A United Approach | Series 1 Episode 3 | Buying Real Estate

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Robert Paul, Partner in the US Family Office spoke to Richard Rogerson, CEO at RFR and Carlo Grey, Partner at Buzzacott about the tax implications of an American buying a property in the UK, we have summarised their discussion below.

Any American family that moves to the UK and intends to stay for the medium to long term will likely face a critical decision: should we buy a house? For many people who can afford it, it’s an easy decision. However, there are several things that US citizens living in the UK need to consider before they take the plunge – regardless of how much the property is worth – but especially if it is of a high value.

With London often being the market of choice for US expats, the good news is that prices, especially those at the higher end, have fallen in recent years. Part of this was caused by the Brexit vote, but in reality, property prices began to decline in 2014 following an extended period of growth. The main culprit of this was an increase to stamp duty, as well as an additional charge for people who are buying a second property.

Given that stamp duty on homes worth more than £1.5m tops out at 12% and there is an additional 3% charge for people who already own a property anywhere in the world, buying a house can come with significant added cost.

Unlike income tax due in the UK, this stamp duty isn’t eligible for a foreign tax credit, so it can’t be offset. However, not all is lost. Given how much house prices are down since 2014 and the fact that the pound has fallen against the US dollar since the vote to leave the EU in 2016, Americans can take solace in knowing they are at a price advantage. By some estimates, property prices are 38% cheaper for US dollar buyers than they were in 2014.

The real complications that Americans face when buying property in the UK relate to taxation, both in the UK and the US. The first challenge arises when seeking to fund such a large purchase. If bringing money into the UK as someone who pays tax on a remittance basis, those funds will be taxed when they enter the country. This means it is crucial to seek advice on how best to fund a property purchase, because funds brought into the country offshore could be hit with a large tax bill.

The second tax-related challenge comes when selling a property or even just refinancing a mortgage. Even if the property has not gained any value in sterling terms, there might be US capital gains tax due if the dollar increased in value against the pound. Therefore, owning property while paying taxes in two countries comes not only with asset risk, but also currency risk.

Another thing to consider is the ownership structure. For example, a married couple would normally own a house in the UK under a joint tenancy with rights of survivorship, so that the property passes from one spouse to another on death. But where one person is American and the other is British, there may be a benefit to a tenants in common structure, with the British spouse owning the majority of the property in order to eliminate or minimise any capital gain that might be subject to US tax when the property is eventually sold.