Buying house in UK - tax worries

Hi, all-

I am a US/UK dual citizen and my husband is a UKC. We live in the UK and plan on living here permanently. We are about to purchase our first house in the UK and I am just trying to think ahead about what US tax headaches I could have to look forward to in the future.

I'm aware of the capital gains tax I could have to pay if, when we come to sell, the gains are over the threshold (currently $250,000?)...but are there any other inconveniences expats who have purchased property here have come up against (especially tax-wise)?

I am looking over our paperwork at the moment and considering how to set-up the purchase (Joint Tenancy v. Tenants in Common), will/life insurance, etc. And I'm just afraid I'm going to make a choice without being fully aware of the future tax implications. Any heads-ups in advance from people who have already gotten on the property ladder much appreciated!

The other tax implication is the foreign exchange difference from the day you purchase the property to the day you sell.  And how much money you've made due to the exchange rate.

Example:

House bought for $100,000 in 2010 when GBP = £1.25 to $1  (USD House value $125,000)
House sold for $100,000 in 2020 when GBP = £2 to  $1 (USD House value $200,000). 
Therefore you had $75,000 gain in foreign exchange rates.

Standard US tax planning advice has always been to have the property owned solely by the non-US person.

Standard US tax planning advice has always been to have the property owned solely by the non-US person.

That's what we did from advice on here when we moved back. House is in my wife's name (UK).

Don't forget the possible capital gains hit as a consequence of repaying a UK (foreign funded) mortgage. Although it could apply to all mortgages, an "interest only" mortgage is a sitting duck.

If exchange rates move one way, one may have a possible CG risk on the profits from the sale; if exchange rates move the other way, a possible CG risk may occur on the repayment of the mortgage.

Standard US tax planning advice has always been to have the property owned solely by the non-US person.

I understand why this makes sense in theory but not how it's possible in practice. We both earn a similar salary and both of us need to contribute to the mortgage in order to afford the house...so it wouldn't be possible for us to put it in just his name, right? Or is there a technicality I'm not aware of where the title is concerned?

What should I do if I didn't know this and set it up in both names?

That's what we did from advice on here when we moved back. House is in my wife's name (UK).

Also, doesn't proceeding this way (putting it all in UKC's name instead of half/half) make for potential complications with inheritance tax later should the property 'owner' die and the US-person end up inheriting the property?

Also, doesn't proceeding this way (putting it all in UKC's name instead of half/half) make for potential complications with inheritance tax later should the property 'owner' die and the US-person end up inheriting the property?

I wouldn't have thought the spouse would be considered "inheriting".

I wouldn't have thought the spouse would be considered "inheriting".

I agree. I think UK and US law is the same in that spouses have a joint inheritance allowance. Doesn’t matter if the surviving spouse inherits a full house or half a house, no tax considerations.

Ok, thanks. That helps explain the inheritance part. Can anyone shed light on how it's possible to put the house in just one name? Is that only possible if the UKC can contribute 100%, or does the contribution (to deposit, monthly mortgage payments) not need to match with how much each person 'owns'?

I should probably also say that we aren't really buying for investment purposes but to live in this place, all being well for a very long time. I just loathe the idea of a country I don't live in anymore wanting to claim a massive tax bill far down the road (and after working hard for 30 years to pay off the house!).

I just loathe the idea of a country I don't live in anymore wanting to claim a massive tax bill far down the road (and after working hard for 30 years to pay off the house!).

I believe this just happened to Boris Johnson a couple of years ago....didn't it? I think he got dinged because he was a dual citizen and the US wanted some money from a house he sold. I least my little brain seems to remember that....

Ok, thanks. That helps explain the inheritance part. Can anyone shed light on how it's possible to put the house in just one name? Is that only possible if the UKC can contribute 100%, or does the contribution (to deposit, monthly mortgage payments) not need to match with how much each person 'owns'?

I should probably also say that we aren't really buying for investment purposes but to live in this place, all being well for a very long time. I just loathe the idea of a country I don't live in anymore wanting to claim a massive tax bill far down the road (and after working hard for 30 years to pay off the house!).

Most of us only borrow based on the non-American.

However, we have purchased another house and my income had to be considered.  We just know what the risks are and will cross those bridges when we get there.  We are now in “our forever home” so shouldn’t be selling anytime soon.   

@4mandolin
I read that story too but, unlike Boris, i have my reasons for not wanting to renounce as a solution!

@jimbocz
I just found a link on gov.uk (in the joint/property/ownership section) that says it's relatively easy to switch between Joint Tenancy to Tenancy in Common after the fact. If that's the case, I think we may just set it up as Joint for now and deal with far down the road later when we have a better idea whether it's even something we need to worry about.

Thanks Bristolbound, good luck on your journey.  If I were buying a house in Bristol, I would want a view of the Great Britain.