Blanca

Hello everyone,
We are contemplating whether to sell or keep our house in UK. I am married to US citizen and moving to US in May 2021. We have a house here in UK (bought in August 2016). We initially thought of seeling it before my move to US but now because of Covid we might not have enough time to sell before I have to move (or enter US before 6 month medical validity deadline) so we are thinking whether maybe treat it as an investment - remortgage it now (before the move) and just leave the house here as is (my brother would be able to look after it - not live in it - but just keeping eye on it - he lives nearby) what I would like to ask for is your opinions. I do know a bit about taxes etc and I did read some previous posts regarding "keeping the UK property with mortgage whilst living in US" but every situation is different. The house was bought for 95000 in 2016 and there is still 72000 left to repay the mortgage. What are your thoughts regarding this situation and I would be very very grateful if someone could help us calculate how much tax we would have to pay if for example we decide to sell it in lets say 5 - 10 years. Thank you so much in advance for all your replies.

civilservant

Sell now. US taxes will eat you alive if you sell when you are a US Resident and have to calculate currency fluctuations in with capital gains.

penguinsix

We left a house unoccupied for a number of years. That was a big mistake. We should have rented it or better just sold it. When we returned there was this and that which had to be replaced, and things like our 'nearly new fridge' now was quite out of date. Not to mention the constant worry about a rave-style break in or a tree falling.

If you want to become a distanced landlord, then plan ahead for all the financial implications and management issues (it can be done). But if you are just 'too busy' right now I'd at least get everything sussed and ready for sale as best you can before you go so you don't have to fly back and say repaint the kitchen or something like that.

note: I'm not sure on this point, but I believe you can get a capital gains exclusion if you are selling your "primary residence" unto a say $250k in profits. However, you need to have lived in this property "2 of the last 5 years" so if you move and sell in 10 years, you might have an additional tax burden. Others may be more familiar with this bit and how it applies to property (just going off what I read, not experienced) https://www.thebalance.com/sale-of-your-home-3193496

Glasgow Girl

No one can calculate your taxes now. There are too many factors, when you sell it, how much for, what the tax rates will be at the time you sell and what any currency movements will be.

You can deduct $250K if single, and $500K if married from any capital gains tax so long as the house was your principal residence for 2 out of the previous 5 years. Therefore if you retain the property and sell it before you have been here for 3 years then you will be able to protect $250K/$500K from Capital Gains Tax. As soon as you have been in the US for 3 years, based upon the date of the sale, even by one day you will be subject to Capital Gains tax on all profit. The tax rate is currently 15%, BUT depending upon your total income for that year the profit may make you subject to the 20% capital gains tax rate, plus 3.8% Obamacare Net Tex and also restrict any other deductions for which you may otherwise have been eligible, further increasing your tax liability. Then you have to factor in the currency gains as well. And also bear in mind that it is very likely that tax rates will increase under the Biden administration.

If you do keep it and rent it out then the property is no longer considered residential and is no longer eligible for the $250K/$500K deduction.

My advice is sell it now, take you profits and invest again over here. If you think it is hard to sell now, it is a lot harder when you are overseas.

Winston_the_Great_Dane

Sold mine when I moved because I could not be bothered with; a. Long distance management of an expensive asset and b. US tax agro further down the road.

You might be surprised how easy a sale is; I used Yopa and it was a piece of cake.

Good luck

strat

As indicated above, can be a bit of a shock when it comes time to sell. We had a house in the uk long ago, rented it out, and over the years was not considered principal residence. Purchased early in a time when prices were rising, sold with a nice increase in value, got thoroughly @$$&ed by the US taxman once dollar exchange rates were figured in. Think we purchased for 34000 (yes long, long ago early 2000s) sold for 70000 something, paid $18000 dollars tax... the numbers probably don’t hold up to scrutiny, I only remember I could have bought a new accord at the time with the tax we paid 😩

oh, tenants, we were lucky, no big issues, used a mgmt company...

vespucci

Plus also state tax in most states.

Blanca

Is my capital gain (or loss) calculated from the date of Purchase (Aug 2016) or from the date of last remortgage (March 2021) ?

Glasgow Girl

Date or purchase, regardless of when you entered the US (or anything else). The US is not a friendly place when its comes to taxing foreign assets.

Glasgow Girl

Other things to consider.

You stated that your spouse is a US citizen and that complicates things considerably. As a US citizen they have been subject to US taxes their entire life (or since they became a citizen) no matter where in the world they live. If the house is in both names then their half of the profit will be subject to Capital Gains Tax as well as the currency gain even if you sell it before you move because of their existing US tax obligations. If you have been filing US taxes for the spouse then you will be aware of the UK/US tax treaty, and if your UK tax due is more than the US tax due then you will be able to apply the difference to offset some or all of the tax due to the property sale. If you have not been filing taxes for the US spouse then you need to get on that immediately as it could seriously jeopardize your visa processing.

