- uk property question.
https://assets.publishing.service.go...71/PRR_web.pdf
David
#11
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Location: Nottingham UK to Boston MA to Orlando FL
Posts: 185
Re: Moving to US next year- uk property question.
#12
Re: Moving to US next year- uk property question.
OK, np .
If anyone else is following along, notional means "existing only in theory or as a suggestion or idea" (thank you Google), so the context of my post above, you are being taxed on a "profit" that only exists because of inflexible application of the IRS rules on how a taxable gain is calculated ("increase in value of an asset" or "reduction in value of a liability*), when in fact, from the point of view of thetax payer victim, they are being taxed on a gain they never even realized (turned into spendable currency), because the tax payer is being taxed on a USD -> GBP -> USD round trip, when the tax payer never actually experienced the initial USD -> GBP leg of the round trip -- i.e. applying an exchange rate to the original mortgage in GBP at the date it was taken out, several years ago or longer, when the borrower may have had absolutely no expectation of ever relocating to the US, is a pure fabrication by the IRS.
* If someone ever has part of a loan "forgiven" by a lender while they are liable for taxes to the US IRS, e.g. a non-recourse short sale (someone sells their home which is worth less than the mortgage secured on it, and the lender agrees to take the home and not pursue the borrower for the short fall) then the amount that the lender wrote off is a gain that is taxable on the borrower.
If anyone else is following along, notional means "existing only in theory or as a suggestion or idea" (thank you Google), so the context of my post above, you are being taxed on a "profit" that only exists because of inflexible application of the IRS rules on how a taxable gain is calculated ("increase in value of an asset" or "reduction in value of a liability*), when in fact, from the point of view of the
* If someone ever has part of a loan "forgiven" by a lender while they are liable for taxes to the US IRS, e.g. a non-recourse short sale (someone sells their home which is worth less than the mortgage secured on it, and the lender agrees to take the home and not pursue the borrower for the short fall) then the amount that the lender wrote off is a gain that is taxable on the borrower.
Last edited by Pulaski; Apr 13th 2020 at 7:16 pm.