# US/UK dual citizen - capital gains tax on sale of US and UK homes



## rxt303

Hi - firstly, this site has already been a huge help so thank you to all for your expertise.

Background to our situation and query - I'm a dual US and UK citizen, I've been resident in the US for 15 years and in June 2017 my family and I are returning home to live in the UK permanently (for the foreseeable future). Our assets are:

1). US home in FL where my American wife, kids and I live currently
2). part ownership of a UK flat in South Ealing, London which is currently let

These are our only significant assets and we will need to sell both in order to combine the capital (approx total = 200-250k GBP) to buy outright a home in the UK for us to live in. We believe we're limited to a cash-buy on a home in the UK because our self-employed status and lack of UK earnings history means a mortgage is unattainable.

Given the above, I am in need of advice on how to best limit our CGT liability to both HMRC and the IRS. In particular, I'm unclear on how the timing of our change of residency, and timing of the sales of both our US and UK homes will effect our tax bills. The sale of our FL home must be completed before we travel in June 2017 and we will qualify for the IRS Main Home exclusion so no CGT liability there. Regarding the sale of the UK flat:

- Should we sell the Uk flat before June 2017, while we're non-resident in the UK, to avoid UK CGT on UK flat (on gains up until March 2015)? If so, what will our US CGT liability be on the UK property?

- Or, if we have to wait until we're UK residents, could our US CGT liability be offset by Foreign Earnings Exclusion and Housing Deduction? Also, I'm unclear on what our UK CGT liability would be - I lived in the UK flat only briefly before moving to the US, it has been let the rest of the time.

We have no plans to move into the UK flat as it is shared ownership, currently let, and a major reason for our move to the UK is to be as close as possible to relatives in the west country.

Thank you for any and all advice you can give us! Best, Rob


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## nyclon

I've moved this to the tax forum where you should get more input.


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## rxt303

Thank you nyclon.


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## Bevdeforges

It depends on the US-UK tax treaty, but generally speaking, you owe taxes based on real property to the country in which the property is located. On that basis, I think you'd most likely have to pay capital gains on the sale of the UK property to the UK, no matter what your residence status at the date of the sale.

The US Foreign Earned Income Exclusion applies only to "earned income" - which means salary income. Rental income is considered "unearned" (or passive) income and in fact, as a dual national, you should be reporting your rental income on your US return and simply offsetting the UK taxes paid against any US tax liability you've run up.

Capital gains won't be affected by your residence status (at least for your US taxes), as the capital gain on the property will be fully taxable by the US - but again, offset by whatever UK tax you wind up paying.
Cheers,
Bev


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## rxt303

Thanks Bev - your reply is greatly appreciated.

As I understand it, if I sell the UK flat while a non-resident of the UK I will not in fact be liable for UK CGT on gains up until April 2015 (I believe the rules changed on this date). In part for this reason, we're hoping to sell between Jan 1st and April 5th of next year, while we're still non-resident in the UK (our move to the UK is in May/June). As you state above, we do understand our gain will be fully US CGT liable, but the 2017 US tax year will likely be lean for us in terms of earned income and so we expect a portion of our gain will qualify for the US 0% CGT tier, and the remainder at 15%.

To your mind, do you see any obvious errors with the above thinking? Thanks again.


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## Bevdeforges

I can't say anything about the UK rules for capital gains, but I strongly suspect you may owe something if you're selling a UK property as a UK non-resident.

The rate at which you'll be taxed by the US on the capital gain depends on the rest of your US return (i.e. your tax bracket) but yeah, as I understand it, it's pretty much as you outline it.

If there is any UK tax due on the sale of the property, though, it should be creditable against any US liability you rack up.
Cheers,
Bev


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## rxt303

Thanks again Bev.


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## Dunedin

There are various strands to rxt303’s questions. One aspect relates to the position if the flat were to be sold after establishing residence in the UK. The following comments are only in connection with that situation.

Rxt303 should first be aware that the date at which he is treated as becoming resident will be determined under the split year rules under the statutory residence test. This may simply be the date on which he arrives in the UK to take up permanent residence here- but he should take care over the details.

If the flat were sold after rxt303 were resident in the UK, there is no special treatment relating to the previous period of non-residence. The starting point is that the whole gain would be taxable in the UK.

Capital gains tax rates were recently reduced. The standard rate is now 20%. However, the 28% rate was retained for gains on the sale of residential property.

Rxt303 said that he lived briefly in the flat. An important question is whether he occupied it as his main residence. If so, at least part of the gain would be reduced by the principal private residence relief (ppr). The reduction is on a time apportioned basis. However, the last 18 months of ownership is deemed to be ppr, and there is also a lettings relief,

Rxt303 would need to investigate any interaction with the NRCGT.

Overall the tax on the sale of the flat after residence might be expected to be much higher than that under the NRCGT rules, but it is only by going through the process that is outlined above that the accurate position could be determined.


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## fn0

I am sure you are aware you will be considered as a long-term US resident (a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends (i.e filing of I-407)) until you have filed the IRS 8854 and associated forms. If these establish you are not a covered expatriate then you the IRS is not in the picture for any gains realised after US residency ends. It sound like you have a good handle on the tradeoffs between selling before or after you exit the US. Have you thought about the impact of dual status filing in 2017 e.g. cutting down the deductions allowed by the IRS?


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