Becoming UK Resident - Aged parent

Hi Helen,

My American husband and I (US resident) purchased a flat in UK for my parents where they resided rent-free since 1990.  Father has died, Mother is 88 and needs some help.  I have been told to sell UK flat before becoming resident (for 6 months a year) to avoid CGT but Mother does not want to move.  If I become resident what are my US/UK tax liabilities if I sell at a future date?  Flat cost 21,000 GBP, now worth 130,000 GBP and has never been our primary residence.  Is there any way around this problem?  Thanks for any advice you can give.

Sincerely,

Betty Turner

If you become a resident in the UK, you will need to pay UK capital gain tax on the sale of this house as this is going to be considered an investment property for you and not your principal residence. As this gain needs to be reported on your US return also, you can claim a credit for the UK taxes that you will pay in this case on your US return thereby avoiding double tax.

If you remain non-resident of the UK, there is no UK tax liability. However, you will pay US capital gain tax on the sale. No foreign tax credit available in this case, as no UK taxes have been paid.

So really, depending on your overall effective tax rate, you will be paying tax at the higher of US or UK capital gain tax rates whether you become a resident or not.

Please feel free to call me to discuss this further of you like more elaboration on this issue.

Helen

Hi Helen,

Thanks for your email.  Is there any 'taper' relief if we live in the flat as principal residence for 5 or more yrs. in UK before selling it, as Mother needs help now?  Any ideas on 40% relief if we have owned it over 10 yrs. or dependant relative has occupied it?  Also if we move to UK, how do we calculate CGT on the profit? (we are retirees in lower US tax bracket).  Thanks so much for your help.  

Sincerely

Betty Turner

A lot of questions to answer. It might be easier/quicker to have a chat about them. Please feel free to call me on +44 208 466 9297 to discuss.

Helen