Buying a house in the US with UK money

[mseth]

Hi one and all
I'm working at UPenn on an H1B visa. My taxes for 2007 are very simple because I am a non-resident. I will be a resident for 2008, however so I anticipate they will be a bit more of an issue!
My question is: I have substantial savings (~£130,000) and commercial rental income to the tune of £1,100 per month that I want to use to but a home in the US (in addition to my pittance of a US academic salary). Am I going to get stung moving that money to the US in terms of tax?
Also, any tips in terms of obtaining a mortgage as an expat with a limited US credit history?
Thanks

[Bevdeforges]

Moving your savings to the US shouldn't generate any taxes (though there will be some fees for the wire transfers).

But are you sure about being a "non-resident" for 2007? As far as I know, you still have to file for a partial year if you arrived during the end of 2007. (Or maybe you only got to the US in 2008 - in which case, you aren't resident until your arrival date.)

The tricky bit will be the commercial rental income, which you will have to declare for your US taxes (and, assuming the property is in the UK, also in the UK). There are ways to avoid double taxation, but you may want to have someone help you with your first US tax return.
Cheers,
Bev

[synthia]

I'd plan to have all your future taxes done by a professional as long as you have that UK rental income.

[Rachel_Heath]

The IRS have a publication, 519, that may help in your tax question. You do need to be aware that your legal residential status and your tax status are two different items. Since you're on an H1B visa you are only considered required to pay US taxes on all your worldwide income in 2007 if you have been living in the US for:

• 31 days during 2007 and
• 183 days between 2005 and 2007 - split up between

  • All the days in 2007
  • 1/3rd the days in 2006.
  • 1/6th of the days in 2005

This calculation is what's known as the Substantial Presence Test. Since, in your case it sounds like you've only been in the US a few months I'd hazard a guess & say that you're shielded from worrying about the income from your UK property - so long as it's fully declared and paid for with the HM Revenue & Customs.

However, that said you would still be required to pay tax on most (not all) of your US Source Income. In addition you'll be required to declare the same income to the UK and possibly pay extra tax on top. In order for this to work you might need to do a US Tax return (taking the figures from your W2 might also work so long as that is your only source of income in the US and you have no other money coming in, e.g. interest from a savings account) which can then be used to help your UK Tax return. However don't delay on this - I did once in the late 90's and I got all manner of grief (including interest and penalties) from the old Inland Revenue just for being a couple of months late (in their view).

In addition, you'll want to ensure you're not paying tax on the UK property rent in 2008. Since it's possible to pay the tax on a rental property via the PAYE scheme (if the profit is under £2500) you may want to ensure HM Revenue is aware of the change in taxable status. However you'll then be in a whole different ballgame in terms of dual-taxation and dealing with foreign tax credit.

Finally there are different rules again dealing with Dual Status residents.

So, as the mods suggested, get a tax guru who's good experience on handling expatriate taxes (in other words not H & R Block and the ilk). In addition if you do decide to keep paying tax in the UK on the rental property and perhaps pay the difference over here to the IRS then getting a good accountant in blighty would also be advisable. Also watch how you get the money. If the rental income is paid into an interest bearing UK bank then you'll need to sort out who get's the tax on the interest. Bringing over a large sum of money (>$10,000) might also trigger paperwork to the Treasury Department. In addition if you've any bank accounts in the UK with more than $10,000 then you're possibly going to be required to report it to the Justice Department.

As far as I'm aware, the Substantial Presence Test is not applicable on any A, G, F, J, M or Q visas.

Hope this helps!

Rachel