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Selling UK home

Selling UK home

Old Dec 12th 2023, 11:30 am
  #1  
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Default Selling UK home

We moved to the U.S. in September and rented our UK home out on a one year tenancy. We would like to sell it next year but are very confused about the tax implications.

I assume that because it was our primary residence for 4 out of the last 5 years that we will not pay UK capital gains tax. Will we have to pay US tax on bringing the equity over here? The rental amount has been losing money after the mortgage and estate agent costs so we have not profited from it in any way.

I understand there is a foreign exchange rate tax that may apply but that is a bit lost on me. We remortgaged in 2022 when the exchange rate was already quite bad. Do we just work out the difference in rate and apply that as a percentage to the profit of the sale at the point it does sell?

Are there any other considerations that we are missing?
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Old Dec 12th 2023, 3:10 pm
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Default Re: Selling UK home

So long as the house was your primary residence for at least 2 out of the 5 prior years then there is no US capital gains tax to pay on the sale. There will however likely be UK tax to pay on the sale, and you must report the sale either way.https://www.gov.uk/guidance/capital-...ntial-property There is no US tax on transferring lump sums over to the US. Be sure to comply with foreign account reporting on FBARs, and Form 8938 as applicable because not reporting foreign funds even if held for less than a day is a big deal with potentially severe penalties for not dong so. Of course, do not invest the proceeds in UK investment vehicles because of further foreign reporting requirements and taxation issues.

To calculate the foreign currency gain on the mortgage redemption, take the amount redeemed in GBP and multiply it by the exchange rate on the date the mortgage originated, take the same GBP redemption amount and multiply it by the exchange rate on the date the mortgage is redeemed. Subtract the redemption amount in USD from the origination amount in USD. If the amount is positive that is your foreign currency gain. If negative there is nothing to report, and no benefit to a loss. The exchange rates can really work against you if the exchange rate dropped since mortgage origination. In your case it is quite possible that the exchange rates rose and if so the foreign exchange tax won’t apply. The origination date is the date you originated the current mortgage so if you refinanced it is the date you last refinanced.

You need to report your rental income on your US tax return even if you are making a loss. By the time you add in all of the allowed expenses and depreciation there likely will be no tax to pay, but excluding foreign income is a very big deal so make sure you complete Schedule E on your tax return.

Last edited by Glasgow Girl; Dec 12th 2023 at 3:21 pm.
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Old Dec 13th 2023, 12:33 am
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Default Re: Selling UK home

This is super helpful thanks so much
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Old Dec 21st 2023, 5:48 pm
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Default Re: Selling UK home

From a US perspective:
  • The rental activity is calculated and reported on Schedule E, Form 8858 plus Form 1116.
  • Any gain on the sale of the residence is exempt from tax if the property was owned & used as a main residence in 2 of the past 5 years.
  • Any suspended passive activity losses (from Form 8582) can be set against other income.
  • You will however be subject to US tax on allowable depreciation for the period of the rental.
  • If there is a US taxable foreign currency gain this will be calculated and reported in the year of sale.

From a UK perspective:
  • You and your spouse will both be registered with HMRC as non resident landlords.
  • You will both be filing annual UK self-assessment tax returns reporting rental income and UK deductible expenses.
  • On sale you will both file UK CGT PPD returns within 60 days of sale and each pay HMRC an estimate of UK CGT due.
  • The final UK tax will be calculated when you file UK tax returns after the close of the UK tax year..


Last edited by Cook_County; Dec 21st 2023 at 5:49 pm. Reason: typo
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