transfer money from UK to USA after house sale

[flyoverfred]

Hi,

I'm currently in the process of selling my old house in the UK. I'd like to transfer the money to the US (where I'm a permanent resident) primarily to use it to pay off some of my mortgage here. What is the best way to do this and what do I need to do to satisfy any tax implications ? Will I have to pay tax on it over here for example ?

I'm expecting to transfer approx 250k US. 

[pk]

@flyoverfred , generally US taxation of this would take place without regard to UK  tax laws and effects thereof.

  There are a few and if and buts  -- so we really need more info on the exact situation ---

(a) You are Green Card holder -- are you married? and if so did you spouse also use this property as her main residence?  When did you move to the USA and ditto for your spouse (if) ?

(b) When did you acquire the property ( date ) and when (date ) did you stop using  this property as your main home  for both , if married )?

(c) How did you use the property  from the date you left UK  till date of sale ?   second home, rented out ( let out ) at market rent, had relatives/friends use  or what ?

(d) Acquisition Cost, Cost of all improvements during your usage as main home, sales price, cost of sales ( commission, sales prep/repairs etc to help sell. transfer tax etc. etc. ) ?

(e) UK taxes  are provisional or final ? 

Please answer as many as you can  --- you can use approximate figures   if you wish  for monetary data.

I will await your response 

pk

[flyoverfred]

Hi PK

Thanks for the reply !

In answer to your questions:

A: GC holder, married, yes we owned the house together in the UK and was our only residence, we moved here 2009
B: acquired 2002, stopped living there Aug 2009. 

C: Property has been  let out for the majority of the time since Oct 2009 - we are selling to the current renters, hoping the sale concludes this year

D: Acquisition cost was 120K (uk), cost of improvements we estimate at 25k (uk). Sales price is 200K (uk). Cost to sell approx 3k (uk)
E: Tax return is final

thanks 🙂

[pk]

@flyoverfred ,  Oh dear !  

1. Based on your response  ( i.e. converted  main residence to income property in 2009  and being disposed of in 2021 ), you are not going to be eligible  to exclude  gains  on  main residence.  Thus any gain will be taxed  by the USA -- US resident are taxed on world income.

2. Assuming that you have been reporting this rental income on your  yearly  US tax return and also  depreciating the property, your gain the property is  increased by the accumulated depreciation

3. Furthermore  that portion of the gain that is due to accumulated depreciation is subject to "recapture"  and treated as ordinary gain -- taxed  at your marginal tax rate--- the rest of the gain would be  taxed at capittal gain rate.

I am assuming here that  you are UK citizen and moved to the USA.

Assuming that your basis in the property  ( acquisition cost plus  cost of improvements by that time ) at conversion  Oct 2009 was 145K GBL   ( 120 K plus 25 K  ) and the  land portion of  this 45K GBL--  thus your  depreciable basis would be  100K GBL.   Hence your yearly depreciation is in the range of  2.5K each year.  So your adjusted basis ( for gain computation purposes ) would be  --- 145K less  accumulated  depreciation of ( 2.5 K times 11-- roughly ) 27.5K  = 117.5K GBL.

If you  sell  the property for 200K, then your gain would be  200K less 117.5K  less  3K  equal to 79.5KGBL.   Of this 79.5 K,  27.5 K would be treated as ordinary  income and taxed  at your marginal rate -- say 20% ( ?) while rest  ( 52K GBL ) would be treated as capital gain  and taxed at zero or 15%.

Does this make sense ?  or can I provide more info on this 

There is no issue transferring the monies to the USA by bank wire or similar -- your bak will automatically raise  required reports  ( SAR )  and  they may ask for an explanation  but that is all -- it is a non-event.

If you do pay UK taxes on this sale  then   that  foreign income tax may be eligible for  foreign tax credit or deduction.

[flyoverfred]

Hi PK

Thanks again for the comprehensive reply - it will take some time to digest so I will more than likely come back with further questions !!

My assumption is that I will get taxed in the UK for Capital gains, are you suggesting the US will then do the same here ? I thought I'd read somewhere there was an agreement between the two countries that that isn't the case (the internet is never wrong!!! )

[pk]

@flyoverfred ,  Article 6.1 through 6.3 of the  USA-UK tax treaty allows  ( and in your particular situation ) to tax rental income from  the property situated  in the UK and owned by a resident of the USA.  Article 13 covers the taxability  of the gains from alienation of real property situated in the UK by a resident of the USA --- in this case  the operative portion of the sentence is "may be taxed " -- thus  while UK "may tax the gains" it also does not preclude USA from taxing the  gain.  Note that  the gain computation  under the US tax laws  is not congruent  with that of the UK and of course US taxes  US person ( citizen/resident--GC holder / resident for tax purposes ) on world income while UK taxes all on in-country sourced income.  However to ameliorate the  burden of double taxation, US does allow  credit or deduction of taxes paid to another  taxing authority  when both admins are taxing the same income.

