Capital gains on residence(s)

Hello,
I am a US citizen (and UK too, but I don't think that matters for this particular topic). I own 2 properties, one a primary residence (for the past 3 years) and the other with a tenant (it was my primary residence 3 years ago, for 3 years). I am considering selling one, or both, to buy and move to a new property in the UK. I own 100% of both properties. My husband is German and does not file jointly with me in the US.

The question is: I think I would have to pay capital gains tax on the amount above $250,000. Is there any way around that, or is the best option to put the property (or properties) that we want to sell in my husband's name?

Thanks very much for any advice!!

You should probably take advice offline on this.  You have a lot of options, a LOT of options.  Typing is unwieldy way to get this info across.  It would take me at least an hour to answer comprehensively. 

Any answer posted here must be applicable to anyone in remotely similar situations, and thus answers posted here must be extremely conservative and can not take into account shades of grey or any bits of your personal info you might have unwittingly not mentioned.  Thus, if you rely on a posting done here, you will not necessarily get the very best answer.

That being said, GENERALLY speaking, buying properties in your husband's name sure as heck would save you a ton of dosh.  BUT NOT ALWAYS.

I'm in a somewhat similar situation, except that we are thinking about buying a home in the UK now.  (I am a US citizen, my husband is a UK citizen, although he's also a green card holder.)  We are considering putting the property in his name only b/c of the US capital gains tax issues, but are wondering whether there is any contractual way to protect me, on the off-chance we end up having an ugly divorce somewhere along the way.  Since I may end up gifting him a considerable portion of my life savings to pay the downpayment, I can't help wondering!

I am not a lawyer, but I have considered at times writing a "post-nup", an agreement as to what percentage of everything goes to who.

If you have documentary evidence of how much you paid towards the family home, a judge in a divorce case would consider the fact that the home was matrimonial and more likely than not give you a substantial award.  Documentary evidence would include proof of the deposit and proof of your monthly contribution towards the household bills. 

Yet another jolly reason to save all your receipts forever.  I'm always asked "how long should I save receipts?" by neat-niks desperate to toss it all on the day of expiry.  I recommend three to seven years (covers audit timeframe) but realistically, your entire life is a better time period.

I'm in a somewhat similar situation, except that we are thinking about buying a home in the UK now.  (I am a US citizen, my husband is a UK citizen, although he's also a green card holder.)  We are considering putting the property in his name only b/c of the US capital gains tax issues, but are wondering whether there is any contractual way to protect me, on the off-chance we end up having an ugly divorce somewhere along the way.  Since I may end up gifting him a considerable portion of my life savings to pay the downpayment, I can't help wondering!

From a property lawyer friend of mine:  There are two main types of ownership in the UK.

A.  Joint Tenants
 
If you purchase as joint tenants it is assumed that you own the property equally.  This is the usual way to purchase as a married couple.  Should one of the couple die, his/hers share in the property automatically gets inherited by the other owner. 
 
B. Tenants in Common
 
This is how one would normally purchase with a business partner, friend or maybe second marriage if you had children from a previous marriage and wanted to control inheritance rights.  With this method you can specify what percentage each of the partners owns.  I.e. a tenant in common purchase does not have to be 50:50.  In this situation, if one partner dies. its part of the property is inherited by whoever is specified in the will (or, if there is no will, under common law inheritance rights - e,g, to the next of kin).   It does not necessarily go to the other partner, unless that person is the person specified.

Hope this helps. 
 

Thanks. Has anyone had experience putting property into a spouse's name after the purchase - rather than purchasing it directly in the spouse's name?

Transfering after the fact can trigger UK capital gains tax in some situations.  You should speak with a UK tax accountant prior to making any such transfer.

Hello,
I am a US citizen (and UK too, but I don't think that matters for this particular topic). I own 2 properties, one a primary residence (for the past 3 years) and the other with a tenant (it was my primary residence 3 years ago, for 3 years). I am considering selling one, or both, to buy and move to a new property in the UK. I own 100% of both properties. My husband is German and does not file jointly with me in the US.

