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US based, CGT on sale of UK property

US based, CGT on sale of UK property

Old Apr 16th 2013, 5:46 pm
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Default US based, CGT on sale of UK property

I have a property in the UK that I have owned since 2005, and rented out since August 2010 (the time I moved to the US).

I'm looking for 2 things, a recommendation on a US-UK tax advisor; and confirmation of my understanding (or not).

I believe, that in order to avoid CGT in both the US and UK, I need to sell the property before August of this year.

That means that I will meet the US requirement of having been resident in the property for 2 out of the last 5 years.

According to http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm I should be clear on UK CGT through one or more of the following:
* 'Private residence relief'
* 'Letting relief'
* The final three years (36 months) always qualify for relief. This applies even if you weren't living there during the final three years. It must have been your only or main home at some point during the time that you've owned it.


Now if I sell it after August of this year (and assume no shimmying around, moving back and living in it for 2 years etc), I will be liable for CGT.

Does that all sound about right?
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Old Apr 16th 2013, 7:22 pm
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Default Re: US based, CGT on sale of UK property

Sounds more or less right from the US side, except a couple of things to bear in mind:

The Sec. 121 exclusion for sale of principal residence does not apply to the recapture of depreciation from while it was a rental property, so you will still have tax to pay on that portion.

The exclusion is limited to $250,000, or $500,000 if married filing joint.

It's a little bit of an obscure point, but if you have a mortgage on the property, you may be subject to capital gains tax on that, depending on how exchange rates have moved. That's because a loan denominated in a foreign currency is treated as an asset subject to capital gains tax (even though it's actually a liability).
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Old Apr 17th 2013, 12:51 am
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Default Re: US based, CGT on sale of UK property

Originally Posted by trirod View Post
Sounds more or less right from the US side, except a couple of things to bear in mind:

The Sec. 121 exclusion for sale of principal residence does not apply to the recapture of depreciation from while it was a rental property, so you will still have tax to pay on that portion.

The exclusion is limited to $250,000, or $500,000 if married filing joint.
Also, there may be a restriction on the exemption for time the property spent in business use. Talk to a tax adviser.

It's a little bit of an obscure point, but if you have a mortgage on the property, you may be subject to capital gains tax on that, depending on how exchange rates have moved. That's because a loan denominated in a foreign currency is treated as an asset subject to capital gains tax (even though it's actually a liability).
Usually, if part of a non-U.S. business activity, the taxpayer can take the foreign currency as a functional currency. Which means that you calculate profit and loss in the foreign currency and take the net profit into U.S. dollars. Which removes complications like the one above. Talk to a competent tax practitioner!
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Old Apr 17th 2013, 10:06 am
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Default Re: US based, CGT on sale of UK property

Originally Posted by JAJ View Post
Also, there may be a restriction on the exemption for time the property spent in business use. Talk to a tax adviser.



Usually, if part of a non-U.S. business activity, the taxpayer can take the foreign currency as a functional currency. Which means that you calculate profit and loss in the foreign currency and take the net profit into U.S. dollars. Which removes complications like the one above. Talk to a competent tax practitioner!
Though when it's reported on your tax return they only ask for price paid in USD and price sold in USD which opens you up to xrate fluctuations.
I agree with the others - seek advice from a tax professional!
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Old Apr 17th 2013, 3:56 pm
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Default Re: US based, CGT on sale of UK property

Thanks all, any recommendations on a tax professional? I've been unsuccessful so far.
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Old Apr 18th 2013, 12:59 am
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Default Re: US based, CGT on sale of UK property

Originally Posted by lndn2nbca View Post
Thanks all, any recommendations on a tax professional? I've been unsuccessful so far.
Discussed at:
http://britishexpats.com/wiki/Choosi...Accountant-USA
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