Fran3750

I am sure that this question has been asked before, but I am a new ex-pat in U.S.A. and just wondered what, if any, tax the U.S Government will want from the proceeds of the sale of my house in England. Any advice would be very welcome. Thanks

meauxna

What is your immigration status in the US?

There was a recent thread about this, too, that explained it quite well. Have a skim through the first 2 pages of the forum and yell if you don't find it.

The tax implication to be concerned with is "capital gains". A little googling will help too.

Michael

There is a $500,000 (if married and filing jointly) or $250,000 (if single or filing separately) capital gains exclusion on the sale of your primary residence (lived in home 2 of the past 5 years).

Fran3750

Thank you both very much. In answer to your question about status - my green card is in the mail!

meauxna

OK, if the sale occurs when you are a Permanent Resident (if you entered with an Immigrant Visa, that day) then you definitely want to pay attention.
Good luck!

Michael

Even if it is sold the home in the same year that she became a permanent (sold previous to becoming a resident), she should definitely pay attention since it is likely that she will have to file as a resident for tax purposes for that year which will include worldwide income.

mikechristina

I am in much the same position as Fran, but I am in the process of applying to become a permanent resident via my wife who is a USC. Expecting to get there at the end of this year now

I was divorced in June 2010, in my previous marriage we owned both a family home and a holiday home which were roughly the same value. She got the family home and me the holiday home. Unfortunately I could not live in it because it is too far away and my business was hit very hard in the recession, so have lived with my parents since Jan 2009. Net equity is around £240,000.

This house is my ONLY asset, but in the UK it is subject to capital gains at 28% - which considering my position is a scandal, but sure the tax man does not want the sob story!

I am about to place it on the market, BUT need to be clear on my options. I could run the risk of selling it whilst I am a resident here and simply not declare it (I am feeling a little hard done to!!) or try and arrange contract exchange to occur when/if(no assumptions) I am a permanent resident in the US?

If the US tax man is going to look at whether it was my main residence, then I have the same problem there - so I guess that is the core question - are they going to ask me to prove this? If so, I may just run the gauntlet here as I know of other people who have sold what the tax man essentially see's as an investment property and gotten away with not declaring it (yes, I know they can come knocking at any time in the future).

My Father is an ex Chartered Accountant, so I have qualified the UK tax position, it is the US bit I need to nail down now.

Sorry for the long explanation - I do hope someone can help me out here....


Mike

Michael

Currently US long term capital gains (assets held longer than 1 year) is taxed at a maximum of 15%. It is the capital gains (after deducting expenses) that is taxed and not the equity in the home.

You should have documentation concerning purchase price as well as selling price plus expenses if you are audited. If the IRS enters a demand for payment, there are penalties and interest added.

Will you be caught if you don't claim the gains on your tax return? No one knows but the IRS may get clues if large amounts of money is transferred and you didn't declare foreign bank accounts (foreign bank accounts of more than $10,000 must be declared on US tax return).

mikechristina

Hi Michael,

Thanks for your response. We have already calculated the precise capital gain figure (had to for the divorce). Still is going to hit us hard as this is the only money we have to buy a home in the US.

I am teetering on the edge of selling now and running the gauntlet with the UK tax office, BUT I am thinking that the US tax office may ask for proof that I have paid tax in the UK?

My other thought was (and this might be wishful/niave?!) that the US tax office may not view it as what it once was to me - a holiday home, but as what it effectivly has been to me for the last 2 years - my only home, but could not afford to live in it as I was unable to pay the mortgage and ongoing costs.....is there mileage in calling the IRS in London to explore this I wonder?


Best

Mike

penguinbar

If anyone needs to use a good accountant regarding this or any tax issues I recommend Pete Newton who is a member on here. He's an expat and very knowledgable about both US and UK tax issues. www.doug-tax.com.

Cape Blue

Just checking - but you do know that you won't pay anywhere near 28% on the capital gain right?

There are a range of annual and one-off allowances, plus you should "move-in" for a few months to establish residency and get 3 years back.

post # 2 worth a look on this thread
http://britishexpats.com/forum/showthread.php?t=618436

mikechristina

Thanks that was precisely the info I needed in the thread from 2009

Yes - we know it wont be any where near 28%, so least we know for sure we dont want to pay tax on the gain in Blighty!

The next critical question is the point at which we exchange contracts, my gut feeling is to try and arrange exchange just after I get PR status (my Father is also suggesting this and is an ex Chartered Accountant).

