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Rent or Sell

Rent or Sell

Old Dec 7th 2021, 9:46 pm
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Default Rent or Sell

Hi,
We are moving to North Carolina early next year. we are struggling to make a decision on property in UK we own. Was wondering how some of you made decision whether to sell or rent it.

We had a chat with tax consultant and understand that we don't need to pay capital gains tax for next 3 years in US however UK capital gains rules are not very clear.

what other aspects we need to consider?

Many thanks
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Old Dec 7th 2021, 11:11 pm
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Default Re: Rent or Sell

Is this your principle home you are contemplating renting?
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Old Dec 8th 2021, 4:42 am
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Default Re: Rent or Sell

From memory, you have a window of about 18 months to sell a Primary Residence (after last residing there) in the UK before it becomes necessary to pay CGT and then the three years you quote before you'd be liable in the USA as well.

If you have a mortgage, you'd need to contact the provider to inform them of the fact you will be wanting to rent the property - they would likely provide a 12 month permission (which can be renewed). If you want to convert that mortgage to a Buy To Let style, you would likely be better served doing that before moving as it is considerably more difficult to obtain such mortgages once outside the UK (not impossible).

If you rent the property in the UK you will more than likely need to file a self assessment with HMRC each year as you'd probably earn more than the allowance for rental income.
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Old Dec 11th 2021, 7:36 pm
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Default Re: Rent or Sell

You also have to consider foreign currency gains when you pay off your mortgage whether by refinancing or selling. In a nut shell you convert the original mortgage value on the day you took it out, to dollars at the exchange rate in force then, and then take the same original mortgage value and convert it to dollars using the exchange rate in force on the day the mortgage is refinanced or paid off. If the dollar value on the the day you took out the loan is more than it is on the day you pay it off or refinance, then you have to pay federal and state tax at your highest marginal tax rate on the difference. If the dollar weakens against the pound between those two dates, the you will have an additional tax bill on top of any capital gains tax. The foreign currency gain will apply immediately, the 3 year grace period that applies to capital gains tax does not apply to foreign currency gains. The rationale is that you made a foreign currency gain when the mortgage is paid off because you needed less dollars at pay off than you did when the loan was originated. Not at all fair, but it is what it is.

if it were me and I was planning on buying over here, I would sell my UK property. If you are not going to buy here, then I would keep the UK property so you at least have some property as an investment. Just know that if you rent it out, you are very unlikely to get the property back in the same condition you rented it. Even the best renters won’t look after it the way you would have.

Something else to consider. If you have a large amount of equity in the home, then the proceeds may push you over the FBAR and FATCA limits for tax reporting if you keep the proceeds invested overseas or in a foreign account. If FBAR and FATCA is not something you are familiar with and you have more than 10,000 in foreign (UK accounts) then you need to look into that BEFORE you mover over here. There is plenty of information in this forum to get you started.


Last edited by Glasgow Girl; Dec 11th 2021 at 7:39 pm.
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Old Dec 12th 2021, 10:19 am
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Default Re: Rent or Sell

When we were in a similar position we rented out our UK house until we got our Green Cards and were sure that we could stay in the USA.

I am certain that the equity in the house is not a reportable item in FBAR, and also not a reportable item in the tax return with an 8938. (I use a dual qualified tax accountant and the value of our UK house is not reported on the FBAR or 8938)

ETA

Here is a good table showing which financial assets are reportable and houses are not included
https://www.irs.gov/businesses/compa...r-requirements

Last edited by durham_lad; Dec 12th 2021 at 10:21 am.
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Old Dec 12th 2021, 1:43 pm
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Default Re: Rent or Sell

It’s not the equity in the house that triggers FBAR and FATCA reporting and tax requirements, it is the proceeds from the potential sale that do so if they retain that money in a UK account or invest the proceeds a UK fund.
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Old Dec 12th 2021, 2:20 pm
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Default Re: Rent or Sell

Originally Posted by Glasgow Girl View Post
It’s not the equity in the house that triggers FBAR and FATCA reporting and tax requirements, it is the proceeds from the potential sale that do so if they retain that money in a UK account or invest the proceeds a UK fund.
gotcha, I misunderstood​​​​​​.

That should not be a concern as it is a simple reporting matter, probably only for 1 year. The way you had it all bolded in your post and with BEFORE in capital letters it sounded like you thought it was serious. It spooked me for sure
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Old Dec 12th 2021, 2:42 pm
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Default Re: Rent or Sell

Personally I couldn't deal with a long distance rental.
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Old Dec 12th 2021, 2:50 pm
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Default Re: Rent or Sell

It is very serious if you do not fulfill the reporting requirements, even for one year. The penalties are draconian if the IRS deems you non compliant. In addition, the tax payable to the IRS on any income or profits from funds invested in the UK are eye watering. You are subject to those taxes from the day you enter the US. Anyone moving over here with substantial assets needs to be aware of these taxes because the only way out is to liquidate your UK assets before you get here and reinvest in US assets. Or, keep all your assets in property, cash, or shares listed on a stock exchange (not funds of any kind).

