Telic

Hi all,
We're considering a move to NJ from the uk for a permenant job.
The job will
Come with some annual bonuses, can these be paid back to a uk bank account? If we did what tax would be due if tax had already been paid on the bonus in the us? Or can I just keep my account in the U.K. And transfer it over?

MidAtlantic

Yes, no problem transferring funds and there are no tax implications. The important thing is to use a money exchange service where you will get a much better rate, rather than a mainstream bank. Transferwise & WordFirst are often mentioned here, but there are many others.

Pulaski

Well, there'll be FBAR reporting consequences, and once you live in the US no broker or fund manager will want to touch you, so unless the OP is using the money to pay down a mortgage* or invest in rental property, I am not sure what he thinks he will be doing with the money he is sending to the UK.

* Continuing to own a home in the UK and renting it out can have very ugly tax consequences in the US when the time comes to sell, not least because there can be a substantial gain incurred at the time of payoff of the mortgage, due to the exchange rate "gain". It is common at the moment, because of the collapse of sterling over the past two years, to have a taxable gain on the mortgage that is substantially more than the gain on the house you are selling!

It is likely that the optimal solution is to sell your home within 18-36 months of moving out, so as to avoid UK and US (respectively) CGT being assessed.

JosiesJourney

Hi Pulaski

Please can you elaborate on that? We are due to move to NJ on 19th Oct. We are renting our house in the UK. I understand that we need to keep 20% of the taxable rental income aside to pay tax at the end of the year (taxable = rent minus interest, management fee, other maintenance and service deductibles)
This is our only home so is there some clause on having a house rented for more than 3 years that means you pay tax on any CG if sold after that period?

Thanks!

J

MidAtlantic

There may be FBAR consequences. Depends on whether the transfer takes his combined foreign financial account balances over $10k.

I was answering his question, will there be UK taxes due.

Pulaski

I was assuming that the transfers would be accumulated somewhere in the OP's name so even fairly modest transfers would quickly accumulate to over $10,000. My assumption may not have been correct.

Pulaski

The US will charge CGT on a home unless you have lived in it for 24 of the last 60 months that you owned it, for most people that means 36 months after you move out. If you have owned it and lived in it for less than five years then the period to sell after you move out will be shorter. For example you would only have 24 months to sell if you only owned and lived in it for 48 months.

Generally the UK will assess CGT 18 months after you move out, with a few exceptions, which might apply if you returned to the UK to live in it.

It is the US CGT that you need to be worried about, because it is assessed on the gain from the day you bought the house, even if that was 20 years before you moved to the US! .... Also the potential for a massive taxable gain on the mortgage.

yellowroom

Yes, you will potentially have to pay CGT if you sell your UK home while in the US.

From the UK side - normally, if you sell your home that you live in full time, you get an automatic exemption from CGT for the full amount ("Private Residence Relief"). If you no longer live full time in your house when you sell it, you may be liable for some or all of the CGT. It is dependent on your circumstances and you should read up more about it - HMRC here for UK residents and here for non-residents.

I believe the principles for CGT on property in the US are similar but the details differ (ie how much tax you pay depends on how long you lived in the property, how long you rented it out etc), and you may get credits against tax you've paid to HMRC. Others with more knowledge could fill in more details here.

The currency gain that Pulaski mentioned is also applicable to the US side, very simplified it goes something like this (using made up numbers and ignoring mortgage/deposit contributions):

Bought house in 20xx for £150,000 = $200,000 (exchange rate at time of transaction)
Sell house in 2020 for £300,000 = $500,000 (exchange rate at time of transaction

From a US perspective, your gain was $300,000, not £150,000 and the IRS would calculate your tax burden on the $ figure, not the £ figure.

The mortgage gain is even more insidious depending on the exhange rates at the time you take out your mortgage and when you pay it off. Page 9 of this document or this website explain it better than I could.

Pulaski

Here's an example with numbers I have posted previously, but note that the US dollar gain (if any, given the collapse in sterling) on the sale of the house is calculated entirely separately from the gain on redemption of the mortgage.

yellowroom

Thanks, my brain couldn't get round working an example. The numbers I quoted based on house price would still stand if it was a cash purchase, or the mortgage had been paid off before a person moved to the US, right?

Pulaski

Yes.

JosiesJourney

Wow thanks - really helpful to know! So basically don't sell your house while you live in the US unless it's within 3 years of moving there. (crossing my fingers for good tenants!

mrken30

If you rent you house out the IRS would expect you to have taken depreication on the buildings part of the property.

So for example if you had bought the house in 2010 for $300k, the base for CGT may be around $240k (assuming building is 80% of purchase price). This can vary a bit depending where the house is.

This depreciation can be claimed on a yearly basis against your taxes. For overseas properties it is 1/40.

However if you sell and buy another overseas property via a 1031 exchange, no CGT is payable, if the monies from the original property are used to buy the new property.

mrken30

Probably before you move to the US if you have a mortgage.

Pulaski

To be clear, depreciation is mandatory on your US tax return. You are required to deduct 1/40 of the cost of the building each year in your tax return, for forty years. Appliances are depreciated at 20%. You also deduct mortgage interest, insurance, management fees, repairs and maintenance, and taxes (if any). In short you may not have any tax due to the IRS on the rental income.

BTW If you stay in the US as a permanent resident, or become a citizen, you may never be able to escape US CGT, and could end up in the same sort of situation as Boris Johnson.