kevntrace

I also have a property in the UK and am curious about tax treatment if and when it is sold. The house has never been rented out, we stay there on our annual visits to the UK. The mortgage is paid. However the house really could do with modernizing - going back to brick and updating. It is a 1930s semi. Work was done in the early 90s to update electrics, install central heating, install vinyl double glazed windows and update the kitchen. All that was done before moving to the US. Would there be any opportunities to offset any new refurbishment costs against taxes? We are both dual citizens and reside in the US.

S Folinsky

What you have to do is figure out your basis. Quite often that is the purchase price plus any “capital improvements.” The dividing line between maintenance and capital improvement can be on the fuzzy side at times. You may want to avoid the word refurbishment, but upgrades often fall into the capital improvement rubric.

Pulaski

The distinction between repairs/ renovations and upgrades/ improvements is the same in the UK, and equally fuzzy.

romank66

Great thread - I learned a lot about capital gains tax.

I'm in a similar situation: left our primary property in the UK back in 2015 when I got relocated to the US, and have been renting it out since. Thinking of coming back next year, however I'd rather sell the original property in the UK and buy a different one. My question is: does it matter from tax perspective whether I sell my UK property before or after coming back?
I'd rather do it before as it avoid a chain situation, and my house is not going up in value much anyway, while I'm dealing with a lot of rental management hassle.

Glasgow Girl

The UK has first rights to tax income from a UK based property, which means that the US can only collect any tax due over and above the amount paid to the UK. Because the US has more generous expenses, and allows an annual deduction for depreciation the UK tax bill is typically more meaning that there is usually no additional tax due to the US.

However selling a rental property while subject to US taxes requires that all depreciation taken (or should have been taken) is taxed at your highest ordinary income tax rate (capped at 25%) in addition to all profit on the sale. That could be quite a tax hit if you have rented the property since 2015. It could be avoided if you sell upon return to the UK and are no longer subject to US taxation which would be the case if you are not a USC or surrender a green card.

You also have to consider the UK capital gains taxes upon a sale as resident, and as a non resident for UK tax purposes. I believe that if you are a UK tax resident then you can nominate a prior rental as your main residence and avoid UK capital gains taxes, but cannot do so as a non resident. The rules are detailed, I don’t know all the details but will definitely be worth researching.

Therefore they may be substantial tax savings in both countries by selling the property after returning to the UK, but it all depends upon circumstances.

Pulaski

"Requires".

romank66

Thank you for such a quick and helpful response!

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