Springy6

I've been following all the recent threads regarding house sales and trying to get my head around it all. Please be patient with me!

I'd be very grateful if anyone can confirm my thinking or put me right.

We live in our house in the UK and have done so since December 2001. Based on similar properties around us, we expect to sell it (at some point in the next 3years) for around £320,000. After paying off the mortgage, we expect to have approx £180,000 equity ($271,000). When we took out the original mortgage, the exchange rate was around 1.44 $ to £ so lower than today's rate. We have remortgaged as the term of each fixed mortgage has expired.

My thinking is that capital gains won't be payable as profits are not in excess of $500,000 (married filing jointly) and that as the exchange rate was lower at the time of purchase, there is no currency exchange gain.

Have I got it right?

Also, what level of capital gains would be payable if we don't sell within 3 years?

I thought dealing with US immigration was mind blowing but clearly that was just the warm-up act.

bewildering

Will you be using the equity to buy a new house in the US? If it were a US sale then your gains would not be taxed. Perhaps the same for your situation.

As always, a consultation with a decent CPA is recommended.

Springy6

We would be using the equity to buy in the US but not immediately. Will this make a difference?

Michael

No.

tht

You say "We live in our house in the UK" so have you not moved yet? why are you tax resident in the US? I assume you are not USC since you mention immigration?

Springy6

We will be moving at the beginning of August (although hubby will be starting work for the company in May and be based in the UK ). Moving over on an immigrant visa.

We're trying to work out whether we sell before we go, and put the house on the market now, rent it out for a year or so, or sell and then buy a much smaller buy to let to keep a foot on the UK property ladder 'just in case'.

Pulaski

Unless you expect your home to rise in value significantly over the next three years, or are certain you will return to the UK one day and to be able to free yourself from the IRS's global reach, then I would recommend selling at the time you leave the UK. Renting your home out will certainly not improve its state of repair, so that's another reason to sell now rather than hold on to it.

While it might be tempting to buy another property in the UK to rent out you should think very carefully about that because there are significant costs to managing a rental property remotely from several thousand miles away and you will only recreate the sort of capital gains trap that you are trying to avoid if you buy an investment property in the UK.

OnwardandUpward

I was so glad we sold out home in the UK, because if we'd kept it it would have certainly been a) additional source of stress to finance say repairs etc also b) a huge temptation to give up too soon when life got tough here.

From what I can see of www.gov.uk taxes seem to be more complex and more punitive than US. When I could not get health insurance and thought of coming back I was shocked how much had changed.
Taxes seem to be everywhere ( especially since I now live and work in texas! )

https://www.gov.uk/tax-sell-home seems to say you won't have to pay capital gains tax on selling your main home now- however as Pulaski points out above if you keep it as a business investment you may well create a liability later ( and the government website isn't very forthcoming about exactly when )

petitefrancaise

A long time ago...
we were given some advice regarding keeping your house in your home country. If you are on an ex-patriate contract abroad then keep your house. If the contract is in anyway temporary then keep it.
But if you are moving and going onto local payroll, sell it. The hassle involved is not worth it and you'll probably need your money to buy a home wherever you are.
We've always had local contracts (much eye-rolling and "poor you" from some quarters!) and made our home where we were. We've always had lovely homes that we bought and sold easily and unless something very dire happens here in the USA then we should have enough house equity to buy a house if we go back to the UK. We've never had to worry about taxes on property when moving which has been a godsend.

kodokan

Completely agree with la petitefrancaise. We left the UK in early 2008 to go to Switzerland 'for a couple of years'; a little overseas adventure (on a local contract, as she said). Seven years later, we now live in the US, and have absolutely no plans to move back to the UK in the foreseeable future. Not owning a house in the UK during all this has been great, and saved a ton of worry and hassle. Unless it's a supremely special house in an area you're rock solid certain you'll return to job-and-family-wise, move on decisively, and get rid.

petitefrancaise

And Kodokan, if you'd kept your UK house whilst in Switzerland and sold it now to buy a house in the USA, you'd be paying out loads of taxes since it hadn't been your primary residence.

