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Selling UK Property - help understanding taxes

Selling UK Property - help understanding taxes

Old Jan 10th 2018, 11:58 pm
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Default Selling UK Property - help understanding taxes

Hi there,
I have been living and working in NYC for 4 years. My property in the UK has been rented out during this time. The tenants are not renewing their lease and we are looking to get the property sold quickly due to divorce also which is in progress currently. I am just wondering if anyone can give me some advice about what kind of taxes would be due on the sale of the property. I am renting in NYC and planning to buy in the US at some point but probably not in line with the sale of the UK property. Does the tax that you owe depend on whether you are purchasing another property or does the fact it was rented out mean it is classed as a 2nd home anyway? And does it matter whether the proceeds remain in the UK or are transferred to the US?
I'm kind of clueless when it comes to this so any information or advice anyone has would be most appreciated.
Thanks
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Old Jan 11th 2018, 11:59 am
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Default Re: Selling UK Property - help understanding taxes

You need to be discussing the US and UK tax with the solicitor handling the divorce, so that the solicitor can get an answer from an accountant or tax professional. The tax is not going to be insignificant and will form part of the division of marital assets to be addressed in the divorce agreement.
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Old Jan 11th 2018, 12:50 pm
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Default Re: Selling UK Property - help understanding taxes

If you have not lived in the property in the past 18 months, the UK will classify it as a second home for tax purposes anyway. They will require you to pay Capital Gains on the proceeds (subject to the gain, allowances etc.)- you will both have a 50/50 responsibility, even if married still.

My understanding is that anything 3 years after your arrival in the USA also means you are liable for capital gains in the USA. There are reciprocal tax treaties, so it will be a little messy and probably does require the help of an expert, certainly this side of the pond. From looking at Capital Gains before in the UK, it's a simple process I believe.
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Old Jan 11th 2018, 7:36 pm
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Default Re: Selling UK Property - help understanding taxes

Originally Posted by robtuck View Post
If you have not lived in the property in the past 18 months, the UK will classify it as a second home for tax purposes anyway. They will require you to pay Capital Gains on the proceeds (subject to the gain, allowances etc.)- you will both have a 50/50 responsibility, even if married still.

My understanding is that anything 3 years after your arrival in the USA also means you are liable for capital gains in the USA. There are reciprocal tax treaties,.
Yes, you will but its not be double taxed. For example if the capital gain tax is 15% in the UK, and 16% in the US, then you only pay the 1% difference to the US if the 15% has been paid in the UK. Find an accountant who knows UK tax laws, perhaps someone who does the US taxes for other UK expats in NYC
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Old Jan 12th 2018, 8:41 am
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Default Re: Selling UK Property - help understanding taxes

Sorry to hijack the thread a little, but if the property owned in the UK is sold within 18months of moving to the US is there therefore no tax to be paid in either country?
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Old Jan 12th 2018, 11:21 am
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Default Re: Selling UK Property - help understanding taxes

Originally Posted by Gf_121 View Post
Sorry to hijack the thread a little, but if the property owned in the UK is sold within 18months of moving to the US is there therefore no tax to be paid in either country?
Quite possibly.
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Old Jan 12th 2018, 1:17 pm
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Default Re: Selling UK Property - help understanding taxes

What about the tax on any foreign currency gains?
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Old Jan 12th 2018, 2:08 pm
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Default Re: Selling UK Property - help understanding taxes

I'm going through a similar process, I can't answer all queries with known answers but I can tell you what I have found out about US taxes so far. Once I do sell the flat and file the taxes I will have the answers:

US tax law on CGT on property for a straight forward case has the rule that if you lived in the property 2 out of the past 5 years (doesn't have to be consecutive or the last 2 years) then you can claim the $250k (single) or $500k (married) tax free allowance.

If you don't pass this test, then there are ways you can claim partial allowance which is what Nellie should be looking at. When you move unexpectedly for work, such as a new job or location change, and the move is more than 50 miles away you can get a partial allowance so in your example, if you sell soon and you manage to have lived in the flat for 1 out of the past 5 years then you would qualify for 1/2 of the $250/500 allowance.

I believe you can still claim GTC allowance for your spouse even when going through a divorce if you both lived in the house for that 1 year but don't quote me, so this would mean you would qualify for 250k of allowance between you so if you sell your flat for less than 250k profit, you might squeeze by without US tax.

