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Where Taxpayers and Advisers Meet

UK tax for house in the USA

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

UK tax for house in the USA

Postby NonDom41 » Fri Feb 15, 2019 7:12 pm

I own a house in the USA. A foreigner like me who owns a property in the USA is subject to high US inheritance tax (only $60,000 allowance). In order to bring down these taxes for my son when I die, I have arranged the following:

I gift him a part of the house in the value of $15,000.00 every year. This amount is the annual US-gift allowance. Depending on how long I live this will decrease the taxable house value over time in terms of inheritance tax. This procedure has been approved by the IRS in the USA. However, how is this treated by HMRC in the UK?

A) Is there CGT due? I do not think so because the UK-CGT allowance is GBP 11,700 which is higher than the above $ 15,000.00.

B) However, how about UK-gift tax or any other taxes (income tax?) If at all, gift tax would only be due if I were to die before the 7-year time period elapses, correct?

Can anyone help?

pawncob
Posts: 4492
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: UK tax for house in the USA

Postby pawncob » Sat Feb 16, 2019 9:54 pm

The "gain" doesn't depend on the value of the gift, but the value of the disposal. You'll need to post cost and current market value if you want an estimate of the gain. UK IHT rules will also apply
With a pinch of salt take what I say, but don't exceed your RDA

AGoodman
Posts: 1043
Joined: Fri May 16, 2014 3:47 pm

Re: UK tax for house in the USA

Postby AGoodman » Mon Feb 18, 2019 11:20 am

I agree gain unlikely to be an issue in practice unless GBP/USD plummets.

If you ever use the property, you are likely to be treated as retaining an interest in the whole for IHT. If it is just an investment and you share the income and expenses in the relevant shares, the gifts should be PETs.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: UK tax for house in the USA

Postby NonDom41 » Tue Feb 19, 2019 4:18 pm

Thank you.

The house is an investment and rented out. Currently I file a US as well as a UK-Income tax return every year where the rental income is reported.

Does my son have to file a UK-income tax return every year in addition because of his relevant shares (they change each year because they add up)? He is employed and does not need to file a tax return so far.

Or is it sufficient if I file my income tax return as usual and report the total rental income as I have been doing already? Both the IRS and HMRC will receive their full taxes as before.

AGoodman
Posts: 1043
Joined: Fri May 16, 2014 3:47 pm

Re: UK tax for house in the USA

Postby AGoodman » Wed Feb 20, 2019 11:22 am

His share of rental income will be his so he will need to file a UK return to report it unless there is no tax to pay.

No idea what the US situation would be but I doubt you can just treat the income as your own unless there is some specific deeming provision over there.

DavidTreitel
Posts: 226
Joined: Thu Aug 16, 2012 4:31 pm

Re: UK tax for house in the USA

Postby DavidTreitel » Sat Feb 23, 2019 9:22 am

From a US perspective, in terms of any future gain on sale your son takes on your cost basis on any future sale of his share of the property. Consequently, he will not get the step up in basis on your death that he would otherwise expect. From a US perspective, this gifting plan might therefore result in a larger tax charge on any future capital gain than any estate tax avoided.

You only qualify to claim rental expenses (including depreciation) if you elected to claim these. Your son similarly will need an ITIN and to file annual US tax returns. He can equally decide if he wishes to elect to claim expenses or pay US tax on his share of gross income. Just like you, he'll want to give a W-8BEN or W-8ECI to the payer of the rent to avoid US withholding tax. Because he takes on your cost basis on receipt of the gift, he can only claim a depreciation expense based on your cost.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: UK tax for house in the USA

Postby NonDom41 » Fri Mar 01, 2019 1:54 pm

Thank you all for your valuable information.

I will not proceed with my plan as described. As far as I can see there is no effective measure for an alien non-resident to lower US-inheritance tax in a case like mine. Is this correct?


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