I've heard the odd story over the years about people going back to the UK (mostly the SE) and not being able to afford a house in a nice area because of house price inflation in the UK outstripping that of where they have been living. But I wonder how many of those same people would have afforded the house in the lovely area with massive house price inflation had they stayed.

cliff1961

I shall be moving from the UK over to Texas in 6 weeks time and had to consider the same options all friends keep telling me to RENT it out !
But I plan to return in approx. in approx. 14 years time for my Fiancée' to see this side of the world . . .

But to do this I will require employment at Retirement age of £18,600 annual income approx. or £62,500 in savings in which to bring my wife back with me into the UK, therefore to get this kind of money I would have to sell my house to gather the savings to bring my wife over from Texas to the UK.

Renting my property out thinking I will have a home to return to will not work for me !

MsElui

we rented ours out and then sold it after 5 years.

we had a decent management company but there were still issues that made it hassle and we just couldn't go check it out. Like a break in, and appliances like a tumble drier that we left as a favor and had used maybe once, that the tenant managed to wreck and we had to replace as it was on the inventory. Plus it makes a LOT of hassle to add all the 'stuff' onto the tax form each year.


plus - as we did it over 5 years after we left we are currently facing a VERY large tax bill (capital gains) because whilst we made a modest profit in reality on the house brought in 2001 - the exchange rate at the time (2001-2014) makes it look like we made virtual profit (even though we didn't know about America at the time of purchase and the funds didn't come from America). PLUS we don't have many records from the things we did to improve the house back in 2001 (like invoices from replacing the kitchen and boiler etc) as we didn't have any idea we would need then 14 years later in America - and we are having to 'estimate' said repairs in order to offset some of that gain.

so it can be a lot of additional hassle if you are not well prepared. if i could change anything - i would have sold up a lot earlier!

I would also add - whilst we were very happy living in that house in England - it would have been hard to go back to it after living in the houses here. so sentimentally - we should have sold it as well.

kodokan

This is very true, I think. I am a very different person from the one who left the UK in 2008. Then, I was the mother of two young children, who valued rural living and a large rambling garden in which my kids could roam and play, and I could grow vegetables.

Now, I'm the mother of a teen and almost teen, who's done with the whole SAHM thing. We'll be moving soon (within the US) and I shall be looking for somewhere with minimal landscaping requirements - the kids are well past the playing in the garden stage, and I want to spend more time out of the house studying/ volunteering with a view to going back to work, so want as few chores as possible. Without the need for babysitters, we've started going out more - I want a walkable downtown. After several years car-less in Switzerland, I really value bikeable neighborhoods, and public transport if possible, for me and my now-independent kids.

2015 Me wouldn't be remotely interested in returning to a rural UK idyll, or a family-friendly suburb with outdoor playspaces for young kids, or a walkable elementary, or any of those other things that were important to me back then. I imagine many people undergo similar changes in outlook and family demographic during their overseas stint. Sell, evolve, move on.

IlAlfie

We left in 2011 and rented out our London flat until we sold in 2013. Whilst we didn't make money on the rental income (and that wasn't really the point anyway), it was good to have it still there. You don't know how it's all going to turn out and I didn't want to be left with a situation of going back to the UK and not having anywhere to go!

We had a reputable management company but it was still a bit of a pain. You may have to file UK taxes for every you rent it out. We did as the total transaction amounts (not profit...sadly) were over the threshold.

We, coincidentally, sold at just the right time. The UK govt changed the rules on capital gains on property that you rent out in April 2014 that was your former home. Properties sold after that time only receive 18 months of the private residence relief thingy, not 3 years as previously, before attracting capital gains. So if you do rent then sell, don't leave it for too long.