| Taxations
obligations for UK Resident and domiciled individuals buying
residential property in the USA |
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For
many people, the acquisition of a second home abroad is the
realisation of a long held dream. However, without proper financial
advice, that dream could easily turn into a nightmare. With
this in mind, British Mortgages Abroad and International Mortgages
have got together with Mazars, an international accounting and
consulting group to help guide you through that maze of tax
issues which can arise.
We have given a brief summary of some of these below in order
to highlight the relevant areas.
Please bear in mind that this page is only an overview and for
specific advice on your own position, we suggest you contact
the Mazars professionals mentioned below.
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| United
Kingdom |
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- As
a tax resident of the UK, if you own a second property in
the USA and rent it out when you are not using it, you will
have a UK tax liability on the rental income. It may be
possible to reduce this claiming for expenses such as maintenance,
agents fees, and interest paid on a loan to finance the
purchase of the property. However, adjustments may require
to be made to deductions available to reflect the amount
of private use of the property.
Normally, you will be able to claim relief for any US tax
paid against UK tax due on the rental income.
- If
you sell the property, you will normally be liable to UK
capital gains tax on the difference between the price originally
paid and the sales proceeds. Deductions may be available
for selling expenses and money spent on improvements. US
tax paid on the gain will normally be creditable against
your UK capital gains tax liability.
- The
value of the property (less any loan outstanding on it)
will normally form part of your estate for UK inheritance
tax purposes. It will therefore need to be included in any
account rendered to the UK authorities on your death. If
the property is given away in your lifetime to another UK
resident individual, then providing you survive seven years
from the date of the gift, no inheritance tax will be due.
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| United
States of America |
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- Income
Taxation of Foreign Investment in US Real Estate.
In general, a non-US resident individual is subject to US
income tax on income derived from rental real estate activities
and dispositions of real property. The foreign investor
in US real estate is subject to a tax on either a gross
basis (i.e. gross income without allowance of deductions)
or on a net basis (i.e. gross income less allowable deductions).
The manner in which the foreign investor is subject to US
taxation depends on the specific facts of the investor's
US real property rental activities or whether the investor
makes certain elections for US tax purposes. US state income
taxes may also apply depending on the state in which the
real property is situated. The foreign investor is generally
required to file a US (and possibly state) income tax return
associated with US real property rental activities.
- US
Gift Tax
Us gift tax generally applies to a non-US resident individual
that makes a direct or indirect transfer of real property
situated within the US. The gift tax applies to the donor
of the property. The tax is applied on the fair market value
of the gifts reduced by certain deductions. In addition
to the gift tax, generation-skipping transfer tax considerations
need to be taken into account prior to gifting US real property.
- US
Estate Tax
In general, non-US resident individuals must include the
value of real property situated within the US in their gross
estate for US estate tax purposes. Certain planning techniques
may be available to foreign investors to defer US estate
tax on property transfers to a surviving spouse. The foreign
investor will also need to consider whether any US state
inheritance tax may apply to any real property transfer
at death.
- Local
Taxes
The foreign investor in US real property must also
consider local taxes that may apply as a result of owning
US real property. Among the taxes to be considered are wealth
tax, property tax, sales tax, tourist development tax, resort
tax, tourist impact tax, convention tax, etc. Local taxes
may vary from state to state in their application.
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Acquisition taxes
Certain US states may impose a conveyance tax or a documentary
stamp tax on any instrument that conveys an interest in
real property. In addition, under under US income tax law
(and possibly state income tax law as well), the buyers
of US real property is generally required to withhold a
portion of the sales proceeds to remit to the US (and possibly
state) tax authorities as income tax withholding.
Mazars
offices in both the United Kingdom and the United States can
offer a complete service addressing all your taxation needs.
At a basic level, we can provide a fast, efficient fixed price
compliance service which ensures that you meet your taxation
obligations in each jurisdiction. We can also provide, at
competitive hourly rates, higher level advice on tax planning
for minimisation of the liabilities arising.
Mazars
advisers would be delighted to talk to you whether you are in
the United Kingdom or the United States of America:-
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UK
Contact
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USA
Contact
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David
Sayers on
+44 (0)1582 700 704 or
Rodney Taylor on
+44 (0)1582 700 757
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Rob
Wagner on
+1 317 383 4187 or
Callan Hovland on
+1 317 383 3778 |
Mazars Neville Russell
International Tax Group
London Luton Office
Neville Russell House
1 Telford Way
Luton
Beds
LU1 1HT
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Mazars Central LLC
Expatriate Assignment Solutions Group
201 N. Illinois Street, Suite 700
Indianapolis, IN 46244-0998
USA |
If you would prefer to deal with a Mazors office closer to your
home, please let David or Rodney know and they will be delighted
to put you in touch with your nearest office. A list of locations
is detailed below. |
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| Disclaimer |
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Experience
has shown that many people forget to consider the tax implications
of buying property abroad until it is too late. Advice at
an early stage from an objective view point can save not only
tax but also the time and trouble of trying to unravel complicated
arrangements at a later stage.
This page provides general information and inevitably cannot
deal with the specific circumstances which may face a particular
individual.
As a result, First National Bank (t/a British Mortgages Abroad
and International Mortgages), MNR and Mazors Central LLC can
accept no responsibility for loss occasioned to any person
acting or refraining from acting as a result of material contained
herein.
Mazors can service your taxation requirements wherever you
are in the UK. This can be provided at any one of the following
offices: Aberdeen, Bedford, Birmingham, Brighton, Bristol,
Dudley, Edinburgh, Glasgow, Huddersfield, Leeds, London, Luton,
Milton Keynes, Nottingham, Oxford, Poole, Southhampton, Stockport
and Sutton.
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