blantonnick

If we were interested in moving to the US from the UK and wanted to rent our current home in the UK and buy in the US, what sort of tax implications would this present? I am a US citizen and still file every year, my wife is a UK citizen and we are currently looking to get her a spousal visa.

Any tax information would be greatly appreciated!
Thanks
Nick

BritishGuy36

Depends on if and when you decide to sell it.

If you sell it now (presumably it's your primary residence) you are not liable for GCT.

If you rent it for a few years, then sell it, you are. So, unless you are going to rent it for a long time, you'd probably be best to just sell it now, as otherwise you'd actually lose money.

A lot will depend on whether you have equity in the house or not, as the equity amount at the time of sale is what CGT is calculated on, if it applies.

Songbird

I don't know how helpful this will be to you but here's my situation. I am a UKC married to a USC, currently on a conditional green card living in the US. I own a property in the UK which I rent out. As my USC hubby never lived in the UK and the property belongs solely to me, for tax purposes I am classified as a single person in the UK. The income from that property is below my personal tax allowance in the UK, hence I pay no tax on it. Stateside, I declared my property in our tax assessment and was informed that as it's a UK property and I am not a USC all issues relating to tax on it were the concern of the UK tax people. The UK and the US government have a tax treaty whereby you are not taxed twice so regardless if the income generated was above the UK tax threshold there was no tax due payable on it in the US. I don't know how accurate this is ( tax laws are a Chinese puzzle to me) but that was the information I was given when we were tax assessed here in the US so I am assuming it's correct. BTW if it's not and there are any tax guru's out there then shout out, orange is not a good color on me and I don't want to end up doing an Al Capone

I had to deal with the UK Inland Revenue from the USA as I originally came here on vacation and ended up married and staying but seeing as you are in the UK it should be a lot easier. IIRC you deal with it via their inter department None Resident Landlord Scheme. Differences in your situation will be that you are currently ( I am assuming) employed and resident in the UK and hence you and your wife are taxed assessed as a married couple ? Also, that you jointly own the property? If so, your taxable threshold (ie the amount you can earn before tax) will be higher than mine. My rental income is approx 400 GBP a month, which puts me below the tax threshold for a single person, as a married couple you would be able to generate more than that prior to the tax threshold being reached. You can also reduce your taxable income by numerous disregards ( too many to go into here the details are available on the UK Inland Revenue site ) Briefly ongoing repairs, maintenance, service charges, wear and tear etc etc. If you have a company handle the rental management for you ( I don't) then afaik as part of their contract with you they will handle the tax for you. I should also note that I have no mortgage on the UK property (again I am assuming you have) so I have no idea about the possibilities or intricacies of whether or not any of those charges/ payments are offset for tax purposes when you are a none resident landlord (NRL) Happen others in that situation will be able to comment. Oh also, if you have a mortgage, then as I understand it you will have to contact your lender if you are intending to rent out your property.

As to the wanting to buy in the US, I did inquire about this at our bank in the US regarding utilizing my UK generated rental income / property and was told that was possible subject to value assessment, equity etc. I didn't really pursue it as our circumstances changed but that avenue was available to us as it probably would be for you too. It made my head hurt!

Like I said my knowledge of tax laws is at best piddling I have merely outlined my situation fwiw to give you a general picture. Best advice is do what I did, pick up the phone and have a chat with the 'nice' people at the Inland Revenue. Actually they were very nice and helpful contrary to general public opinion. Your situation does differ to mine but there will be some similarities.

As a general point, being a NRL is not without its difficulties. There are ongoing costs i.e. annual gas and electric service / safety certificates (all legal requirements), payment to your management company (if you have one), plus the general maintenance repairs to such things as boilers etc. I also pay about 45 GBP a month for my gas and electric home cover service. It all adds up especially if (as happened to me) you need to fork out for any breakdowns / replacements and then of course there's the finding new tenants problem <groan>. If I had the luxury of being in your position, I wouldn't even hesitate about putting the property on the market BEFORE you come to the US. Get it sold and be done with it.

