Selling a UK Rental Property
 

Thinking of selling a UK property that I currently rent out.

Does anyone know how this will impact my US tax return....I have been declaring the rental income for several years so kind of difficult not to hide a sale on this one.

Am I looking at a capital gains tax of 40% or thereabouts?

Re: Selling a UK Rental Property
 

I can't see why. That would assume that the IRS knows how much you paid for the property.

I won't tell them, if you won't. :D :D

Re: Selling a UK Rental Property
 

Well I would expect HMG to take their cut first, but you have your annual CGT allowance.

And you are looking at the difference between now and when it was not your primary residence, well for HMG anyway. Here it seems to be a bit more complicated and seems to partly depend whether you are using the proceeds to buy again. We sold my Wife's house when we moved and we have no issues, I think it may have been different if we were going to bank the loot but I did not check.

I don't know an awful lot about it but the capital gains tax applies to your profit in the UK depending on how long you lived in the property before you sell it. I THINK you have to have lived in the house for 2 years and sell it within 5 years of buying it to avoid captial gains tax. Like I said, I don't know a huge amount but we are in a similar position and thats what we were told.

I don't think you will be able to escape CGT as this has not been your primary residence... but it seems to be a very complicated maths sum to arrive at who owes what.
I had a similar query to yours and I emailed the Inland Revenue for further info. You may not want to do that of course ;)

The only way you can escape UK CGT is if the house property value has not inceased.

However if it is joint names then you have 2 CGT allowances and it sound slike it has not been that long then if you have blown throught that, well you are showing a v nice return.

That leaves the US position, which I do not know the details of.

My guess is that Gains would start accumulating from when you became liable to US tax, and I presume that you can offset UK tax under the double taxation rules. I have yet to suss out how the US authorities treat UK Personal Allowances.

If you are non-resident in the UK for tax purposes, you will not have a UK CGT liability (assuming you own it in your own name, not a UK company or trust, or jointly with UK resident person). It gets more difficult if you return to the UK in the tax year of disposal, but unless you do that, you should be OK. Its irrelevant whether the home was your primary residence, how long you lived there etc etc, IF you are non-resident for tax purposes. I've done a couple of these deals on pure rental properties, and never had a CGT bill from the UK. Not done any since we came here, so can't comment on the US side.

But as this thread shows, its always best to speak to a "real expert", rather than a "britishexpats expert", cos we've got totally opposing opinions on this thread!

A truism, I guess especially when Taxes are involved.

I had not assumed that we could avoid CGT on any increase in my currently let Flat, we probably will return anyway.

Well I had not read anywhere that I could avoid it. well not without taking the money and running.

I did bring the IR Books with me, I will have a read when I can raise the energy.

Mind you with the expected property crash, perhaps it will be a moot point.

This is an interesting subject, and it would be great to get a definitive answer - my wife and I would really like to keep our flat to rent out when we finally hop over the pond...but not if we are going to get stung for tax from either the US or UK governments. If we sold before we went, as it's our main residence then we'd pay no tax at all.....worth thinking about.


Mike

I was told that the key is whether the property is your primary residence, if it isn't, and you sell it when you return to the UK, you are liable for CGT. If you live in said property for a while on your return (but who knows what 'a while' is, I wish I did) then your liability will be reduced.
I do not know the ins and outs of selling it whilst still abroad though.:confused:

It must have raised its head somewhere before. Perhaps somebody else could point us in the right direction, OnLine resource or Thread?

I am fairly clear on the rental income side, lots of good IR booklets and other resources, if I want to I could always get my Managing agent to do my tax.

CGT, well I sort of assumed that the IR would not be kind enought to give us a tax break.

My deciding motivators for keeping the flat were:

a) to keep us in the UK property market.

b) to provide me with an income whilst all this EAD stuff is going through.

(a) is more important to me, the property market where I am in the US is flat, sounds like the UK market now is as well, but when you take into account property price inflation and compound that with exchange rate variances, it seemed a good idea to hang on.

I was assuming the CGT issue would only hurt if we were here a long time, possible, and/or UK property inflation started zooming over whatever period.

If the situation arises and I sell and I can avoid CGT great, if not well so be it.

I did get a 'proper' valuation from the same agents I used for letting before I left, just so I can show the base value.

We've decided to rent out our UK house to begin with when we move to the US.

I’d mistakenly assumed that if we sold our UK house to buy a US house we wouldn’t have had to pay any CGT. That was true before the Finance Act of 1998, but then the Inland Revenue brought in new stings for people who leave the UK for a short period of time and then return at a later date and resume their tax residence in the UK.

Option 1 - Sell the house & don’t ever come back to the UK.
· To not be liable to US tax -$250,000 deduction ($500,00 married) on your house sale, you need to have been resident for at least 2 full years of the past 5 years in the property you are selling. Therefore you need to sell the house <3 years after you leave the UK, to avoid US tax.
· If you don’t ever come back to the UK, that is that and no CGT to pay. (I think!!)

Option 2 - Sell the house & come back to the UK.
· As per option 1, need to sell < 3 years after you leave the UK to avoid US tax.
· You need to make sure you come back to the UK after > 5 full tax years - otherwise you will be liable to CGT on the house sale when you return to the UK. (I think!!)


Option 3 - Don’t sell the house & come back to the UK.
· If you come back to the UK and go back to living in your house as your permanent residence, then your CGT liability will be reduced.

I have taken the advice on this forum and asked for a valuation on our house before we leave. The house has doubled in value since we bought 5 years ago (pretty normal for the UK at the minute) and if we can avoid being liable to CGT on any gains we made before we left the UK that would be great.

If you check out this hyperlink, there is a help sheet from the Inland Revenue which discusses temporary non-residents and CGT.

www.inlandrevenue.gov.uk/helpsheets/ir278.pdf

Lottie

Thanks for the link. Most interesting.

The question that I still have bouncing around my head is what the base value is for calculating any Capital Gains.

Logic suggests to me that for the US authorities it would be when you become liable to US tax, and for the UK authorities when it no longer was your primary residence.

If that is correct then you might need 2 valuations.

But I am afraid to use logic. If it is the case, with those expemptions, US and UK, then there would need to be a big push in prices for it to become and issue, which I think is unlikely.

Just hope that the CGT is payable on the difference in the base value when you leave the UK and the value you sell for, rather than what you paid for the property years back. I'm going to check with the Inland Revenue to make sure about this as I can't find anything specific on the website.

Also, re: 2 valuations. For most people who rent their house out as a consequence of moving, the time between leaving the UK property and becoming a US tax payer is days, so would you really need 2 valuations in this instance? Sorry if I'm being a bit blonde with this.

Lottie

Well I do not think I am yet, waiting for my AoS and EAD after coming over on a K1.

Suppose for H1's etc it would be a bit irrelevant.