Tax

Five important considerations ahead of the US Tax Year End

November 14, 2019

For Americans living in the UK, financial planning and wealth management is complex. It affects everything from income and capital gains, to pension saving and gifting, and it must consider different regulations, tax calendars and currencies.

Robert Paul, Head of the US Family Office, explains five things that Americans in the UK need to consider in the run-up to the end of the US tax year.

To speak to Robert or another member of the US Family Office, please give us a call on +44 (0) 207 396 3388 or alternatively email invest@londonandcapital.com

Disclaimer: The value of investments and any income from them can go down as well as up and investors may not receive back their original investment amount. This communication is for information purposes only. It is not intended as a personal recommendation of particular financial instruments or strategies and it does not provide individually tailored investment advice. This document provides the views of the London & Capital Investment Team examining the fundamental background, economic outlook and possible effect on asset markets. This document is not an invitation to subscribe and is by way of information only. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. If you are considering investing, you should consult your London & Capital adviser. The views expressed herein are those at the time of publication and are subject to change. Correct at time of going to press.

London and Capital Asset Management Limited is authorised and regulated by the financial conduct authority, 12 Endeavour square, London, E20 1JN. Firm reference number 143286. Registered in England and wales, company number 02112588. © London and Capital Asset Management Limited. All rights reserved. London and Capital Wealth Advisers Limited is authorised and regulated by the UK Financial Conduct Authority (firm reference number 120776) and by the U.S. Securities and Exchange Commission of 100 F street, NE Washington, DC 20549, with sec firm reference number 801-63787. Registered in England and Wales, company number 02080604. © London and Capital Wealth Advisers Limited. All rights reserved.

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- Owning a property in the UK as a US person
  January 12, 2021TaxSelling a property in the UK In the UK, individuals benefit from Principal Private Residence (PPR) relief. This allows individuals to sell their main home and pay no capital gains tax, assuming a few conditions on occupation are met. Unfortunately, the Americans amongst us have another set of rules to play by. The Internal Revenue Service (IRS) has a worldwide reach on US citizens’ tax affairs, and the gain made on the sale of the family home, i.e. the main residence, is potentially subject to capital gains tax in the US. How does this work? US Tax and the $250,000 exclusion At the moment, the first $250,000 of the gain (per individual) is exempt, but the excess is taxable. This can possibly change if the Biden administration decides to introduce tax changes in the future. While this may be a little way off yet, it could see capital gains being taxed at a new highest rate of 39.6%, for those with income above $1m. Similar to the UK’s PPR rules, the IRS also has some specific requirements on who qualifies, based on occupation. Assuming all the rules are met, a couple could benefit from a $500,000 exemption in total. Currency Americans who have lived in the UK for an extended period of time can easily overlook this, as they may consider their financial affairs in British pounds, but the IRS does not. Even though the property would have been purchased and sold in British pounds, the IRS would consider the equivalent dollar amounts for the purchase and the sale. Chances are this would have spanned several years, with large fluctuations in the exchange rate. Phantom Mortgage Gain Quite surprisingly, the potential pitfalls don’t stop there. If a mortgage is held, you might assume that the debt is deducted from the asset value to reduce the potential gain. However, the mortgage is in fact considered a separate asset to the property. Furthermore, paying off the mortgage can bring negative US tax consequence as the mortgage amounts on purchase and sale also need to be converted to dollars. If the debt being paid off on sale is lower than was originally taken out, this may be considered a ‘phantom mortgage gain’ which is taxable in the US. Are there any other aspects I need to think about? Mixed Marriages It is typical for a couple to own property jointly, however, where one spouse is a US citizen it may be advantageous from a tax point of view for the property to be owned solely by the non-US citizen spouse. If the property is currently solely owned by the US citizen, there may be an option to transfer ownership. Be wary, there are limits on how much a US person can gift to their non-US spouse for gift tax purposes. Mortgages If there are sufficient assets to purchase a property outright, this may be advisable. Of course, there is no ‘one size fits all’ approach to this type of planning, so it is vital to take advice and ensure your unique situation is considered with appropriate advice provided. Inheritance Tax Another aspect to consider is whether a property falls into the value of an estate for inheritance tax (IHT) purposes. In the UK, the amount that is exempt from IHT is considerably low, when compared to the more generous US estate tax exemptions, therefore planning is often required to ensure the best outcome for the next generation. Article written for London Realty International To get more US Expat content direct to your inbox monthly, sign up to our newsletter here. If you would like to speak to someone about your investment requirements, please use the contact from here. Email: Jenny.Judd@londonandcapital.com Disclaimer: The value of investments and any income from them can fall as well as rise and neither is guaranteed. Investors may not get back the capital they invested. Past performance is not indicative of future performance. The material is provided for informational purposes only. No news or research item is a personal recommendation to trade. Nothing contained herein constitutes investment, legal, tax or other advice. Copyright © London and Capital Asset Management Limited. London and Capital Asset Management Limited is authorised and regulated by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 143286. Registered in England and Wales, Company Number 02112588. London and Capital Wealth Advisers Limited is authorised and regulated by both by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 120776 and the U.S. Securities and Exchange Commission of 100 F Street, NE Washington, DC 20549, with firm reference number 801-63787. Registered in England and Wales, Company Number 02080604...