Tax on property in the UK after moving to US

[D&R 0]

I'll try and keep this simple.

I have a house in the UK that I'd want to keep and rent out when I move to the US (until I eventually decide to buy in the US that is)

Obviously I'd have to pay tax on my earnings to the good old UK government, but f I transfer what's left after that to my US account, would I have to pay any US tax/fees?

Any help or pointers would be appreciated, thanks!

[TayRivers 4]

I'll try and keep this simple.

I have a house in the UK that I'd want to keep and rent out when I move to the US (until I eventually decide to buy in the US that is)

Obviously I'd have to pay tax on my earnings to the good old UK government, but f I transfer what's left after that to my US account, would I have to pay any US tax/fees?

Any help or pointers would be appreciated, thanks!

Retal income would be classed as foreign earned income and you can get a credit for that. Check out the IRS website for Foreign Income Credit.

[payxibka 10,045]

I'll try and keep this simple.

I have a house in the UK that I'd want to keep and rent out when I move to the US (until I eventually decide to buy in the US that is)

Obviously I'd have to pay tax on my earnings to the good old UK government, but f I transfer what's left after that to my US account, would I have to pay any US tax/fees?

Any help or pointers would be appreciated, thanks!

As a US citizen or Permanent Resident of the US, you are taxed on your "worldwide" income. As mentioned, there are certain exclusions and credits you may qualify for to lessen/reduce or eliminate any "double" taxation.

[HikerMark 5]

As a US resident you will be taxed on your worldwide income. It does not matter if you remit the foreign income to your US bank account or not. The income received anywhere in the world is taxed.

As rental income is not earned income it will not qualify for the US foreign earned income exclusion so, it will be fully taxable in the US.

However, you will get some relief for any UK tax you pay on the rental income. Depending on the amount of the rental income and any other UK income you have, you may have no UK tax liability as you will still get the full UK personal allowance.

The key to remember about living in the US is that they tax your income wherever it arises in the world and that the UK will tax you as a non-resident on your UK source income. So, there is an element of double taxation for which there is some relief to make sure that income does not get taxed twice.

One other thing to remember about the rental property in the UK is whether your are using an agent or directly managing it yourself you will need to complete the HMRC form NRL1. If you don't, the agent or the tenant is required to deduct basic rate tax from the rent before it is paid to you.

[Captain Oates 911]

As a US resident you will be taxed on your worldwide income. It does not matter if you remit the foreign income to your US bank account or not. The income received anywhere in the world is taxed.

As rental income is not earned income it will not qualify for the US foreign earned income exclusion so, it will be fully taxable in the US.

However, you will get some relief for any UK tax you pay on the rental income. Depending on the amount of the rental income and any other UK income you have, you may have no UK tax liability as you will still get the full UK personal allowance.

The key to remember about living in the US is that they tax your income wherever it arises in the world and that the UK will tax you as a non-resident on your UK source income. So, there is an element of double taxation for which there is some relief to make sure that income does not get taxed twice.

One other thing to remember about the rental property in the UK is whether your are using an agent or directly managing it yourself you will need to complete the HMRC form NRL1. If you don't, the agent or the tenant is required to deduct basic rate tax from the rent before it is paid to you.

Yes all that is correct

I have only found one exception to 'all worwide income' and that is government SERVICE (not 'old age') pensions from government departments/local authorities/quangos etc

I have one of those

They are taxable in the UK but not in the US until the resident becomes a citizen.

Mine is smaller than the UK personal allowance so I dont pay tax in the UK or US - a nice anomaly and it wont last because next year when I become a citizen, it will be taxable in the US. The UK will keep taxing it at zero and the US will start taxing it at full

Also be VERY careful with Foreign Passive Investments (ISA unit trusts etc) The IRS hates them and taxes them up to 100% all the way back. I had an isa with a £100k profit and I dumped it the week before I emigrated

In the land of the free they dont ban stuff - they just tax it at 100%

Make sure you sell your house within the IRS regs for tax free - or they will get you on the capital gains on that

Yes you have to know UK and US tax at the same time and it's a minefield. The US does not mess around and they have 10k min fines for undisclosed bank accounts and this can go huge plus 10 years min in Fed prison

The UK tax authorities are quite gentlemanly compared to the US but TAX is not a joke in the USA so be very careful

Do your homework and call the US tax people free for advice - they dont ask your name and they are very friendly

I wish I could find something else to mop up my personal allowance in the UK but not be taxable in the US - but govt SERVICE pensions are the only anomaly i can find..

