# Remortgage in the UK as US citizen



## Lauren456 (8 mo ago)

Hi all,

Glad I've found this forum, US taxes give me a headache every year!!

I am an accidental American - born there to British parents, lived there for 6 months and have lived the rest of my life in the UK. Had no awareness of my US citizenship until about 5 years ago and started filing taxes (perhaps misguidedly and maybe I should have kept quiet, but I had postnatal depression and anxiety and this discovery nearly tipped me over the edge. Taxes pique my anxiety every year).

Anyway. My husband and I remortgaged our home in February this year. On the list of assumptions from my US tax accountant, she notes "I have assumed you have not remortgaged a property in the last tax year, please let me know if this is not the case". I'm wondering what the implications are of remortgaging? As she will make the same note next year as well. I don't really want to ask her and draw her attention to it but I hate not knowing!!

Would love any insight anyone might have!


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## Harry Moles (11 mo ago)

There is something called "phantom currency gains" that can trip up non-residents. I don't fully understand how it works, but I think it's something along these lines: if you refinance and the US dollar value of the mortgage has increased because of exchange rate fluctuations, then you have a taxable capital gain. This is why the accountant has asked. Of course it's completely absurd and unfair. (If this would cost you money, you can of course lie to the accountant. It's not like the IRS would have a clue otherwise.)

I will spare you the lecture, but you should never have begun filing. Accidental Americans are perfectly safe staying out of the US tax system. Now that you have received your $3200 stimulus benefits (I hope) you should cut your losses, either renounce or simply stop filing. Your children do not qualify for US citizenship so you won't be able to pass that on or collect the child tax credit; there is no further benefit to continued compliance unless you plan on moving to the US in the near future


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## Lauren456 (8 mo ago)

No, I know that now 😟 I was in a vulnerable place at the time, I only found out when I opened a new account and was asked for my place of birth and then consequently for something else like my US tax number or something like that? I can't remember now. I was so scared and my anxiety was at it's absolute peak anyway. I've been debating renouncing for the last 5 years and the more I read on here the more I think I should just do it. 

I do always wonder how the IRS would find out if I didn't tell them something and I suppose the answer is that they wouldn't, right?


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## JustLurking (Mar 25, 2015)

Harry Moles said:


> There is something called "phantom currency gains" that can trip up non-residents. I don't fully understand how it works, but I think it's something along these lines: if you refinance and the US dollar value of the mortgage has increased because of exchange rate fluctuations, then you have a taxable capital gain. This is why the accountant has asked. Of course it's completely absurd and unfair. (If this would cost you money, you can of course lie to the accountant. It's not like the IRS would have a clue otherwise.)


Absurd certainly, but unfair is too small a word for the majestic injustice of this US tax policy. A phantom currency gain is taxable as _ordinary income_; a phantom currency loss is _not deductible_.

This article's example shows just how one-sided the whole thing is:


> A mortgage for £100,000 is taken out when the exchange rate is £1 to $1.50. A capital payment of £100,000 or the remortgage occurs when the exchange rate is £1 to $1.20. This would result in a $30,000 exchange rate gain.
> 
> The IRS view is that the individual took out a debt of $150,000 (£100,000 x $1.50) but only had to repay $120,000 (£100,000 x $1.20). The $30,000 of debt no longer owed is regarded as gain and is taxed as ordinary income. If we reverse the situation, i.e. assume the individual took out a mortgage for £100,000 and the exchange rate is £1 to $1.20 on the date it was taken out, and at the time of redemption or capital repayment the exchange rate is £1 to $1.50, the result is a US dollar loss of $30,000. Unfortunately, this loss is a “personal” loss and personal losses are not deductible.


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## Lauren456 (8 mo ago)

Thank you, that's helpful! We were lucky when we sold our other property that the exchange rate was in our favour and we didn't end up having to pay capital gains, but it was sheer luck and no planning!

I hate how all these relatively basic transactions require an extra layer of thought and it does cause me a lot of worry. My husband thinks I should keep the citizenship "in case we need it" but I honestly don't think it's worth it. I'm a worrier, he isn't (and even less so when he's the one not having to worry about it!!)


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## Harry Moles (11 mo ago)

Lauren456 said:


> I do always wonder how the IRS would find out if I didn't tell them something and I suppose the answer is that they wouldn't, right?


Assuming your income sources and assets are all outside the US, the IRS literally knows nothing about your finances except for what you tell them. The minor exception being FATCA: if you are identified as a US person and your accounts are reportable (i.e. not an ISA or similar, which are exempt under the UK-US agreement) then the IRS will eventually receive a record of your year-end balance and any interest/dividend income. However, the IRS does not currently have the capacity to do anything with this data - they don't even look at it.

Sadly, as you have no doubt learned, the entire edifice of expat taxation relies on voluntary cooperation, with help from the scare tactics of professional tax preparation firms.


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## Lauren456 (8 mo ago)

Interesting and very useful to know!!


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## Harry Moles (11 mo ago)

Lauren456 said:


> Interesting and very useful to know!!


I'm sure the accountant you hired never suggested as much.


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## Lauren456 (8 mo ago)

Correct!


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## Harry Moles (11 mo ago)

The expat tax business is for all intents and purposes a scam, as far as its treatment of Accidental Americans is concerned (as opposed to genuine expats with potentially complicated cross-border tax issues).


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