The question is: I think I would have to pay capital gains tax on the amount above $250,000. Is there any way around that, or is the best option to put the property (or properties) that we want to sell in my husband's name?

Thanks very much for any advice!!

You've got lots of things going on here. I can only give general comments of course since so much depends on all the details of your own circumstances.

Firstly, The three years "exemption". This isn't really an exemption as such but if one house stops being your principal private residence - because another house becomes your residence instead - then if you sell it within three years you won't pay tax on it. Sounds as though you might have gone outside that now 

Secondly, married couples owning a private residence. Husband and wife can only have one exemption between them unless they're separated (ie separated in a bad about-to-divorce way not just because one is working somewhere else). Transfers between husband and wife are usually exempt. I say usually because you can't artificially insert a husband-wife transfer into a series of transactions in order to avoid tax. Transferring a second property into your husband's name in this case wouldn't achieve much as it would still be taxable on one of you.

Thirdly, £250,000 is not a tax level for capital gains tax. Are you thinking of Stamp Duty? Stamp Duty is the tax you pay when buying a house. The capital gains tax annual exemption for individuals is currently £9,200. It tends to go up each April.

It's important to remember that capital gains tax is only charged on the actual gain (after your annual exemption has been taken into account). You take the selling price and then deduct the cost of the property,  legal and realtor costs of buying and selling, any improvements made to the house - that's an essay in itself - and various reliefs. I'm just telling you that because the tax bill might not be as bad as you think  Also the tax is paid on 31 January after the tax year ends so you could have the money n deposit earning interest in that time (if you were very organised and didn't spend it on something else!).

In general it's not wise to let tax considerations be the decigin factor in selling a property. Its better to get an accountant to calculate the actual tax then you can make the decision on other factors like housing market prices and your need for the cash etc. You should certainly obtain advice before making transfers, as Lizzit says. Quite apart from the tax considerations, transferring property can be expensive here in terms of legal fees.

As always I have no idea what the US tax situation is.

It is just worth commenting that Arcadian misread the question.  The question relates largely to the $250,000 exemption on sale of a main residence - not UK or indeed German tax.

The questioner needs combined advice on the US and UK income tax, capital gains tax, estate tax, inheritance tax and gift tax issues as Lizzit points out.  UK thinking in isolation by itself could cause more damage than it is trying to help...

Thanks everyone. I have spoken with Lizzit and worked out a plan - giving part of one property to my husband and selling that residence, and not selling the other one.

It is just worth commenting that Arcadian misread the question.  The question relates largely to the $250,000 exemption on sale of a main residence - not UK or indeed German tax.

The questioner needs combined advice on the US and UK income tax, capital gains tax, estate tax, inheritance tax and gift tax issues as Lizzit points out.  UK thinking in isolation by itself could cause more damage than it is trying to help...

Yes, I did misread it. Sorry. Mods please remove it if it's confusing.

I was wondering about this myself, for that day in the future when my husband and I can actually afford to buy a place to live in/around London!

Could the US citizen avoid liability for US CGT if the UK spouse was the sole legal owner, but held the beneficial interest in the property on trust for both spouses? In other words, does the US tax based on who owns the legal interest or who owns the beneficial interest?

And would this affect the amount of mortgage they would be able to raise to buy the property initially?

(Have been trying to figure this out round my college--law course--but no luck yet.)

US beneficiaries of non-US trusts pay extortionist tax rates on any income arising from said trust.  I would SOOO not do this option without taking personal advice.  Chances are, that personal advice would end up being no way Jose nine times out of ten.

Thanks, Lizzit--that's good to know! I suspect this time next year (when I can finally afford to), I'll be contacting you for your professional advice and assistance.

Just thinking, if you are charged US CGT on profit made from the sale of a UK house, surely you would only be charged on what profit you actually made (considering the mortgage, etc), so you'd have to have a pretty massive gain to go above the $250K limit, right?