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US Tax liability question..

US Tax liability question..

Old Sep 15th 2016, 4:31 pm
  #1  
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Default US Tax liability question..

I am currently residing in USA on a L1 visa

1. I have an offshore IOM investment in GBP that i wish to make a withdrawal from

2. The transaction is to withdraw the fund from the IOM GBP account and transfer the funds directly to pay off my mortgage loan with a UK GBP bank.

3. When i fill out the paperwork, as my residential address is in the USA, the company are asking for my proof of address, SSN country of residence etc.

My question is (and i know its likely a silly one) am i liable to get hit with both US tax and UK tax?

cheers. (i should have kept my Dubai address i guess ;-)
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Old Sep 15th 2016, 5:05 pm
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Default Re: US Tax liability question..

Why would you get hit with UK tax?
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Old Sep 15th 2016, 5:14 pm
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Default Re: US Tax liability question..

The short answer is "no". The longer answer is, depending on the nature of the IOM account, there might be no tax due in the US either, for example if it is a deposit account. Moving money from one account to another does not usually creat a tax liability

There might however be a capital gain on the repayment of the mortgage, and in fact as the pound has slid sharply over the past two years, I would say that it is highly likely that there is a gain on the mortgage. The rationale is that it will take fewer dollars to pay off (the remaining part of) the mortgage than you got (dollar equivalent) when you borrowed the money. And to answer your next question, it matters not one jot that you weren't living in the US when you borrowed the money.

Last edited by Pulaski; Sep 15th 2016 at 5:50 pm.
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Old Sep 15th 2016, 5:47 pm
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Default Re: US Tax liability question..

The IoM investment will be reportable in the US on your 8938 and FBAR in any case. Any US tax liability will depend on what kind of investment it is...
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Old Sep 15th 2016, 6:49 pm
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Default Re: US Tax liability question..

thanks everyone, i really appreciate this. The investment is a retirement program that i paid money into from Dubai when i lived there. Its not really working for me so i have had it "frozen" for the last 2 years and i am allowed to remove a lump sum without incurring any penalties....hence the decision to take the money out and throw it against my mortgage loan in the UK.

hope that helps!
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Old Sep 15th 2016, 7:25 pm
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Default Re: US Tax liability question..

So it really sounds like a foreign grantor trust containing PFICs. Have you filed 3520s and 3520-As and 8621s - has it been reported on your 8938s and FBARs? The biggest problem will probably be the throwback tax; but because of the fall in Sterling post the Brexit vote this may not be as bad as otherwise...
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Old Sep 15th 2016, 7:45 pm
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Default Re: US Tax liability question..

Originally Posted by Cook_County View Post
So it really sounds like a foreign grantor trust containing PFICs. Have you filed 3520s and 3520-As and 8621s - has it been reported on your 8938s and FBARs? The biggest problem will probably be the throwback tax; but because of the fall in Sterling post the Brexit vote this may not be as bad as otherwise...
as i had to google FBAR..i think i need to do some more research :-)
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Old Sep 16th 2016, 3:23 pm
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Default Re: US Tax liability question..

As a US resident you are liable to US tax on your worldwide income and investments. If you are not a UK resident then there will be no UK tax on non-UK source income and gains.

I don't think the IOM has a tax treaty with the US so you don't get the cover of a pension wrapper for your IOM retirement account. This will probably mean you will have to be filing PFIC and foreign trust forms and paying the PFIC tax each year to the IRS. This could get complicated and expensive.
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Old Sep 16th 2016, 8:09 pm
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Default Re: US Tax liability question..

...PS as others have mentioned if your mortgage is in GBP and watch out for the US tax on any foreign currency gains when you pay off the mortgage.
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Old Sep 18th 2016, 12:20 pm
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Default Re: US Tax liability question..

thank you for the advice. plenty food for thought here. what is clear is i have to do a whole lot more research here. again, thanks!
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