My husband and I bought a house in London in March 2011 where we lived for a year before moving out to New York in 2012. We have been renting ever since but want to sell the house and are wondering what our UK and US tax liabilities would be?
I am a US green card holder so I think I will have to pay capital gains tax in the US on the house. However, my husband is French. Can I transfer my share of the house into his name to reduce my tax liabilities?
Jaime McLemore, an associate in Withers’ US/UK tax team:
US green card holders are subject to US income tax and annual reporting obligations on a worldwide basis in the same way that US citizens are.
It is possible for green card holders to take a position where they are “treaty resident” in another country and therefore only subject to US federal income tax on any income created within the US. However, this position would not be available to you because you are a US resident.
This means that gains from the sale of your London house will be subject to US federal income tax at 20 per cent. You may also have to pay an additional 3.8 per cent investment income tax on the gains.
This can be worked out by subtracting the initial cost of the house purchase, plus capital improvements, from the sale price. Because you own the London house jointly with your husband — and your husband is not a US taxpayer — you are presumed to own all the gains for US tax purposes.
Both the US and UK offer tax exemptions on the sale of principal personal residences but these, unfortunately, are not available to you. US rules require you to have lived in the property for at least two of the past five years and UK exemptions only apply if you have lived in the property for your entire period of ownership.
From a UK perspective, the gain relating to the period that you lived in it will qualify for relief, with the remaining gain being taxed at a maximum rate of 28 per cent. You will receive a dollar-for-dollar tax credit for any UK tax paid effectively resulting in you paying tax at the higher of the two rates.
US citizens and green card holders are also subject to US federal transfer taxes, including gift and estate taxes which means that if you transfer assets to your spouse it will potentially attract US federal gift tax.
However, you can use a combination of your annual and lifetime exemption to make a gift of your interest in the London house to your husband. The combined lifetime gift and estate tax exemption is currently $5.43m and there is an annual non-US spousal exemption of $147,000.
Be aware, however, that gifts in contemplation of a sale have a greater risk of IRS challenge. Depending on the size of the gift, you may have to report it and should probably include a qualified appraisal of the property to substantiate the value of the gift and start the three-year statute of limitations period running for IRS challenge.
If you own the property as joint tenants with right of survivorship, you will need to sever joint tenancy to gift your interest to your husband.
Gary Heynes, head of private clients at Baker Tilly:
As the property was your main residence, the final 18 months of ownership should qualify for private residence relief in the UK. This means that a disposal at any point up to September 6 2016 should remain outside of the scope of UK capital gains tax.
A sale beyond that period would also only be chargeable on the proportion of gain more than 18 months after April 5 2015 and you may also qualify for an annual exemption (£11,100 for 2015/16) as well as further relief for any period that the property has been let (up to £40,000 of gain).
Overall, any disposal in the next couple of years is likely to have no or limited UK capital gains implications from a UK perspective.
Gifting half of the property to your husband would not, therefore, give any significant UK tax benefit in the short term, and could result in an inheritance tax charge on a death within seven years of the gift if you are UK domiciled and your husband is French domiciled.
As for foreign taxes, although your husband is French, there should be no French tax implications for the sale of the property on the basis that neither of you are resident in France. The property disposal may, however, result in a CGT charge in the US as you are resident there and a green card holder. If UK CGT is payable this can be offset in the US under the US/UK double taxation agreement.
If you were to gift the property to your husband, there could be a liability to US federal gift tax and state tax.
The simplest solution, for tax purposes, might be to sell the property as soon as possible without first gifting it to your husband. It is likely that this would attract no UK tax liability but as mentioned above, a US tax liability. We would suggest US tax advice is taken as the matter is not entirely straightforward.
Searching for a good interest rate
I am 57 years old, so I don’t qualify for the NS&I’s competitive pensioner bonds. Can you tell me which accounts that I can save into that pay market-leading interest rates?
Justin Modray at Candid money.com:
I am afraid savings interest rates are pretty dismal, especially when compared to NS&I pensioners bonds.
If you want easy access then the ICICI Bank SuperSave Online account at 1.50 per cent a year gross is competitive, as is the Coventry BS PostSave Easy Access account at 1.40 per cent. As for fixed rates, FirstSave pays 1.90 per cent a year for 18 months, Yorkshire Bank 2.10 per cent for two years and AgriBank 2.70 per cent for three years.
I doubt we will see interest rates start rising for at least a year or more. Our economy is probably still too fragile for the Bank of England to risk raising its base interest rate.
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