The message is, if you are moving here with substantial assets invested overseas from the US make sure you understand the reporting requirements and taxes payable on such investments before you arrive. Once you get here, even for a day, you can no longer avoid these requirements and taxes. Too many people have been caught unaware of this, and it has been a very costly and stressful experience for them.
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Old Dec 14th 2021, 3:31 pm
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Default Re: Rent or Sell

Originally Posted by Glasgow Girl View Post
You also have to consider foreign currency gains when you pay off your mortgage whether by refinancing or selling. In a nut shell you convert the original mortgage value on the day you took it out, to dollars at the exchange rate in force then, and then take the same original mortgage value and convert it to dollars using the exchange rate in force on the day the mortgage is refinanced or paid off. If the dollar value on the the day you took out the loan is more than it is on the day you pay it off or refinance, then you have to pay federal and state tax at your highest marginal tax rate on the difference. If the dollar weakens against the pound between those two dates, the you will have an additional tax bill on top of any capital gains tax. The foreign currency gain will apply immediately, the 3 year grace period that applies to capital gains tax does not apply to foreign currency gains. The rationale is that you made a foreign currency gain when the mortgage is paid off because you needed less dollars at pay off than you did when the loan was originated. Not at all fair, but it is what it is.

if it were me and I was planning on buying over here, I would sell my UK property. If you are not going to buy here, then I would keep the UK property so you at least have some property as an investment. Just know that if you rent it out, you are very unlikely to get the property back in the same condition you rented it. Even the best renters won’t look after it the way you would have.

Something else to consider. If you have a large amount of equity in the home, then the proceeds may push you over the FBAR and FATCA limits for tax reporting if you keep the proceeds invested overseas or in a foreign account. If FBAR and FATCA is not something you are familiar with and you have more than 10,000 in foreign (UK accounts) then you need to look into that BEFORE you mover over here. There is plenty of information in this forum to get you started.
I've been reading up on this. Does anyone know the definition of refinancing according to the IRS please. Would switching interest rates (same account number, same amounts, same bank) be counted as refinancing please or would that be covered as an account modification?

Last edited by capin; Dec 14th 2021 at 4:16 pm.
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Old Dec 14th 2021, 5:24 pm
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Default Re: Rent or Sell

if it is the same account number I think this will avoid the foreign currency tax. It sounds like they are simply adjusting the interest rate, similar to what they do on a variable rate mortgage. So long as they do they do not pay off the loan and then advance the whole amount all over again you should be fine.
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Old Jan 5th 2022, 9:19 am
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Default Re: Rent or Sell

Hi

Apologies for hijacking the original post, but I'm in a fairly similar position; also moving to NC from the UK.

We are selling our house in the UK (less hassle and equity in the property helps us to set up in the US).

We plan to use x amount of the equity to help us set up, as mentioned above. However, we also plan to put a very large proportion of this equity into a form of savings account in the UK. In our mind, this is our house deposit if we ever decide to come back to the UK, or, a deposit for a house in the US if we wish to buy in 12-24 months time. We plan to rent in the US for the first 12-24 months until our credit score has improved and we have decided if the move is permanent.

Given the money will be in a UK savings account, how will this impact me in the US? I'm far from clued up with taxes and the likes but I presume I will have to declare this in UK tax returns.

Thanks
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Old Jan 5th 2022, 1:39 pm
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Default Re: Rent or Sell

Originally Posted by Danny1c1 View Post
Hi

Apologies for hijacking the original post, but I'm in a fairly similar position; also moving to NC from the UK.

We are selling our house in the UK (less hassle and equity in the property helps us to set up in the US).

We plan to use x amount of the equity to help us set up, as mentioned above. However, we also plan to put a very large proportion of this equity into a form of savings account in the UK. In our mind, this is our house deposit if we ever decide to come back to the UK, or, a deposit for a house in the US if we wish to buy in 12-24 months time. We plan to rent in the US for the first 12-24 months until our credit score has improved and we have decided if the move is permanent.

Given the money will be in a UK savings account, how will this impact me in the US? I'm far from clued up with taxes and the likes but I presume I will have to declare this in UK tax returns.

Thanks
The interest from the savings account will have be declared as tax paid in the USA. No taxes due in the UK as you will be non-resident.

The balance(s) will be reportable as an FBAR filing and possibly on the tax return on an 8938 if they are above the limits. This is reporting only, no taxes on the balances.

Here is a link to the IRS form instructions.
https://www.irs.gov/businesses/corpo...nancial-assets

And an FBAR is filed separately online.

https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

Last edited by durham_lad; Jan 5th 2022 at 1:42 pm.
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Old Jan 5th 2022, 3:12 pm
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Default Re: Rent or Sell

Originally Posted by durham_lad View Post
The interest from the savings account will have be declared as tax paid in the USA. No taxes due in the UK as you will be non-resident.

The balance(s) will be reportable as an FBAR filing and possibly on the tax return on an 8938 if they are above the limits. This is reporting only, no taxes on the balances.

Here is a link to the IRS form instructions.
https://www.irs.gov/businesses/corpo...nancial-assets

And an FBAR is filed separately online.

https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html
The interest is declared in the US as income not “tax paid” if any tax is withheld/paid, it may be possible to claim a deduction/credit.

Tax residence would be hard to determine from the limited information posted. But as a general note one can meet the criteria be tax resident in more than 1 jurisdiction at a time, it’s not a simple as moving.
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Old Jan 5th 2022, 3:49 pm
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Default Re: Rent or Sell

Make sure you keep the funds in cash, or shares held directly in a company. Any form of pooled investment like Unit Trusts, OEIC’S or Investment Trusts will result in unbelievably high taxation rates and paper work way beyond FBARs and Form 8938 if you sell those investments. Also, be aware that ISAs are not recognized by the IRS so everything invested in an ISA is also taxable in the US. As mentioned above, make sure you comply with FBAR and Form 8938 reporting, the penalties for not doing so are severe and there are no get out of jail free cards.
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