Obviously we dont want to pay any CGT at all if we can help it, so I think we will go down the perm residence route based on the fact that I would have been living there had I been able to afford the mortgage + associated costs. Might be able to 'move in' for a few months prior - my Father also suggested that would be a good idea.

mikechristina

This is the official response from my UK Accountant - I hope other people can benefit from this, it is quite comprehensive and conclusive:-

General rule:
As a general rule you will not be liable to CGT if you are not resident (R) and ordinarily resident
(O.R.) in the UK. (See below)
However, there are a couple of points that you need to watch:
1. You will be liable to CGT in the tax year of departure, even if you sell the asset after you have
become non-R and non-O.R.
2. If you have been R or O.R. in the UK for any part of at least 4 of the previous 7 tax years, and
become not R and not O.R. for less than 5 tax years, you will be treated as temporarily non-
R.
As such, you will be liable to tax on gains realised on the disposal of assets owned before
you left the UK.
All such gains in the tax year of departure are chargeable in that year.
Gains on such assets arising while abroad are charged in the tax year when you become UK R
again.
Residence:
Residence usually requires physical presence in a country.
You will always be regarded as R in the UK if you are physically present here for 183 days or more in
the tax year.
Ordinary residence:
Ordinary residence is broadly equivalent to habitual residence. HMRC consider that the word
”ordinary” indicates that residence in the UK is “typical and not casual.”
Leaving the UK:
The tax year can be split (so that you can be regarded as not R and not O.R. in the UK from the day
after departure) if you leave the UK for permanent residence abroad.
HMRC must be notified when you leave the UK “permanently or indefinitely.”
By leaving the UK “permanently” HMRC mean that you are leaving the country to live abroad and
will not return here to live.
By leaving “indefinitely” they mean that you are leaving to live abroad for a long time (at least 3
years) but you acknowledge that you might eventually return to live here.
Return visits to the UK must amount to less than 183 days in any tax year and average less than 91
days a tax year.
Advice re UK CGT provided to Mr M Auton 7 March 2011
in response to emails received 3 March 2011 (page 2 of 2)
Links with the UK;
HMRC considers that links with the UK that continue after leaving the country may mean that you
remain R or O.R. here.
R and O.R. may be affected by several factors, including:
the reason for leaving the UK,
the visits made to the UK after departure,
and connections that are kept in the UK e.g. “family, property, business and social connections.”
Evidence will usually be required by HMRC to demonstrate non-residence
Other points;
If, for whatever reason, it transpired that you did end up paying tax in both USA & UK, you would
probably be able to offset one against the other, so that you are not taxed twice on the same gain.
For CGT purposes, the date of exchange of contracts in relation to the sale of a property is taken as
the date of disposal.
CGT is payable on gains made in the tax year in excess of the annual exemption (currently £10,100).
The rate of UK CGT is presently 28%, although if an asset is disposed of by 5 April 2011, it may be
that only 18% CGT is payable, or, some of the gain may be taxable at 18% with the balance at 28%.
The rate payable is dependent upon other income in the tax year.
Conclusion:
If you leave the UK “indefinitely” pre 6 April 2012 and do not exchange contracts to dispose of the
property until 6 April 2012 or later, provided you are non-R and non-O.R. for at least 5 tax years
(see detail above), based on UK tax law as it stands at present, you will not have to pay UK CGT on
any gain that you may make on the disposal of the property.

I am unable to comment on the US tax implications, as I am not qualified to do so.
I would advise that you take independent professional advice in relation to this.
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Peter525839

I am new to this forum as of today and hope someone can help me. I have lived in the US for 30 yrs and became a citizen 10 yrs ago.
I have three savings accts in HSB approx 10,000 pounds each Two are about ten years old The other two years old. I have basically left them there rolling them over every six months.
My aged mother has power of attorney over these accounts and has been dealing with the rollovers
Since I opened the last one its been a constant stream of info that they seem to need over and over again. Passport copy, where I live etc.
These accounts have been left there basically for a rainy day and if my mother ever needs access to money.
Rightly or wrongly the minimal gains on these accounts have not been declared here on my tax returns
I am considering closing these accounts completely and transferring the money to here or my mothers account in HSB
Any suggestions greatly appreciated

meauxna

Peter525839, you should definitely look for the two current threads about FBAR.