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Recouping UK property rental losses after moving from US to Eur (France)

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Recouping UK property rental losses after moving from US to Eur (France)

edited 30 November -1 at 1:00AM in Cutting Tax
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AllWillBeWellAgainAllWillBeWellAgain Forumite
4 posts
edited 30 November -1 at 1:00AM in Cutting Tax
Hi,

I have accumulated rental losses of ~15k GBP on my UK property whilst living in US over last number of years. I have been filing returns both with HMRC and IRS over this time. I am now in a position to pay down my mortgage so that I would start making a profit on my property. I would be able to write-off those historic losses against future gains on my IRS return. However, I am now planning to relocate from US to Europe, most likely France. Will I still be able somehow to write-off those previous losses against future rental profits while living in France? Perhaps I can file taxes for income in France and separately file a return with HMRC for my UK property income?

I'll have to go to a professional with this eventually, just want to get a base understanding first. Really appreciate and thoughts or guidance.

thanks
Fionn

Replies

  • edited 13 August 2019 at 9:53PM
    00ec2500ec25
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    edited 13 August 2019 at 9:53PM
    not sure why you think moving to France will alter your UK tax position?

    are you a US citizen or a UK/ other EC country citizen?

    you have rental income in the UK. That makes you liable to report your UK rental profits to HMRC and you are presumably already registered with the non resident landlord scheme allowing you to receive rent gross and settle up via your tax return. If not, then what on earth have you been doing these last few years?

    I know little about USA taxation other than they tax worldwide income I think? Unless you are a USA citizen, that will end when you leave USA and be replaced by the more normal situation covered in the tax treaty - income from "immovable property" is taxed in the country it arises in, not the country you are resident in

    you will continue to be accountable to HMRC for an annual tax return and your existing losses will continue to roll over until you use them up in the profits from the same property business - don't stop and restart a new business is the key lesson there!
    https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4210

    if you are UK/EC you will retain a personal allowance, so whether you have a profit to be taxed depends on the numbers.

    read the tax treaty? https://www.gov.uk/government/publications/france-tax-treaties
    how France views rental income is covered in there, and no you cannot choose which country to declare your rental income in - it is UK income.
  • This is very helpful, thank you. Yes, I'm UK/EC and have registered with NRL scheme. I had started reading the treaty but was not able to distill it down to: it is UK property income and so is taxed in UK. (The "may" language confused me.)

    Thanks again!
  • Cook_CountyCook_County Forumite
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    From a US perspective repaying or refinancing the mortgage will inevitably result in a sizeable US taxable foreign currency gain.


    We do not know if you are a US citizen, green card holder or present in the US on a visa. These are important facts to consider.


    The loss in the States will inevitably be larger than the UK because of depreciation. Suspended passive activity losses on Form 8582 could as you suggest possibly be used against future US taxable profits.
  • Interesting, thanks. I'm on a GC.

    > From a US perspective repaying or refinancing the mortgage will inevitably result in a sizeable US taxable foreign currency gain.
    Is there a tax consideration regarding the repayment transaction itself?. I naively thought (I really mean "would have expected"!) that the only impact would be due to realization of profits due to reduced mortgage amount.

    Yes, depreciation means the passive losses on US side are much greater!
  • Cook_CountyCook_County Forumite
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    As a you are a green card holder you'd want to be thinking about possible expatriation tax on abandonment of the green card.
  • EdSwippetEdSwippet Forumite
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    Is there a tax consideration regarding the repayment transaction itself?. I naively thought (I really mean "would have expected"!) that the only impact would be due to realization of profits due to reduced mortgage amount.
    As with so much around US tax, it's ugly, one-sided and inequitable. The US views repaying a non-USD denominated mortgage as an exchange rate gain (or loss), and then makes it taxable. More here:

    https://www.ingletonpartners.com/the-us-taxation-of-a-mortgage-foreign-exchange-gain/
    So a transaction, that is a nothing for UK tax purposes, generating no real profit for the taxpayer and no proceeds, has generated a potential US tax liability. It is not hard to see why any US person caught in this situation finds it to be particularly gouging and inequitable and we have a lot of sympathy for that view.

    A few further things to say, the above would apply to a redemption, say if the property were sold, as well as regular capital repayments if you have say a repayment mortgage. The rules on foreign exchange gains in relation to personal transactions allow an exemption for any gains below $200 on each transaction. ... In addition, and just to rub salt in the wound, if the transaction results in a loss that is not allowable.
  • "gouging" & "ugly"... oh yes!

    Can I avoid this tax by transferring funds to UK now but only paying down the mortgage after I leave US (taking account of IRS exit tax process)? Or am I going to get hit for tax on the forex transaction even if I just let it sit in my UK account?

    Else, can this tax on mortgage forex gain be written off against my accumulated passive losses (due to depreciation)?

    Getting into the weeds now!!
  • EdSwippetEdSwippet Forumite
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    Can I avoid this tax by transferring funds to UK now but only paying down the mortgage after I leave US (taking account of IRS exit tax process)?
    Perhaps, provided you wait until you have completely disconnected from the jackboot of the IRS and US tax by formally ditching the green card with a form I-407 while at the same time dodging the US's appalling 'expatriation tax'. You can see from the example that it is mortgage repayment that causes the issue, not just holding some non-US currency (although that too can produce unwanted US tax effects if done incorrectly).

    That said, it's more than a decade since I negotiated this, and the rules were different. It's anybody guess what new thicket of thorny US tax nonsense has grown up since then, so you'll want to research this well before proceeding. I'm just some random bloke on the internet, and wrangling US tax is not my day job. Good luck, anyway.
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