I report all my income from everywhere to the cent - and i still worry

Edited August 28, 2009 by saywhat

[HikerMark 5]

Also be VERY careful with Foreign Passive Investments (ISA unit trusts etc) The IRS hates them and taxes them up to 100% all the way back. I had an isa with a £100k profit and I dumped it the week before I emigrated

In the land of the free they dont ban stuff - they just tax it at 100%

Thank you for bringing these rules to my attention. I hadn't realized they existed and will now evaluate if it is worth me retaining my UK investment trusts and VCTs, although some of the VCTs I need to keep for a few more years to keep the UK tax relief I got.

The tax joys of being affected by two tax systems.

[Captain Oates 911]

Also be VERY careful with Foreign Passive Investments (ISA unit trusts etc) The IRS hates them and taxes them up to 100% all the way back. I had an isa with a £100k profit and I dumped it the week before I emigrated

In the land of the free they dont ban stuff - they just tax it at 100%

Thank you for bringing these rules to my attention. I hadn't realized they existed and will now evaluate if it is worth me retaining my UK investment trusts and VCTs, although some of the VCTs I need to keep for a few more years to keep the UK tax relief I got.

The tax joys of being affected by two tax systems.

Super - forewarned is forearmed

There is good news because death duties are a lot easier to legally dodge than in the UK - the UK considers everyone 'deemed' domiciled for at least 3 years after leaving the UK and they get you for inheritance tax...

Even after 3 years, if you had income and bank accounts and a house in the UK, they would possibly take a pop at 'considered domicile'

I will have my pension and bank accounts in the UK, but if I become a USC next year then that will help me to escape the UK inheritance tax net when I pop my clogs - and they say I will one day

[HikerMark 5]

Super - forewarned is forearmed

There is good news because death duties are a lot easier to legally dodge than in the UK - the UK considers everyone 'deemed' domiciled for at least 3 years after leaving the UK and they get you for inheritance tax...

Even after 3 years, if you had income and bank accounts and a house in the UK, they would possibly take a pop at 'considered domicile'

I will have my pension and bank accounts in the UK, but if I become a USC next year then that will help me to escape the UK inheritance tax net when I pop my clogs - and they say I will one day

I spent a couple of hours yesterday evening looking at the detailed IRS rules on the foreign passive investments. Pretty convoluted stuff.

Based on the examples they gave and the fact I have only been in the US for a short period I should be able to do the mark to market election for 2009. I can then at least keep the investments for the short term with the US tax hit not being too bad whilst I review whether to sell the investments and invest in something similar in the US.

My 2009 1040 is going to be quite interesting!!!

[plinkabob 7]

Hello! I know this is an old thread but I am in the same situation. I was just wondering if anyone who commented on this is still around and can help explain it all to me. I'm sure a lot has changed in the last 5 years

[HikerMark 5]

Plinkabob,

I'm still here occasionally :-)

What do you want help with? Rental income or PFICs?

[plinkabob 7]

Hey! So sorry for the late reply.

I was just wondering what happens to my rental income when I move over to the states. I'll no longer be a tax resident in the UK (I think I am correct in thinking that) so how do I claim my over seas income. I am self employed in the UK right now and my rental income is included in my tax return. At what point do I stop my self employment here, if at all? I'm so confused when it comes to this. I'll be keeping my bank account here as I pay the bills on the property as it is included in the rent and it's also easier on my tenant to pay into a UK account.

Did any of that make any sense what so ever?

Any advice you could give me would be very much appreciated.

Thank you in advance!

[HikerMark 5]

Once you move to the States you will become non-resident for UK tax purposes. That means you only need to report your UK rental income on the UK tax return and complete the non-resident pages. The self-employment income (if it continues) will only be reported on the UK tax return if you keep a permament establishment such as an office in the UK. Otherwise the self-employment will only be reported on your US tax return.

The UK rental income will also be reported on your US tax return with some changes in some of the expenses you can claim and how the income is reported. For example the income will be reported on a cash basis and you can claim a depreciation expense for the cost of the building spread over a 40 year period. If you pay any tax in the UK on the rental income you can claim a credit for this against your US tax on the rental income.

As I mentioned in one of my earlier posts you will need to submit online form NRL1 to HMRC so that your tenant can pay the rent to you gross without any tax deduction.

Hope that gives an outline of what to expect. Basically you will continue with your UK tax return under self-assessment and also have the joy of starting in the US tax system. :-)