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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I moved to the UK from the USA under a 5-year work permit and

Resolved Question:

I moved to the UK from the USA under a 5-year work permit and plan to remain in the UK indefinitely. I want to sell my US principal residence, and have put it on the market, while I rent in the UK. However the market in the USA is poor.
I understand there is no UK tax liability for sale of a principal residence. May I rent my US place out and, so long as I do not purchase a new house in the UK, sell it eventually free of capital gains tax?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.
HelloCustomer

When you sell your primary residence in the US, you are allowed to exclude $250,000 from your gain (or $500,000 if married filing a joint return). But in order to be considered your primary residence, the following two rules must be met:

1. You must have owned the home for at least 2 years and
2. You must have lived in the home for at least 2 of the last 5 years

The only way for you to claim the allowed exclusion is to satisfy both rules, which means that if you have now moved out of the house, you would have to sell it within 3 years of the date you moved in order to still satisfy rule #2. If you do not sell the home within that time period, you would be liable for capital gains tax on the full gain you had from the eventual sale.

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Thank youCustomerbr />
Customer: replied 4 years ago.
Sorry, didn'tmake myself clear. My question is about my UK tax liability on my principal residence, not my US lbability. If I cannot sell my US place, it is still excluded from gains as long as I haven't bought a new home in the UK and am renting?
Expert:  Merlo replied 4 years ago.
HelloCustomer

I am not certain I understand your question.

If you have property located here in the United States that you sell, you are liable for any capital gains tax here in the US -- not in the UK.

If you do not sell the property here in the US, what makes you think you might be liable for capital gains tax in the UK or anywhere else?



Customer: replied 4 years ago.
Thank you--well, I think I have a UK liability because I am a UK resident and I pay regular taxes here in Scotland. (I do not pay any state taxes in the US, just federal).

The UK gives a total exclusion of capital gains on the sale of a principal residence, but I'm wondering how long the UK will accept it that my principal residence is in NY. If I rent it out till the market improves, have I converted it to rental property? Am I safe as long as I haven't bought another principal residence here in Scotland? (This is a question I reckon for a UK tax expert)
Expert:  Merlo replied 4 years ago.
Hello againCustomer

I am assuming that you are a US citizen who has moved to the UK. If that is the case, then the UK will not tax you on the sale of this property when it is sold. The US has a tax treaty with the UK which permits the country where the property is located to tax any profits from the sale of that property, so you would not have a tax liability in the UK regardless of when the property was sold and regardless of whether or not it was your primary residence.

You would, however, continue to have a tax liability here in the US. And if you sell this property within 3 years of the time you moved out, you would be able to claim the $250,000 exclusion. If you sell it after that point, no exclusion would be allowed and the full gain would be subject to tax here in the US. But the UK will not tax you on this sale.

Refer to Artcile 6 of the US/UK tax treaty.

http://www.irs.gov/pub/irs-trty/uk.pdf

If this was helpful please press the Accept button.

Thank youCustomerbr />
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 8 other Tax Specialists are ready to help you

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