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US LLC or UK LTD

US LLC or UK LTD

Old Jan 20th 2014, 10:55 pm
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Default US LLC or UK LTD

I have rental properties in both the US and UK. I live and work in the US and inte nd to stay here. I was thinking of setting up either a Private Limited Company in the UK and using that to do business in the US or vice versa. Primarily to protect my assets. Has anyone got any advice or experience of doing this kind of thing
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Old Jan 21st 2014, 12:32 am
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Default Re: US LLC or UK LTD

Originally Posted by mrken30 View Post
I have rental properties in both the US and UK. I live and work in the US and inte nd to stay here. I was thinking of setting up either a Private Limited Company in the UK and using that to do business in the US or vice versa. Primarily to protect my assets. Has anyone got any advice or experience of doing this kind of thing
In my personal opinion, setting up a LTD is probably not a good idea since you could possibly pay UK corporate tax and corporate taxes can't be used to offset US taxes owed. Since there is no such thing similar to a LLC in the UK, you'd probably likely have to risk being a sole proprietor to be able to use UK taxes paid to offset US taxes owed.

A LLC is primarily used to protect personal assets against lawsuits or bankruptcy of the LLC but income is taxed as normal income. However I don't believe that a US LLC can protect assets in the UK since the UK doesn't likely recognize a US LLC and it won't protect US personal assets against bankruptcy if your loans or other financial agreements were personally guaranteed by you and not the LLC.

So unless you can get companies/lenders to extend credit to a LLC or LTD, the only thing you'd likely be protected from would be lawsuits against your personal assets.

Last edited by Michael; Jan 21st 2014 at 12:41 am.
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Old Jan 21st 2014, 12:33 am
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Default Re: US LLC or UK LTD

Note also that a foreign national owning an overseas corporation has some reporting requirements, as does a foreign national owning a US-based corporation. These forms are in addition to your normal tax forms.
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Old Jan 21st 2014, 1:24 am
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Default Re: US LLC or UK LTD

What is your citizenship/immigration status in the USA?
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Old Jan 21st 2014, 1:42 am
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Default Re: US LLC or UK LTD

I have dual nationality, but I'm sure there would still be some reporting requirements. At the moment I have to pay both UK and US taxes as the treaty doesnt apply to rental income. I was wanting to keep all the earnings from the UK rental in the UK for the next 20 years or so.

I am assuming the UK assets are protected from US law suits and vice versa. I dont intend on getting into a lawsuit , but anything is possible in the US

Also the property in the UK has no mortgage, whereas the ones in the US do have mortgages
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Old Jan 21st 2014, 1:53 am
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Default Re: US LLC or UK LTD

Originally Posted by mrken30 View Post
I have dual nationality, but I'm sure there would still be some reporting requirements. At the moment I have to pay both UK and US taxes as the treaty doesnt apply to rental income. I was wanting to keep all the earnings from the UK rental in the UK for the next 20 years or so.
There doesn't need to be a tax treaty. Except in rare cases, foreign income taxes paid can be used to offset US taxes owed. I don't believe it is any different than when taxes are withheld at the source for dividends on foreign equities.
I am assuming the UK assets are protected from US law suits and vice versa. I dont intend on getting into a lawsuit , but anything is possible in the US.
Not necessarily. It may be more difficult and expensive to get at foreign assets but that has happened frequently with large companies.

Last edited by Michael; Jan 21st 2014 at 2:05 am.
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Old Jan 21st 2014, 2:15 am
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Default Re: US LLC or UK LTD

Where are you domiciled for UK tax purposes?
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Old Jan 21st 2014, 2:28 am
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Default Re: US LLC or UK LTD

Originally Posted by Casual Observer View Post
Where are you domiciled for UK tax purposes?
The US
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Old Jan 21st 2014, 2:32 am
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Default Re: US LLC or UK LTD

Caveat: I am not a tax professional and I am not certain how a UK Ltd is taxed in the US. .... I suspect I know just enough to be dangerous! That said, I think that US taxes will be paid only on dividends or salary paid to you by a UK Ltd, therefore if the UK Ltd does not distribute anything to you there will be no US taxes.

This strategy (if it works) has several drawbacks. The UK Ltd will pay UK taxes, which you will never be able to set against US taxes, and when you eventually receive a distribution from the UK Ltd, the US tax rates may be higher than now. I also think that to get the UK property into the Ltd, you will create a chargeable capital gain, now in the UK.

Overall, I think you need a consultation with a tax professional familiar with British and US taxes. However I suspect that you can't achieve everything you want, and/or the taxes and/or the professional fees incurred will make the UK Ltd route unattractive (costs exceed benefits), especially for a single house in the UK. If it was an office block or apartment complex the answer might be different (practically, not legally).

