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Renting UK property whilst in USA (USA capital gains potential impact)

Renting UK property whilst in USA (USA capital gains potential impact)

Old Dec 14th 2019, 6:34 am
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Default Renting UK property whilst in USA (USA capital gains potential impact)

Hello

Query if anyone can help re move to the USA next year and renting UK property.

If we move to the USA and rent a US property, is it the case that by default that if the property is rented this is the trigger for the 3 year window to sell and avoid USA long term Capital gains. Alternatively does the 3 year window/trigger for long term capital gains only start on the purchase of another "main" residence for the purposing of living in.

ie ideal scenario is for the family to move to the USA for 2-5 years and rent - then on our return we move back into the family home (which had been rented in our absence) and know that we are not liable for USA long term CGT if we have been away from more than 3 years.

Hope this makes sense and thanks in advance for any feedback/help

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Old Dec 18th 2019, 1:31 am
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Default Re: Renting UK property whilst in USA (USA capital gains potential impact)

Hi,
not sure if this helps but as far as I know;
a) us tax residence starts on first day of entry into the USA in first year of becoming (qualifying as) tax resident, even if you come and go in between.
b) if matters not if you rent or own in the US wrt. Selling your U.K. overseas property, if you do while US tax resident
c) you talk about moving back to the house after some years? Same place, then where does the CGT kick in?
d) I think tax rules change after 6 years of renting a foreign property when it’s primary purpose then changes
e) all taxable gains are worked out in USD, so for purposes of U.K. asset you have to calculate the USD value difference.
f) because of e you can end up also paying tax on mortgage and loans if the value of the pound falls between entry and any redemption, if you have a mortgage do check as I think it could get tricky with a repayment mortgage that pays off capital and interest regularly such as every month.
g) enlist a international tax expert because it gets really tricky and you’ll have to report UK and USA incomes to work out taxes and report foreign rent income correctly in the USA
h) Us tax law is quite favourable to renting (overseas), I’m doing this and other than complexities of reporting it all, it seems quite fair, assuming you’re not getting mega bucks per month, then I don’t know.

Always check with professional and use professional to report it correctly, last thing you’ll want is the IRS on your back.

hope that helps a bit?

Last edited by LouisB; Dec 18th 2019 at 1:35 am.
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Old Dec 18th 2019, 11:56 am
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Default Re: Renting UK property whilst in USA (USA capital gains potential impact)

Hello LouisB

Thanks for your update and feedback helps with understanding my options.

REgards

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Old Dec 24th 2019, 12:46 am
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Default Re: Renting UK property whilst in USA (USA capital gains potential impact)

Welcome, hopefully gives you a sense of it. Pretty common to do but as I say, consult a tax specialist for definitive advice and filing returns, at least to start with, I can be a bit complex and you don’t want to get in trouble with the IRS. I have a US and U.K. accountant and I send them all the docs, they work out the returns in detail. Even with that, still quite a lot of docs to gather and collate. Good luck.
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Old Jan 6th 2020, 2:38 am
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Default Re: Renting UK property whilst in USA (USA capital gains potential impact)

The US charges CGT on the sale of your home unless you have lived in it for at least 24 of the 60 months before you sell it, so yes, it will attract US CGT starting three years after you move out if you are subject to US taxes at the time of the sale, and the impact can be brutal because there may also by US CGT assessable on the notional foreign currency gain on the repayment of the mortgage, and depending on how exchange rates have moved it is quite possible that the gain on the repayment of the mortgage might be greater than the gain on the sale of the underlying home. Note that both the gain on the home and the (possible) gain on the repayment of the mortgage are calculated based on the gain since the date of purchase, not on the period that you have been living in the US/ were subject to US taxes.

If you return to the UK before you sell the home and are no longer liable for US taxes then you would not pay US CGT. The question is "how certain are you that you will return to the UK after five years, (or even a longer time so long as you can disengage yourself from the US taxation system)? If you decide to remain in the US for the longer term then you might be assessable to a large CGT bill, and therefore might leave yourself as the "involuntary" owner of a home in the UK just to avoid the US CGT.

There may also be UK CGT implications even sooner than three years, but that can be complex depending on why you are outside the US E.g. you may be able to get relief from UK CGT if you left the UK for work purposes. .... UK CGT is assessed based on different periods during the time you owned the property, such as periods when you lived in the home, periods you rented it out, periods when you were outside the UK, etc, and then the gain is prorated across the different periods.
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