A 2022 guide for US expats on the UK property market

Whether you are thinking of buying, selling, or renting out a home in the United Kingdom, you must be aware of the various tax laws that could affect you.

Not only must you consider taxations in the UK, but as a US citizen, you may also have various US obligations. The whole process can be overwhelming, particularly for those who are new to expatriate life or the British property market.

Planning your next move

With the many complexities involved in the taxation of US nationals living and working in the UK, planning is essential.

When you move abroad, your taxes will become even more intricate. Understanding what changes you should expect and how they will affect you is vital for anyone wanting to live and work in a foreign country, especially Americans.

Houses in Britain are comparatively more expensive than those in the US. In 2021, the average UK house price rose 10.8% to approximately $365,000 (£275,000). With homes in general, especially in the United Kingdom, being worth so much, it is critical to consider all related decisions carefully.

Furthermore, dealing with taxation responsibilities between two countries like America and Britain is notoriously challenging. The US imposes heavy fines and penalties on those who fail to file their taxes correctly.

It is no wonder that taxes are a dreaded subject for many US expats with so much at stake and a high potential for things to go awry.

UK tax obligations

The UK has a government site through which you may need to report certain transactions and gains. You should set up a government gateway account if you haven’t already.

Just as regular income from working in Britain is subject to UK tax laws, so are property actions such as purchases and sales.

US taxes that may affect your property

Whereas most countries only tax their subjects based on residency, the United States requires citizens living at home and abroad to report their earnings and file accordingly.

Note that your tax obligations may also vary from year to year. If you are a US expatriate living in Britain, you need to check out recently updated advice. This information will help you navigate all taxes, both income, and property, with maximum success.

Purchasing a home in the UK

You won’t technically make any income from buying a house, so there is no need to report this transaction on your US taxation returns. However, that does not mean you have no other obligations the transaction will impact.

You must report any financial accounts which hold the capital for your house purchase. FBAR and FATCA will trigger if you transfer a large sum to a foreign bank account or take a loan. Any amount over $10,000 will necessitate the involvement of the Report of Foreign Bank and Financial Accounts and the Foreign Account Tax Compliance Act.

Furthermore, foreign mortgages may earn money through foreign exchange gains. If you believe this to be true in your situation, you will also need to report this.

You may also need to pay Stamp Duty Land Tax (SDLT). These tariffs begin on properties costing over £125,000, and the percentage you must pay increases as the property gets more expensive. From 2% on properties between £125,001 and £250,000, all the way up to 12% on properties over £1,500,001. These rates vary again if the property is a second home or bought to let.

With so many of these taxation rules dependent on specific details and situations, it is clear why so many US persons seek professional advice. A consultant will be able to guide you through the process, ensuring you file correctly, save as much as possible, and don’t open yourself up to possible penalties or fines.

Mortgaging and remortgaging

You may think that your obligations end once you start paying your mortgage. However, this is not always the case. Variations in exchange rates can create unforeseen liabilities with repayments and remortgages.

An advisor will help you plan for and reduce the likelihood of facing these liabilities.

Tax considerations if you rent out your UK property

If you rent out a home in the United Kingdom, your tax obligations may change because the house could classify as a business property.

For instance, if you were to sell a personal house for a loss, this amount is not deductible. Matters are different if you treat the property as a business and rent it out during your ownership. In such a case, it is possible to deduct losses up to the amount attributable to the usage of your house for commercial purposes.

When renting out a home, you can expense the annual depreciation of your home. Be mindful that if you choose to use this method while renting the property, you will need to lower your cost basis expectations when selling it according to the yearly depreciation reported.

Selling a property in England

Capital gains are the primary tax concern of US expatriates selling property in the United Kingdom.

While you will likely be exempt from UK taxes on your capital gains, you will be responsible for reporting them to the IRS.

It is important to note that America does allow capital gain exclusions of up to $250,000 per US citizen for personal property sold in the United Kingdom. This means that if you sell a property with a US partner, you may be eligible for up to $500,000 in gain exclusions combined.

Exchange rates may also affect your tax liabilities when selling. All transactions reported to the IRS will be considered in US dollars. Meanwhile, sales in the UK will, of course, actually take place in Great British Pounds.

Spikes and drops in the exchange rate can affect your dues. If paying off the mortgage costs fewer dollars than taking it out, the IRS will treat this difference as regular income and tax it accordingly.

Tom LR Griffiths is an enrolled tax advisor with particular expertise in US expatriate tax matters. Clients see their property and other investment taxes structured and streamlined with the help of senior consultant Griffiths.