Last edited by Pulaski; Jan 21st 2014 at 2:35 am.
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Old Jan 21st 2014, 2:37 am
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Default Re: US LLC or UK LTD

Originally Posted by Pulaski View Post
This strategy (if it works) has several drawbacks. The UK Ltd will pay UK taxes, and when you eventually receive a distribution from the UK Ltd, the US tax rates may be higher than now. I also think that to get the UK property into the Ltd, you will create a chargeable capital gain.
I was thinking if I wait until I retire to draw dividends then my income would be lower and hence I would pay a lower rate of income tax.
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Old Jan 21st 2014, 2:46 am
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Default Re: US LLC or UK LTD

Originally Posted by mrken30 View Post
I was thinking if I wait until I retire to draw dividends then my income would be lower and hence I would pay a lower rate of income tax.
If you haven't got an experienced tax professional, then you need to find one straight away. You should normally be able to take a U.S. foreign tax credit for any U.K. tax you incur on rental income.

Your idea of setting up a U.K. limited company has so many complexities it goes well beyond the scope of an online forum. For example, you need to consider U.S. controlled foreign corporation tax, and also the U.K. may have special tax provisions concerning private companies with few stockholders. The U.K. corporation would likely be taxable in the U.K. and then you will have U.S. tax issues on both distributed and undistributed income. You may also encounter stamp duty costs, compliance costs for your company and complications should you later on want to sell the property.

If you really want to pursue this you would need a qualified cross-border tax professional to look at it further.

Asset protection is another area you mention, which is another area of expertise you need to gain access to ... there are asset protection attorneys out there but you need to find one you are comfortable with and be prepared to pay their fees.

If you're going to look at tax planning and asset protection, you should also be looking at estate planning. And since you have assets in the U.K. you need to consider both whether you have abandoned any U.K. domicile you have had, and (at a minimum) Inheritance Tax on any assets left behind.
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Old Jan 21st 2014, 2:48 am
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Default Re: US LLC or UK LTD

Originally Posted by mrken30 View Post
I was thinking if I wait until I retire to draw dividends then my income would be lower and hence I would pay a lower rate of income tax.
You are probably right, but the deal breaker is going to be the capital gains tax incurred when you sell it to the Ltd. If you are "lucky" enough to not be sitting on a sizeable unrealized gain, then there may be some merit to this scheme, but all things considered, I doubt it.
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Old Jan 21st 2014, 3:00 am
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Default Re: US LLC or UK LTD

Originally Posted by Pulaski View Post
You are probably right, but the deal breaker is going to be the capital gains tax incurred when you sell it to the Ltd. If you are "lucky" enough to not be sitting on a sizeable unrealized gain, then there may be some merit to this scheme, but all things considered, I doubt it.
There should be little or no capital gain as I have just inherited the properties.

One other thing that may make it worthwhile to keep it on my US taxes is that I can claim depreciation on the property over the next 40 years

Last edited by mrken30; Jan 21st 2014 at 3:07 am.
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Old Jan 21st 2014, 3:05 am
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Default Re: US LLC or UK LTD

Your problem is made more complex by the fact that it much less complex than you appear to think. Seek professional advice from a competent tax attorney familiar with both jurisdictions.
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Old Jan 21st 2014, 3:11 am
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Default Re: US LLC or UK LTD

Originally Posted by mrken30 View Post
I was thinking if I wait until I retire to draw dividends then my income would be lower and hence I would pay a lower rate of income tax.
But you'd be paying a 20% corporate tax rate without personal exemptions as a LTD prior to that so I'm not sure if there will be any significant tax advantages.

Also if you are getting US social security when you retire, it is possible that you would pay significantly more.

Example:

Social Security: $25,000
Other Taxable Income: $6,500
Non Taxable Income (capital gains and qualified dividends): $14,000
Taxable part of Social Security: About $3,500
Total Taxable Income: $10,000
Standard Deduction and exemption for single over 64: About $10,000
US Taxes Owed: $0

However, once you your taxable income is above $10,000, you'll start paying taxes and once your total income is above about $47,000 (25% tax marginal bracket), your non taxable income is taxed at 15% and your excess taxable income above $10,000 will be taxed at 25%.

Also as you income gets higher, a larger part of social security benefits become taxable (can tax up to 85% of social security benefits). Therefore if you plan correctly, you can pay no tax up to about $47,000 of income but once you hit a threshold, the tax rate can rise significantly.

For married filing jointly, the thresholds are higher especially the 25% marginal tax bracket which is important for capital gains, qualified dividends, and taxable income.

Run the numbers through a tax preparation program before you decide what you want to do it. I use Turbo Tax to determine how much capital gains and qualified dividends and IRA distributions to take before the end of the year. Once you exceed certain thresholds, you can get taxed on social security, capital gains, and qualified dividends effectively going from 0% tax to over a 33% tax rate.

Also since you have property, see a tax accountant to try to determine the best investment strategy for retirement. Sometimes it may be worth it to bite the bullet and pay capital gains on the property and invest in equities that pay qualified dividends and/or capital gains that can be cashed out at the rate you desire.

Last edited by Michael; Jan 21st 2014 at 3:33 am.
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