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US/UK tax planner recommendation

US/UK tax planner recommendation

Old Jun 17th 2016, 3:04 pm
  #1  
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Default US/UK tax planner recommendation

Hi All,

I currently own a flat in the UK and recently purchased a house in the USA. I am in a position where I am going to be helping my sister purchase a house in the UK where she cannot get a mortgage herself so my plan is to buy it, rent it to her and in the end work out an arrangement for her to own it. I'm also conscious my parents are not getting any younger and one day I will one day have some inheritance to work with.

Essentially I see there are a lot of options including trusts to do this but I was looking to work out the most tax effective method to do this and wondered if anyone had any recommendations on a tax planner that was familiar with US/UK taxation?

Any help/recommendations would be greatly appreciated.

Thanks
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Old Jun 17th 2016, 4:58 pm
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Default Re: US/UK tax planner recommendation

Issues to consider include:
  • New 3% UK Stamp Duty surcharge on second homes
  • Difficulty in getting a mortgage on a UK property when non-resident
  • IRS Section 988 gain on repayment of foreign currency loan
  • US capital gains tax when you transfer the house to your sister
  • Loss of UK Private Residence Relief if the home is not owned by your sister
  • UK and US income tax on rental income received from sister
If you are in a position to do so a simple gift of money to your sister might be the most tax effective method. As an alternative to a loan that has to be repaid, a gift followed by an unequal inheritance could be considered, either by your parents changing their will or a will can be changed within 2 years of death.
I have no experience of trusts.
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Old Jun 17th 2016, 5:30 pm
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Default Re: US/UK tax planner recommendation

There are a LOT of pitfalls in the idea to rent a flat to your sister. Unkess you rent at a market rate, you risk the IRS questioning its status as an investment, and if your sister defaults on her rent, would you really kick her out? And then "giving" her the flat creates a gift/inheritance tax issue.

All things considered, I would strongly recommend an alternative way to help your sister.
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Old Jun 17th 2016, 8:08 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by Aoi View Post
Issues to consider include:
  • New 3% UK Stamp Duty surcharge on second homes
  • Difficulty in getting a mortgage on a UK property when non-resident
  • IRS Section 988 gain on repayment of foreign currency loan
  • US capital gains tax when you transfer the house to your sister
  • Loss of UK Private Residence Relief if the home is not owned by your sister
  • UK and US income tax on rental income received from sister
If you are in a position to do so a simple gift of money to your sister might be the most tax effective method. As an alternative to a loan that has to be repaid, a gift followed by an unequal inheritance could be considered, either by your parents changing their will or a will can be changed within 2 years of death.
I have no experience of trusts.
Thanks for the bullet points. My thoughts:
  • New 3% UK Stamp Duty surcharge on second homes - Yes it sucks but I couldnt make things happen befor the start of April.
  • Difficulty in getting a mortgage on a UK property when non-resident - I already have that sorted. Mortgage companies would not touch me so I ended up witha commercial loan tied to the property to make it happen.
  • IRS Section 988 gain on repayment of foreign currency loan - I will look into this area more.
  • US capital gains tax when you transfer the house to your sister - This was the intersting one. As I understand it I can sell it for $1 if I chose. In doing so it then becomes a gift but from what I understand (and would love to be corrected if I am wrong) as the gifter I can gift $5Million in my lifetime. So if I am in a position to gift more than $5Million then its a headache I am happy to have
  • Loss of UK Private Residence Relief if the home is not owned by your sister - This is an area I will need to investigate further.
  • UK and US income tax on rental income received from sister - I dont expect to be making a monthly gain after I offset costs and expenses.

Unfortunately having a mortgage in her name is not a possibility right now. It may be in the future and I can switch it before its paid off but for now its not possible.

Originally Posted by Pulaski View Post
There are a LOT of pitfalls in the idea to rent a flat to your sister. Unkess you rent at a market rate, you risk the IRS questioning its status as an investment, and if your sister defaults on her rent, would you really kick her out? And then "giving" her the flat creates a gift/inheritance tax issue.

All things considered, I would strongly recommend an alternative way to help your sister.
Appreciate the recommendation but I'm really looking to push forward with the idea. The rent will be collected at market rate but will have the benefit of knowing the landlord will correct the house etc. The last landlord allowed water to be dripping out of electrical sockets and the one before refused to fix the roof despite the fact you could see the sky from the attic.