Cape Blue

I think you are wrong.

(1). You should pay UK tax on the profit in the UK subject to you UK tax-free allowance (you are correct here)

(2). You should pay US tax on the profit in the UK, BUT can then deduct any tax already paid in the UK (dual tax agreement).

This unfortunately creates (for you) a potential real tax burden as whilst your UK letting profit is less than the personal allowance in the UK (so no UK tax), the UK letting profit needs to be added to your US income to create your total income - assuming you are already earning more than your tax-free allowance in the US the UK lettings profit effectively gets added at your current marginal rate in the US. The US tax system does allow some generous deductions such as depreciation etc which can help.

Cape Blue

(1). P85 for her

(2). NRL1 for the property to get rents paid gross (as overseas landlords)

(3). Profit from rental (after agents, insurance, corgi, mortgage interest, etc) gets taxed as usual in the UK - self assessment, include interest tax paid from banks accounts etc, if over the personal allowance (about 7k from memory) then pay as normal income tax.

(4). Profit from rental gets taxed in the US by adding onto your income, but deductions are more generous than the UK and dual tax agreement allows any UK tax paid to be deducted.

(5). If you sell in the future there could be UK CGT to pay on the increase in capital value of the property - there are some exemptions such as being allowed to let for 3 years and a 40K allowance etc.

(6). If you sell in the future there might be some US capital gains exposure - I am not sure on the detail.

That is my understanding.

Songbird

Thanks for that - I am a total numpty when it comes to tax! I just clarified with DH and the tax assessment thing we did was for something called 'personal property tax'. DH told me (and he better be right!) that as I don't work in the US (apart from taking care of him which is unpaid) and as our total combined income is significantly under the US married couples allowance ( how poor are we! ) then we are not required to file. Is that right??

nettlebed

I have a house in the UK which I rent. It still has a small mortgage on it. I am not liable to tax in the UK, but I declare all my income and expenses related to the property in my annual returns to the IRS.

All expenses related to the foreign property are reported in one section of my return, which then may or may not make me liable to US income tax depending on the amounts.

I claim allowances aggressively (including expenses for an annual trip to the US for my wife and I to inspect the property - we claim airfare, hotel and car rental costs), mortgage interest, repairs, management fees, etc. This is then set against the rental income. If the expenditure exceeds income (it usually does due to the claims we can make), we CAN'T deduct this from our normal tax liability, but we can carry it forward as an unallowed loss, to be set against future profits from the rental.

Cape Blue

I take it that is due to the profit being below the UK personal threshold?

nettlebed

No, it because I am a non-dom. I signed a piece of paper and sent it to the Inland Revenue when I left the UK.

Cape Blue

I wasn't aware that worked for property income that arose in the UK - what piece of paper was it you sent in?

nettlebed

TO be honest, I can't remember: it was eight years ago, and my UK lawyer has all the paperwork...

Cape Blue

I am surprised that you can do that, my understanding was that UK property income was always taxed in the UK. http://www.hmrc.gov.uk/MANUALS/salfmanual/salf703.htm

Sure you can sign an NRL1 to receive the income gross, but that still doesn't mean it is not taxable in the UK, just that you agents or tenant don't have to remove the tax each month and you can pay it in the usual self-assessment way at the end of the year.

You might want to ask your lawyer to check.

nettlebed

Will do: thanks for the pointer.

Peter Newton

Income from property arising in the UK is indeed taxable in the UK. If you are a US resident, the US will also tax you on that income, but allow you a credit for the UK tax paid. See the US-UK tax treaty of 2001, Article 6 para 1.

dave2702

I did the same, my rental company gave me a piece of paper to sign which meant that they wouldn't take any tax off of me because I was paying it in the US

I'm impressed with your deductions, I've been pretty aggressive with them but never claimed for a trip to the UK to perform my annual inspection