So, I am afraid  your internet information regarding this situation (only )  is /was not correct.

Is there more I can do for you ? 

[flyoverfred]

Hi PK

Thanks for your help with this, much appreciated. Given me food for thought on bringing the whole amount over all at one go for sure

[Opus 17]

@flyoverfred 

Very briefly, moving money that you already own from one country to another is not by itself a taxable event.  However, you need to be aware of two things. First, banks are required to report transactions more than $10,000. This is mainly to track money laundering and is not a taxable event. However, if you were to structure the transfer in multiple smaller amounts of less than $10,000 to try to avoid the reporting requirement, that can constitute a separate crime. Simply transfer the money by wire or check or whatever is convenient to you and let the banks take care of the reporting paperwork on their end.

Second, if at any time during the year, you hold a foreign bank account with more than $10,000 of deposits, you must report this to the IRS. This is called an FACTA report.  You can do this online, it is not included as part of TurboTax but the deadline is the same, April 15 of the following year.  Again, this is only a reporting requirement and not a tax requirement.

Separately, how you acquire the money may be a taxable event as discussed by the others.  If you are a US taxpayer (meaning that you are a US citizen or green card holder living anywhere in the world, or a non-citizen living in the US more than 183 days) then you are required to report and pay income tax on all your worldwide income.  You will use US tax law to calculate your capital gains on your UK properry and pay capital gains tax. You must include the effects of depreciation, which is not some thing I noticed in the prior responses.  Your cost basis for the gains calculation is the price you originally paid, plus the cost of improvements, minus depreciation that you took or could have taken (according to US tax law) while the home was a rental.  You can also add some, but not all, of the costs of selling to your basis. The allowable adjustments to basis are described on page 8 of publication 523.

https://www.irs.gov/pub/irs-pdf/p523.pdf

If you also pay UK tax on the same capital gains income, you can claim a deduction or credit on your US tax return for the foreign tax as you paid.

[flyoverfred]

Hi Opus

Many thanks for the response, immediate question if I may - you mentioned 10k worth of deposits in a year, I'm pretty sure we didn't reach that amount in the rent we took in - does that make any difference ?

thanks

[Opus 17]

---

@flyoverfred wrote:

Hi Opus

Many thanks for the response, immediate question if I may - you mentioned 10k worth of deposits in a year, I'm pretty sure we didn't reach that amount in the rent we took in - does that make any difference ?

thanks

---

So I was slightly confused, there are two reports with different thresholds, FACTA and FBAR.  You can read more here.

https://www.irs.gov/businesses/corporations/fatca-information-for-individuals

Here is a "simple" chart. 

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

You must file the FBAR if at any time during the year, your foreign (UK) bank accounts went over $10,000 balance (combined all foreign accounts).  If you moved money in and out, but the balance was never more than $10,000, you don't have to file the FBAR.

I was basically assuming the sales proceeds would be deposited in a UK account and then transferred to a US account, which would put you over the limit for a few days at least. 

[pk]

@flyoverfred , I am gratified for all the  excellent explanations provided by @Opus 17  to this discussion.  However, I just wanted to add a little and  possibly very minor points ( even if  some of these may be repetitious ---  

1.  for US tax purposes the computation of  gain on such a transaction is per US tax rules -- which may be very different from that of the "other" country;  

2. Taxable Rental Income  reported on Schedule-E again is per US tax rules  and may be very different from the country where the property is located;

3. The accumulated depreciation used for purposes of gain computation and for recapture ( i.e. gain taxed as ordinary income ), is irrespective of whether the taxpayer recognized/ took-advantage-of over the years and again is per the US tax laws at the time of the start of rental period;

4 if the  rental income over the years  were not reported on US tax income during prior years, then those returns need to corrected/ reconciled, even though  any taxes due  would require to be paid, any refunds  are time limited; Similarly  the  foreign tax credits ( if any ) associated with this foreign income ( rental income ) may be  time and quantum limited;  I bring this up because  I want to be sure that  you did  recognize these rental incomes over the years ( for US tax purposes )  or you do need to clear this up -- because the recognition of sale of the property may trigger IRS look back ;  

5. FBAR and FATCA generally  are not tax events  but  when in doubt , please   file the reports  because non-filing can lead to quite onerous penalties 

regards

pk

[flyoverfred]

Thanks PK, much appreciated and advice taken on board 🙂