OldWindsor

Any advice gratefully received.

Plan to relicate later this year from UK under L1 visa from London to NYC. Plan is to keep our mortgaged house in the UK and rent it out.

Mortgage is with UK bank. I will be employed by our new US business and most likely paid in USD.

What at is the best way to continue to pay the UK mortgage (keep UK bank account and transfer cash between? Ask employer to pay some salary into UK account?). Looks tricky and would love to know what people have done and any pitfalls?

tbm

Check whether your mortgage terms allow you to let your house. Personal mortgages and buy to let mortgages are different.

tbm

I forgot to say: you also have to look into the Non-Resident Landlord Scheme.

Keep your UK bank accounts and pay from savings or transfer USD to your UK bank account. Revolut and TransferWise are good options to make the transfers.

Pulaski

Be aware that if you decide to sell it you will be liable for some CGT in the UK if you moved out more than 18 months ago. But if you sell while still subject to taxes in the US you can end up with a massive CGT bill, because it is assessed on the time you owned it irrespective of whether you were subject to US taxes at the time you bought, AND you may find that there is also a taxable gain on repaying your mortgage. This typically applies when the exchange rate has fallen (from the UK perspective) and the IRS taxes you because it costs you fewer dollars to repay the mortgage than you received (dollar equiv value) when you took out the mortgage.
​​​​​​​
​​​​​​​Under the IRS rules, the favourable tax treatment (allowance of $250k, or $500k if you are married and file taxes jointly) on your home ends 36 months after you move out. In other words you are taxed on the entire time you own it, not just the later time when you weren't living in it!

OldWindsor

Thanks Pulaski - Sounds worryingly complex, presume the advice of a good tax attorney is the way forwards!

robtuck

Basics - sell within 18 months to avoid all CGT, sell within 3 years to avoid USA shellacking.
We kept our HSBC account open in the Uk for mortgage and spoke to them in branch to get permission to rent without changing the mortgage.
HMRC will be interested - you will need to report your rental income to them via self assessment

Ealing man in NY

Hi OldWindsor, we're in a similar position, i.e. relocating to NYC in a few months and will be renting our home out here.

We're going to keep a UK bank account open for the rent to be paid into and the mortgage to be paid out. Anything left over we're looking at bringing over in cash sporadically or transferring via Revolut as tbm has mentioned. I'm seeking some UK tax advice on any issues with this but haven't seen anything so far that would suggest this is a problem.

Interesting to hear how your progress goes.

Pulaski

If you go down the renting path you should research US tax rules - they are a lot more generous that the rules in the UK.

You can deduct pretty much anything you spend from the gross rent to come to the net taxable income, and it is quite possible that you will legitimately end up with NO taxible income, and possibly for multiple years. Do not worry about this - it is more important that you follow IRS rules than worry about about whether the resulting number meets your feelings about whether the result is logical!

Things you can deduct include loan/mortgage interest, property taxes, insurance, management fees, repairs and maintenance whether between or during the tenancy, accountant fees, etc.

​​​​​​​You should also be aware that depreciation of the value of the building (but not the land) must be deducted - it is mandatory under IRS rules. For buildings outside the US that means 2.5% of the historic acquisition cost must be deducted every year (for the first 40 years of ownership). Typically in the UK you won't find a separate value for the land, so unless you can find evidence to the contrary, such as your home is on land with development potential, or your home is located on land prone to flooding or other undesirable land, then using 80% of the purchase price as an estimate of the value of the structure is a good rule of thumb. Domestic appliances and furniture are also depreciated, at 20% per year.

Hotscot

Clarify?
Generally I didn't know you could deduct rent. Is that only in specific, move related, circumstances?

Pulaski

​​​​​​​"Deduct rent"???? ..... I am talking about things you can deduct from rental income to reach net, taxable income. Do if you receive £1,600/mth in gross rent for your home in London, that would be $2,000, then you deduct $1,000 of building depreciation, $500 of mortgage interest, $100 management fee, $100 insurance, and $200 of depreciation on furniture and appliances, then your taxable income for that month (the calculation would only usually be performed annually) would be $100.

Hotscot

Ok, got it.

Ealing man in NY

I'm assuming you're talking about the US tax return for this. Do you still have to fill one if you've file a self assessment in the UK on the rental income? I won't be working in the US until i receive my EAD and the rent will be paid into my UK account where it will be left.

Pulaski

​​​​​​​If you are tax-resident in the US then you are liable for taxes on your worldwide income. All US citizens and permanent residents are tax resident regardless of where in the world they live, as are all visa-holders who are resident in the US, including those on work visas. I am not certain about the situation vis-a-vis tax on rental income in the UK - if you pay tax there then it is almost certain that you will pay no tax in the US on rental income from the UK, though you must still report all the income and expense totals on your US tax return.

Giantaxe

One caveat on depreciation - if the property is sold whilst subject to US taxation, depreciation is recaptured regardless of whether the gain is under the $250k/$500k threshold. And, that recapature is taxed at ordinary income rates, not capital gain rates.

Pulaski

The rules as explained to me, though I have no personal experience, is that depreciation is also recaptured regardless of whether you claimed it, which is why depreciation is mandatory. In other words you can't elect to not depreciate as a way to later avoid the claw-back.

​​​​​​​One further note, under some circumstances you can even deduct part of a rental loss (per the calculation I described above) from your earned income.