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Discussion Starter · #1 ·
I have lived and worked in the USA since 1985, moving here from England with my wife and children. I have not filed taxes in the UK since moving in 1985.
We all became US citizens 10 years ago, but of course we retain current UK passports.

We currently own a home in London free and clear which we purchased in 1991 and my parents lived there until their passing rent free..(my Dad died in 2000 and my mother just last November 2014).

We have no further need for this home and it is close to being sold subject to contract. We will be making a significant capital gain (about $600K). 80% of the equity liquidated is being used to purchase a home in Florida which will become our primary residence (8 months of the year) here in the US.

Does anyone know the procedure for collection of CG in the UK?
Does the house sale trigger a UK filing necessity?
If so is the filing automatic or can I elect to wire the funds here and deal with it as part of my US tax filings?
CG in the UK rises to 28% and in the US 15% and so my preference is obvious.

I also need to understand the base being used for CG in either country. As I had dependent relatives living in the home until late 2014 does this provide any mitigation as to my potential exposure. I assume I can include improvements and expenses to increase the base and reduce the spread between purchase price and sales price, but I am unsure.

Many thanks for anyone's help

Sincerely,
John E. Carter
 

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Does anyone know the procedure for collection of CG in the UK?
Does the house sale trigger a UK filing necessity?
I don't, but either the Tax or U.K. forums would be better places to ask at least that part of your question.

CG in the UK rises to 28% and in the US 15% and so my preference is obvious.
That's not quite correct, at least on the U.S. side I'm familiar with. The U.S. top marginal capital gains tax rate can be 23.8%. That consists of the 20% top capital gains rate plus the 3.8% Medicare surtax on net investment income. Sometimes a home is subject to the $250,000 ($500,000 for couples) capital gains exemption, but that is somewhat unlikely in this case since you say you've been living in the U.S. since 1985.

I also need to understand the base being used for CG in either country. As I had dependent relatives living in the home until late 2014 does this provide any mitigation as to my potential exposure. I assume I can include improvements and expenses to increase the base and reduce the spread between purchase price and sales price, but I am unsure.
You certainly can on the U.S. side. Capital gains should be calculated based on the selling price less purchase price less allowable costs.

IRS Publications 523 and 530 are probably the best places to look to understand how the U.S. side works. Note that you'll also be able to take a U.S. Foreign Tax Credit (IRS Form 1116) for any U.K. income tax you pay on the sale of that property. If the U.K. tax rate ends up being higher, that's not necessarily a bad thing because that means you'll get excess Foreign Tax Credits. You'll then have 10 years (or a bit more) to consume those excess credits against other passive income. (I say a bit more because you can amend the previous year's return if you paid U.S. income tax on passive income to claim some or all of those excess FTCs back as a refund, or you can apply the excess FTCs to tax year 2015 when you sell the property, or in any years up to 10 years into the future.) In other words, the U.S. will effectively pay you, in the form of credits, for the difference in the U.K. rate above the U.S. rate.

All of that means that, if you get a giant (or even moderate) Foreign Tax Credit because the U.K. rate is higher than the U.S. rate, consider ways to use it, eventually. If you were thinking of selling some shares of stock, for example, and taking a capital gain, the FTC could help offset the U.S. tax due on the sale of those shares of stock.
 

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Discussion Starter · #3 ·
This is very helpful information for which I thank you. On the US tax exemption for a home sale capital gain, would that be restricted to a primary residence perhaps? The FTC element you describe is very encouraging, and thank you for steering me towards the appropriate forums.....What a terrific resource this site is!

Regards
John
 

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On the US tax exemption for a home sale capital gain, would that be restricted to a primary residence perhaps?
Yes, IRS Publication 523 should help you figure out whether that property qualifies for the U.S. capital gains exemption. (My guess is no, it won't qualify, but check that publication to make sure, starting on Page 2 with the section "Does Your Home Sale Qualify for Maximum Exclusion.") Publication 523 should also help you figure out what the allowable costs are when calculating the net capital gains amount -- and there are a lot of allowable costs, so that's good news. Use the worksheet starting on Page 7 of Publication 523 to figure the net gain (or loss) -- it's really rather good. The capital gains exemption (if applicable) is applied as the last step, after you've calculated the net gains.

I'm assuming you and your wife each own equal shares of that property. Thus if you file separate U.S. tax returns then you'd apportion the net gains 50-50, as Publication 523 explains. Or, if you file a joint U.S. tax return then the net gains would be reported in a unified way, too.
 

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I've moved this over to the Expat Tax section, as we may be able to find someone who has dealt with a similar situation.

Two small caveats: In international situations like this you generally don't get to choose which jurisdiction you pay your taxes to. And in transactions involving "real property" (i.e. land and buildings) you normally pay the taxes to the jurisdiction in which the property is located - so the UK in your case.

Still, the US-UK tax treaty has a few quirks that work differently than the "general case" so it would be best to start there. United Kingdom (UK) - Tax Treaty Documents (Despite the title, the Technical Explanation documents are generally more "readable" than the treaty itself.)
Cheers,
Bev
 

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John, please let me know if you find any good resources, I'm just about to sell my house in the UK (have been renting it out for a few years since I left) and am trying to make sense of it all :)
 

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I would like to add some comments. These are based on the assumption that John is not a UK resident.

Overall approach
The correct overall approach on the sale of the UK house is-
• First consider the taxing rights under the UK US double tax treaty.
• Look first at the UK domestic rules.
• Then consider US domestic rules.
• Finally consider the terms of the UK US Tax Treaty for double tax relief.

Taxing rights
The double tax treaty allows both the UK and the US to tax gains on the sale of UK situs property.

UK domestic rules
The key points to note are-
• Until recently the UK did not tax gains made by non-residents on UK situs property.
• There have been two changes to the above general rule, as regards UK situs residential property. The two changes are known by the initials ATED and NRCGT.
• ATED relates to expensive houses owned through companies, and will not apply to John.
• NRCGT will apply. It was introduced from 6 April 2015. It is unlikely to result in any actual tax or, any tax would be small. I am not allowed to include a link to the relevant HMRC material by the posting rules, but if you search on the UK government site for capital gains tax for non residents you should find this. There is a lot of detail to this, which I am not covering here.
• As John does not file a UK self-assessment, the NRCGT return must be made within 30 days of the sale. So it would be sensible to gather the appropriate information in advance.

US domestic rules

This is covered by other responses.

Double tax relief
The US should give relief for any UK tax against the US liability.
 

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Good summary, Dudedin -- thanks!

One thing I forgot to mention on the U.S. side is there's something called a "1031 exchange" that, if you qualify, lets you at least defer the tax on the net gains. Check those rules, ideally well before selling, to see they can work for you.
 
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