Taxes for UK home owner
Jan 8th 2014, 1:37 pm
#16
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Taxes for UK home owner
Sensible or not, this is the reality for many thousands of US Persons resident in the UK. Welcome to the world of income tax, USA style.
Jan 8th 2014, 1:59 pm
#17
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: Taxes for UK home owner
OwS
I suspect there is a little more to this than is being discussed here, and that a consultation with an experienced tax accountant would be recommended. Not least because in the example above, you would have "gained" $20,000, but the underlying asset would have created an offsetting loss. To keep the numbers simple, assuming you had 100% finance, your $170k house would now be $150,000k. I am not sure how the IRS would see this, but am fairly certain there is much more to this than has been discussed here.
So far as the "functional currency" issue goes, I think the possibility exists to create a business corporation and have it hold the house and book all income and expenses through it, as a "holding company", and off-shore from the US. It would have its own tax computation, and as owner you would only see the net flow of money between it and your personal account. That might be a bit excessive for a single house, but I mention it only to point out that there are additional complicating factors that a tax accountant would know.
I suspect there is a little more to this than is being discussed here, and that a consultation with an experienced tax accountant would be recommended. Not least because in the example above, you would have "gained" $20,000, but the underlying asset would have created an offsetting loss. To keep the numbers simple, assuming you had 100% finance, your $170k house would now be $150,000k. I am not sure how the IRS would see this, but am fairly certain there is much more to this than has been discussed here.
So far as the "functional currency" issue goes, I think the possibility exists to create a business corporation and have it hold the house and book all income and expenses through it, as a "holding company", and off-shore from the US. It would have its own tax computation, and as owner you would only see the net flow of money between it and your personal account. That might be a bit excessive for a single house, but I mention it only to point out that there are additional complicating factors that a tax accountant would know.
Totally unrelated to the above is the second separate issue, the gain/loss on the foreign vs. functional currency debt obligation (a '988 transaction').
The first issue must be reported. The second issue is the bread and butter of the compliance industry. Tax advisors love these money spinner returns and on the expat sites they enjoy proving their worth (or your need to spend money on their services). Technically, it's reportable.
Jan 12th 2014, 6:26 pm
#18
Retired
Joined: Apr 2004
Posts: 34,649
Re: Taxes for UK home owner
So far as the "functional currency" issue goes, I think the possibility exists to create a business corporation and have it hold the house and book all income and expenses through it, as a "holding company", and off-shore from the US. It would have its own tax computation, and as owner you would only see the net flow of money between it and your personal account. That might be a bit excessive for a single house, but I mention it only to point out that there are additional complicating factors that a tax accountant would know.
More importantly, and leaving aside the issue of functional currency, a decision not to sell the property within 3 years of it being a primary residence means that the entire capital gain, going back to original purchase, will generally be taxable in the United States, if the property is sold in the future (while a U.S. resident or citizen). There also will be a U.K. capital gains charge in future, starting 2015.
Obviously this all depends on how much capital gains are embedded in the property as of now but usually, a person leaving the U.K. for the United States should strongly consider a sale of the property and taking the tax free capital gain. Unless there is a definite intention to return to that property. If you decide not to sell, at least be aware of the tax and other consequences for the future (both U.K. and U.S.)
Last edited by JAJ; Jan 12th 2014 at 6:31 pm.
Jan 12th 2014, 6:40 pm
#19
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,448
Re: Taxes for UK home owner
I see no reason why one would need to incorporate a foreign business for it to have a different functional currency and for personal real estate, incorporation would be a bad decision for a variety of reasons.
More importantly, and leaving aside the issue of functional currency, a decision not to sell the property within 3 years of it being a primary residence means that the entire capital gain, going back to original purchase, will generally be taxable in the United States, if the property is sold in the future (while a U.S. resident or citizen). There also will be a U.K. capital gains charge in future, starting 2015.
Obviously this all depends on how much capital gains are embedded in the property as of now but usually, a person leaving the U.K. for the United States should strongly consider a sale of the property and taking the tax free capital gain. Unless there is a definite intention to return to that property. If you decide not to sell, at least be aware of the tax and other consequences for the future (both U.K. and U.S.)
More importantly, and leaving aside the issue of functional currency, a decision not to sell the property within 3 years of it being a primary residence means that the entire capital gain, going back to original purchase, will generally be taxable in the United States, if the property is sold in the future (while a U.S. resident or citizen). There also will be a U.K. capital gains charge in future, starting 2015.
Obviously this all depends on how much capital gains are embedded in the property as of now but usually, a person leaving the U.K. for the United States should strongly consider a sale of the property and taking the tax free capital gain. Unless there is a definite intention to return to that property. If you decide not to sell, at least be aware of the tax and other consequences for the future (both U.K. and U.S.)
Apr 1st 2014, 1:56 am
#20
Forum Regular
Joined: Oct 2009
Posts: 104
Re: Taxes for UK home owner
Been in the US for more than 3 years but kept our home in the UK. We are now looking at selling in UK so we can buy in US.
For example imagine we make $100k after paying off mortgage in UK. Does that mean I pay tax on the profit to IRS and if I sell after April 2014 I pay tax to HMRC too?
For example imagine we make $100k after paying off mortgage in UK. Does that mean I pay tax on the profit to IRS and if I sell after April 2014 I pay tax to HMRC too?
Apr 1st 2014, 2:09 am
#21
BE Forum Addict
Joined: Aug 2004
Posts: 4,754
Re: Taxes for UK home owner
Been in the US for more than 3 years but kept our home in the UK. We are now looking at selling in UK so we can buy in US.
For example imagine we make $100k after paying off mortgage in UK. Does that mean I pay tax on the profit to IRS and if I sell after April 2014 I pay tax to HMRC too?
For example imagine we make $100k after paying off mortgage in UK. Does that mean I pay tax on the profit to IRS and if I sell after April 2014 I pay tax to HMRC too?
Apr 1st 2014, 2:37 am
#22
Forum Regular
Joined: Oct 2009
Posts: 104
Re: Taxes for UK home owner
Wife reminded me she arrived after me so we might just be within the "2 out of 5 years". So based on that and the change looming in the UK looks like we would be tax efficient by selling up in the UK.