Re the renting out of the property in the UK. Me and my accountant can't find any laws that would effect your GCT allowance if you rented out the property after it was established as your main residence (2/5 years). There are laws around renting out a property and then moving into it before selling it to try to build up the 2/5 years, they have rules to prevent cheeky investors/landlords from not paying tax.

However, if you are renting out your property in the UK and declaring the rental in the US you should have been claiming depreciation and if you didn't it still wouldn't matter, you will have to pay tax on the depreciation you should have claimed. This is a ridiculous tax rule in my opinion, but it does benefit property investors (the rich) which is why its there. Depreciation is a topic in itself so won't go into it and of course depends on if the US know you rented the flat out.

The summarize the original questions, to the best of my experience I would say:

"Does the tax that you owe depend on whether you are purchasing another property"
No. They changed this law a while back to give a standard allowance for your main home of 250/500 which is actually much fairer in my opinion. However, if the property is purely a rental property you can roll over the gains/losses into another rental/business property within a certain time frame rather than pay taxes now. But I don't think that is your case as you want to buy a home for yourself.

"does the fact it was rented out mean it is classed as a 2nd home anyway"
If you converted it to a second home/rental after it was your main residence then as long as you pass the 2/5 years rule (or a portion of it if you have special circumstances) then I believe it doesn't matter that you rented it out after you moved out. The US treats moving out of a house before sale as a likely scenario, which is why they have the 2/5 rule and renting out to cover costs while you sell it is a reasonable thing to do.

"And does it matter whether the proceeds remain in the UK or are transferred to the US?"
I think this is unrelated to sale of a home. All global income are subject to tax when you are a US tax resident. Keeping the proceeds from a sale of a home in the UK would not relieve you of any tax that would be due.


BUT FOR THE LOVE OF GOD, DO NOT USE THIS ADVICE AS GOSPEL, GO TO AN ACCOUNTANT.

I can recommend one in NYC, a very good one!

Last edited by JimmyArtnull; Jan 12th 2018 at 2:27 pm.
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Old Jan 13th 2018, 10:31 pm
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Default Re: Selling UK Property - help understanding taxes

Thank you very much to everyone who responded. Sorry for delayed response but couldn’t get back on the site until now.

JimmyArtnull - really appreciate the detailed response. I would gladly take recommendations for accountants or tax advisors. My current accountant is really not big on UK laws. And my divorce lawyer will be happy to look into it for me but that will cost me more than it’s worth too probably!!

Regarding the 2/5 rule - we moved out to nyc in Jan 2014 and it has been rented since. So only lived there 1 out of 5 years. Does that mean we are entitled to half or just a portion of the allowance? And is the tax on the equity or on the full selling price of the house?

Thanks again!!
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Old Jan 14th 2018, 11:05 am
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Default Re: Selling UK Property - help understanding taxes

Originally Posted by Nellie2477 View Post
Thank you very much to everyone who responded. Sorry for delayed response but couldn’t get back on the site until now.

JimmyArtnull - really appreciate the detailed response. I would gladly take recommendations for accountants or tax advisors. My current accountant is really not big on UK laws. And my divorce lawyer will be happy to look into it for me but that will cost me more than it’s worth too probably!!

Regarding the 2/5 rule - we moved out to nyc in Jan 2014 and it has been rented since. So only lived there 1 out of 5 years. Does that mean we are entitled to half or just a portion of the allowance? And is the tax on the equity or on the full selling price of the house?

Thanks again!!
US tax is calculated on the gain using spot rates for the dates of purchase and sale. The foreign currency gain on repaying the Sterling mortgage is calculated using spot rates for the dates the mortgage started and is paid off. The UK charges CGT on any gain accruing from 6 April 2015. You would also owe US tax on the recapture of allowable depreciation, but can offset any suspended passive activity losses. The US also gives credit for UK tax in the same basket.
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Old Jan 14th 2018, 2:44 pm
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Default Re: Selling UK Property - help understanding taxes

I would recommend [email protected] in NYC for your taxes

Sounds like you are at the 1/5 years point now, so if you were able to sell it in 6 months say, you would only qualify for 0.5/2 years of reflief, which would be $62.5k single/$125k married on the gains of the property.

I think Cook_county answered the other points well
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