texasbound

All

My wife and I have moved to the US on an L1A visa and are in the process of applying for a Green Card. We still have our house in the UK which is currently empty.

I know that there are a series of rules CGT if we choose to sell the house.

I am wondering about the tax implications if we choose to rent the house. I am assuming the rental income would not be liable for UK income tax but would be liable for US tax? Any guidance on the tax treatment would be appreciated.

Thanks in advance

Pulaski

Rent is chargeable to US income tax net of property taxes, mortgage interest, insurance, repairs, maintenance, management fees, marketing and advertising, and depreciation (straight line over 40 years on buildings outside the US, but not on the land). Depending on the rent, and the size of the various expenses, especially the depreciation, it is possible that the net income chargeable to income tax is quite small. It might even be zero, with losses carried forwards to set against future profits.

JAJ

Also perhaps consider the U.K. Inheritance Tax implications of choosing to retain a property in the U.K.

Michael

Not related to UK GCT but US CGT. If you home was your primary residence for 2 of the past 5 years, there is a $500,000 exclusion from capital gains for married filing jointly or $250,000 for married filing separately or single. Therefore if you decide to sell, it should be within 3 years after you left to take advantage of the US capital gains exclusion.

ottotheboar

I am not qualified to answer the tax question but if your house is empty check with your insurance company if this will affect your policy.
With the Halifax we have to notify them if it is empty for more than 60 days.

newadventure

Have i misunderstood this - surely the rental income in the UK does attract UK income tax? Whether or not there is anything to pay depends on rental profit and personal tax allowances

JAJ

It does - however, it attracts U.S. income tax as well. A foreign tax credit may be claimed on the U.S. federal tax return for U.K. tax incurred, however this may not relieve all federal tax. Depends on circumstances. And most States do not allow credit for foreign tax.

The U.K. government has indicated an intention to restrict or remove the personal tax allowance for most non-residents, starting as soon as 2015.

Smudger222

So you would have to pay tax in usa and uk?

And how would usa know you were renting a property in uk? Is that a case of them only knowing if you declare it?

JAJ

Once again.

You'd have to file in both countries. Normally you wouldn't pay U.K. tax if you can claim the personal allowance. If you do pay U.K. tax, you can claim a credit against U.S. federal tax for most, if not all, the amount.

Note. You sign your U.S. tax return under penalty of perjury, so you shouldn't even think about wilfully not declaring overseas income.
And the IRS can find out about it quite easily, because HMRC will know about it and the two tax authorities routinely share information.