Capital gains implications of renting US primary residence

Hello everyone!  I am a dual US/UK citizen, my husband is a US citizen.  We have owned and lived in our home in Colorado for 18 years.  We are now moving to the UK for the foreseeable future for family reasons. We are renting a house in the UK initially. We have decided to rent out our home in Colorado and we understand we can rent it for up to 3 years and still not incur US capital gains tax if we then sell.  What I don't know is the rules in the UK.  Would we incur UK capital gains tax, due to having rented the house for some time, when we sell?  We are looking at the rental as a way to keep our options open in regard to where to live in the future, but i don't want to incur a huge tax bill if we would decide to sell the US house in a year or 2 and buy a UK home.  Secondarily, I have to submit a W9 form to the property management company so they can report the rental income to the IRS.  In the US we file joint returns, so it doesn't matter who's name and SS # is on the W9, but I understand in the UK everyone files as individuals ?  So since my husband will have earned income and I won't have any earned income, would it be better from a tax perspective if the rental income were in my name, not my husbands?

Thanks! 

Have you already determined which category you will qualify for a visa under?  That may help sway your decisions about your current property now.  As typically, the UK citizen needs to work to sponsor the non-EU spouse.  I assume you applying using cash savings of at least £62,500?

Husband has 3 year work visa via his employer.

Fantastic!  That will make things much easier.

Now I'll leave the capital gains tax questions to our tax experts.   

I think you can get Residence Relief from capital gains tax in the UK up to 3 years after you have stopped living in your primary residence.......double check that though as the rules are complicated and I just remember reading that somewhere. You get the $500k married capital gains tax allowance from the IRS with the time provisos you mentioned.

Think I have answered my own questions via research on web.  Here is what I think applies:  when we sell a portion of the gain would be taxable, calculated as follows ( 1- (( months as primary residence +18)/months owned)) x 100, which in our case would be around 7% if we rented for 3 years.  In addition there is something called letting relief that might further reduce our CG liability and of course the Annual CG allowance which would exempt the first 11k of gain I believe.  On my second question about assigning rental income to me alone, no can do, if property jointly owned in equal amounts then rental income is split 50/50 for rax purposes regardless of who it's actually paid to.

What does keeping a home in Colorado do in terms of State residency?

From a UK perspective or you each going to elect to claim the remittance basis?

A capital gain in Pounds might be a loss in US Dollars, or vice versa.

If there is double taxation, the UK would give credit for US tax.

you have to be physically in a state to be resident there, at least that's how we've always treated it in the past for tax purposes.  I doubt we'll elect remittance basis, don't think we'll have enough US income to make that worthwhile.  i don't get your comment about a gain in pounds being a loss in $, we bought a home with $, we will sell it hopefully for more $, and the difference between the 2 can be calculated in pounds or $, but it's a gain either way.

you have to be physically in a state to be resident there, at least that's how we've always treated it in the past for tax purposes.  I doubt we'll elect remittance basis, don't think we'll have enough US income to make that worthwhile.  i don't get your comment about a gain in pounds being a loss in $, we bought a home with $, we will sell it hopefully for more $, and the difference between the 2 can be calculated in pounds or $, but it's a gain either way.

Many States base residence on domicile, not just presence. How does Colorado define a resident?

UK law requires that one uses spot exchange rates on dates of purchase and sale to calculate a gain. This can result in different answers in pounds sterling from US dollars.

I would like to add some comments.

The approach on the issue of double tax is-
•   Consider the tax under UK domestic rules, as summarised.
•   Consider the tax under US domestic rules.
•   Apply the provisions of the UK/US double tax treaty.

The tax treaty parts that are relevant are those applying to UK resident US citizens, and the details of these should be considered.

you have to be physically in a state to be resident there, at least that's how we've always treated it in the past for tax purposes.  I doubt we'll elect remittance basis, don't think we'll have enough US income to make that worthwhile.  i don't get your comment about a gain in pounds being a loss in $, we bought a home with $, we will sell it hopefully for more $, and the difference between the 2 can be calculated in pounds or $, but it's a gain either way.

Guya (as ever) points out correctly that some states have domicile based tax residency rules. But even if CO has let you go you are getting rental income from a house in CO and if you sell there might be CO sourced capital gains. You'll have to pay CO state tax on both of those.