The currency rate in 2016 was very volatile, and depending upon the exchange rate on the day you bought, it is possible that you may not owe any currency gain. If the GBP bought less USD on the date you bought than it does on the date the mortgage is repaid (sale or refinance) you will not have any currency gain. Hopefully you bought in the last half of 2016 as that would work in your favor. No one can predict future currency movements though, so it is what it is.

If your remortgage requires that you pay off the original mortgage (and it almost certainly does) then again because your spouse is a US citizen you will have to pay half of the currency gain at the time of the remortgage regardless of when it happens, or where you are living at the time. After that the currency gain would be calculated from the time of the remortgage and the date of sale (assuming the mortgage is not paid off or remortgaged prior to that).

It is a very complicated situation, and unfortunately more so because of your spouse’s US citizenship.

Blanca

Yes my husband is a US citizen (has been his entire life and has been filing US taxes). The house is in my name only. I bought it in August 2016 and we got married in 2018. So if I bought the house for 95000 in August 2016 and (for example) will sell in March 2021 for 115000 then omg this is seriously complicated...
but I do thank you all for all your replies, I am so grateful for this forum!

Blanca

Yes my husband is a US citizen (has been his entire life and has been filing US taxes). The house is in my name only. I bought it in August 2016 and we got married in 2018. So if I bought the house for 95000 in August 2016 and (for example) will sell in March 2021 for 115000 then omg this is seriously complicated...
but I do thank you all for all your replies, I am so grateful for this forum!

hutchison

our Visa was 3 years with chance of an extension so, i could see no logic of paying tax if we held on to a mortgage for more than 3 years. And I did not want to deal with a remote sale after 3 years, we also we noted that The US market financials and property investment potential is certainly as good / fluent as the UK, you can invest here (i am not saying its better, no guarantee) , i am saying its available and when it is good it is good like all world markets. Sell and re-invest was my choice.

what property you can buy or contribute towards in the U.S land wise with that money is often a great deal more space than what kind of land you can have in the UK.
for us it made total sense to liquidate.

yes it was a risk liquidating all assets, house, ISA's, bank savings, cars, stock investments, and investing in just one property (all eggs in one basket), but, We since have started other investments for example, 401k & Roth IRA, also just plain taxed stock trading, so we have spread our investments again.

we managed to transfer our cash right on the peak of a strong dollar in the last 3 yr (FEB-APR 2018) and right now the pound is again climbing and doing well against the dollar, so the opportunity for transferring cash now is better than its been in almost 3 years @1.36$ for example.

/ some points to consider.

Glasgow Girl

Really glad to hear you husband was aware of the requirement fo file US taxes, it can be major shock to some “Accidental Americans”.

If you sell after you move here but before you have been here for 3 years then you can protect your gains using the $250K/$500K exclusion from capital gains, so unless there is massive appreciation you should be good there.

With the house being in your name only, you do not need to worry about any immediate foreign currency gain if you remortgage before you move here as you are not yet subject to US taxes until the date you arrive in the US. After that date you will be subject to foreign currency gains but the good news is that the exchange rate in August 2016 was lower than right now, roughly between $1.30 and $1.33, mostly closer to $1.30. Todays rate is a little over $1.35 so there would be no gain if you completed the refinance today. Like I said no one can predict currency movements but absent major world events they are unlikely to change by a lot in a short time frame. HOWEVER, you are still at risk of future currency gains because when you do sell you will have to look at the currency rates on the date you remortgaged and the date you sell (or remortgage again) and recalculate at that time. If the British pound gets stronger in that time frame and/or the dollar gets weaker then you will have a gain. For what’s it is worth my crystal ball says that is going to happen but if my crystal ball was that good I would be a very rich girl.

Finally as Winston The Great Dane said, it is relatively easy to sell the house when you are overseas, but getting it prepared for sale can be a major headache (cleaning, repairs, landscaping). You may be in better shape if you have family close by. I kept my house for more than 10 years , rented it out, and eventually sold it but I got totally killed on US taxes.

Oh and one more thing, if you have any savings in anything other than a deposit account, liquidate them before you get here. That is another MAJOR tax nightmare.

For a whole variety of reasons, not least of all just getting on with your new life I definitely recommend selling as soon as you can but not so fast that you don't get the best price. But as you said at the start everyone’s circumstances are different. Good luck whatever you decide and enjoy your new life in the US, I am sure you will love it here.

PetrifiedExPat

If it was me I would sell.