Given the fact I need to place a 30% deposit down to get the commercial loan then my monthly payments are substantially lower than the market rent. So my plan is to keep it in a bank account so if she does stop paying for whatever reason then there will be enough money there to weather the times and move her back in with my folks. Knowing my folks I would rather pay my rent than be living back with them
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Old Jun 17th 2016, 8:13 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by Aoi View Post
Issues to consider include:[LIST][*]Loss of UK Private Residence Relief if the home is not owned by your sister
As I understand this she would qualify for the relief once she owns the house under the following exemptions:

However, you will be entitled to full relief 1 where all the following conditions are met:
• the dwelling house has been your only or main residence throughout your
period of ownership, and
• you have not been absent, other than for an allowed period of absence or
because you have been living in job-related accommodation, during your
period of ownership
• the garden or grounds including the buildings on them are not greater than
the permitted area, and
• no part of your home has been used exclusively for business purposes
during your period of ownership.

Once she buys the house from me she she will meet all the above criteria and as I would be selling it a loss there would be no CGT?
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Old Jun 17th 2016, 8:33 pm
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Default Re: US/UK tax planner recommendation

Selling at a loss, i.e. not at an arms length price (I think that's what you mean) may open up an can of worms regarding the possible appearance of tax evasion (as you are selling to a relative), as well as potential gift tax and inheritance tax issues. ...... Like I said above, what superficially looks like a great idea has many facets and potential pitfalls.
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Old Jun 17th 2016, 8:37 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by Pulaski View Post
Selling at a loss, i.e. not at an arms length price (I think that's what you mean) may open up an can of worms regarding the possible appearance of tax evasion (as you are selling to a relative), as well as potential gift tax and inheritance tax issues. ...... Like I said above, what superficially looks like a great idea has many facets and potential pitfalls.
Yes, that's why I wanted to see if anyone could recommend a good tax planner. I spoke with one this afternoon that said it wouldn't be an issue being a family member. I'd like to get a second opinion just to be sure.

I was advised there would be no US tax on initial inheritance as neither parent is a US citizen. But if the inherited asset generates an income then I would be liable on the tax for that income.
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Old Jun 17th 2016, 8:43 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by DottM View Post
Yes, that's why I wanted to see if anyone could recommend a good tax planner. I spoke with one this afternoon that said it wouldn't be an issue being a family member. I'd like to get a second opinion just to be sure.

I was advised there would be no US tax on initial inheritance as neither parent is a US citizen. But if the inherited asset generates an income then I would be liable on the tax for that income.
Inheritance taxes in the US are also levied at the state level by a few states. Another thread discussed this a few days ago, and I think there are four or five states that have an inheritance tax, but apart from NJ, I don't recall which ones do.
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Old Jun 17th 2016, 8:46 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by Pulaski View Post
Inheritance taxes in the US are also levied at the state level by a few states. Another thread discussed this a few days ago, and I think there are four or five states that have an inheritance tax, but apart from NJ, I don't recall which ones do.
Yeah states are Iowa, Kentucky, Nebraska, Pennsylvania, and Tennessee so good old Texas looks to be kind to me
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Old Jun 18th 2016, 7:56 am
  #10  
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Default Re: US/UK tax planner recommendation

Originally Posted by DottM View Post
As I understand this she would qualify for the relief once she owns the house under the following exemptions:

However, you will be entitled to full relief 1 where all the following conditions are met:
• the dwelling house has been your only or main residence throughout your
period of ownership, and
• you have not been absent, other than for an allowed period of absence or
because you have been living in job-related accommodation, during your
period of ownership
• the garden or grounds including the buildings on them are not greater than
the permitted area, and
• no part of your home has been used exclusively for business purposes
during your period of ownership.

Once she buys the house from me she she will meet all the above criteria and as I would be selling it a loss there would be no CGT?
But, if there is a gain, you would be liable to UK CGT when you sell the house unless occupied by a dependent relative. New rules render non-residents who dispose of UK land liable to CGT on gains from 6 April 2015. HMRC Capital Gains Tax Manual (CG14530) states: But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of.

Good luck whatever you decide.
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Old Jun 18th 2016, 12:45 pm
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Default Re: US/UK tax planner recommendation

Originally Posted by Aoi View Post
But, if there is a gain, you would be liable to UK CGT when you sell the house unless occupied by a dependent relative. New rules render non-residents who dispose of UK land liable to CGT on gains from 6 April 2015. HMRC Capital Gains Tax Manual (CG14530) states: But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of.

Good luck whatever you decide.
Which is what I was afraid of when I posted #6, above.
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Old Jun 22nd 2016, 12:48 am
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Default Re: US/UK tax planner recommendation

John Castro is amazing. And super expensive. But worth it to us.

International Tax Attorneys in Miami & Washington D.C.
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Old Jun 22nd 2016, 4:40 pm
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Default Re: US/UK tax planner recommendation

I vaguely remember that there are some differences in a 1031 exchange if you sell to a relative. You may want to consult a 1031 expert. They will quite often talk to you for free.
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