US resident selling 2nd home in UK.

Pat_P

Hi
My mother died recently and the house she lived in belonged to my brother who lives in Minnesota. She paid no rent to him.
We have been told that he is not liable to Capital Gains Tax in the uk but if he transfers the money out to the US he will have to either re-invest in property there(!) or pay CGT on it. He wonders if he has any options about gifting/loaning it to members of his family (we would like to pay off our mortgage and downsize when the market is better and then pay him back). He has other family members who wouldn't mind a loan too. The amount concerned is around the £150,000 mark. He has a couple of properties in the us with mortgages on them that he would like to clear too.

Any suggestions gratefully received.

Pat

Cook_County

I am confused.

What nationalities are you each? What visa does brother have? Is he UK resident for tax purposes?

Where are you each domiciled?

How can he transfer the money out to the US on sale, isn't the property there already?

Pat_P

Sorry, he is US resident and tax payer and has lived there for 25 years.
He is working.
He has owned his mother's house in UK for about 20 years.

I, and rest of family, are British and live in uk.

Thanks

Pat

Cook_County

Your brother is non-UK resident so zero UK CGT on sale of the property he owns.

As a US resident he is taxable on worldwide income & gains - so the US would charge CGT at the 15% rate plus State taxes if Minnesota taxes capital gains.

He cannot do a like kind exchange between UK & US real property - he has been misinformed, US income tax is payable whether he leaves the money here or not.

He can make loans to you. You would have to withhold UK tax on the interest you pay him & he would owe US taxes on the interest or deemed interest if none is charged.

These comments ignore IHT and estate tax because we don't know where he is domiciled from your comments.

Pat_P

Thanks for that.

He is domiciled in the US and would like to avoid the CGT, due on UK house sale, there if he can.

If he makes loans to his family here in the uk, am I right in thinking that, he would be liable to US income tax on the interest but not to US CGT when the loans were paid back?

Many Thanks

Pat

Pat_P

Anyone know the answer to the above?

Many many thanks to you for your help.

Pat

Cook_County

Pat - I know you are new here, but there is a thanks button you may want to learn to use, & no hurry that I know of.

This is an open forum where you are talking about a lot of money so you really need professional advice you can all rely on.

I now know your brother has abandoned his UK domicile of origin. He cannot avoid US income tax unless he other items standing at a loss that he could sell & offset.

If he makes loans you would withhold UK tax on the interest. He would pay US tax on the interest you pay him. He will make a foreign currency gain or loss on repayment of the debt, taxable/deductible as ordinary income.

Voyager2002

In his position, I think I would 'forget' to inform the US authorities about his finances within the UK. Unless he tried to bring the funds into the USA, I cannot imagine how they could find out, and in moral terms I don't think it is any of their business.

Pat_P

It is Capital Gains Tax he is trying to avoid.

His accountant told him he will have to pay CGT unless he buys another property to rent out. Of course when he eventually sells that property he will have to pay CGT on it. He would rather use the money to, eventually, pay off his mortgage.

Because we visit him regularly we thought we could take some money over each year as a repayment of our "loan".

Sorry to be a pain. I have now mastered the Thank You buttons.

Pat

Cook_County

Voyager2002 is wrong. The UK routinely (daily) exchanges information with the US - computer to computer. If he evades US tax he may go to jail so this would be a foolish move. As a US resident & Minnesota domiciliary he is subject to US income taxes on worldwide income & gains and US estate tax on his worldwide estate on his death. I doubt he would sleep well if he knowingly defrauded the US government.

In America there is no separate capital gains tax; it is all "income tax", that is why I call it income tax (on a gain), but if you want to think of it as capital gains tax, please do!

The US based accountant is plain wrong. You cannot roll a gain from a foreign (UK) property into another property. You are talking about a "like-kind" or "1031" rollover. Ask the accountant if he has ever done a 1031 rollover on a foreign (non-US) property and I guarantee you he or she has not. Most domestic US accountants do not "get" all the implications of foreign issues.

You can take cash if you want providing you declare this to Homeland Security on entry to the United States each time. You will still need to withhold UK tax on the interest on the loan & pay this tax to HMRC over here yourselves.

Let me know why & how the US accountant thinks he can roll over the gain & then we can discuss further.

The_Tax_Man

Voyager2002 wrote: »

In his position, I think I would 'forget' to inform the US authorities about his finances within the UK. Unless he tried to bring the funds into the USA, I cannot imagine how they could find out, and in moral terms I don't think it is any of their business.

It would likely mean lying to the Department of the Treasury each year when he files his foreign bank account forms (or deliberately fails to) which should tell them he is holding more than $10,000 in offshore accounts.