tax , mortgage, questions.

Ok, this is a bit premature but I just wanted to know a few things. We are settled here in the uk now, Im us, he is uk. We both will be earning good wages and will want to upgrade our home. When we buy and I am earning, how is best to go about it? I will still have Us citizenship always, and just wondered will I forever be paying taxes to america first on my earnings, and what about the mortgage? how is it figured up? I vaguely remember there being some way around it a bit if I only were to be figured in for part of the mortgage and dh for the majority?
Thank you everyone!!

hi littleladylovleyfox,

Ok, I'm just re-reading your post and it seems a little vague to me as in to what you're asking.

From a tax point of view, I think you'll need to first determine your tax status in regards to the US and the UK. I think you currently will be domiciled to the USA which means for tax purposes you pay into the USA tax system first and foremost. As you are 'resident' in this country, you may need to look into changing that so you become UK domiciled.

I'm sure Lizzit & Guya can give you a little more pointers on this as they know much more than me about the tax systems than I do.

It's best as questions come out to speak to a US/UK tax advisor specialist who will be able to show you the differences, benefits and possible drawbacks of your tax scenario - but seeing as there's literally, thousands of couples/families liek yourselves this shouldn't be much of an issue to discuss. Once you add in foriegn investments, income, homes, sales/disposal of assets etc etc things do become very complex - however I do know for a fact many many individuals who have this scenario use software like TurboTax (in the US) and Taxcalc (UK) to accurately calculate their tax liability and make use of an accountant maybe once a year to double check everything.

A mortgage - well, plenty of advice on what to look for - nip into WHSmiths, and I'm sure they still do a magazine called 'What Mortgage' or 'Which Mortgage' - so that would be a good start and then look online for further info.

I'm not sure what you mean by 'a way around it' - I think joint mortgages here have the salary multiplier of 2.75 of joint salary, I don't think you can say oh well I'll just have my salary multiplied by 1 and my partner has 1.75 of it please - I don't think it works that way. Recently, with the amount of different mortgages available you might find that to resolve that element you'd like, maybe your other half goes for one of the 4 or 5 times salary multiplier mortgages - however, I'dadvise caution on those as it encourages people to take on more debt than normal which means higher risk. Even more so now with the global credit crunch taking effect - for instance, 100% mortgages are now much less available.

As ever, start doing some research and weigh up what suits you and your requirments from all the options, it is a minefield of different things out there but stick at it and you should find something suits.

Also, when you say upgrade your home, do you mean to sell your current place and move into another property? or do you mean you want to stay at your current place and extend and refurbish it?

Hoep this helps a bit!

cheers, DtM! West London & Slough UK!

I see. What I basically did not want to run into and still yet may is to pay a ludicrous amount of my earnings to the us, when we will never return. (yet somehow I cannot make myself denounce citizenship). Anyhow, for a mortgage if I am listed as a borrower, will it mean I then owe the us a chunk of cash each year, and since the pound is near to twice the worth of the dollar, that may be sizeable, or is it not even an issue?
I meant upgrading as in finding a larger home to buy. I dont really know all the rules, sorry its so vague. I need to get the which guide I think. I suppose my main concern was owing the us a huge chunk of money for my wages as well as property taxes? As far as a way around it, I meant more is there a way for me to not be liable for property taxes on the entire value of the home to the us, ie, more in dh's name than mine? Thanks again!!!

i've read your post several times, and i'm still confused, so i apoglize if my reply is off the mark.

you are a US Citizen.  you live in the UK.  you work in the UK?  you pay taxes in the UK.  you also have to pay taxes in the US- but you get an exclusion for the first $80,000 of your worldwide income.  Therefore, unless you're making over $80,000 USD, your US tax bill will be small.

the situation is:
you & your UK citizen husband want to buy a house in the UK- together.  you want to have a joint mortgage.  you will jointly be responsible for UK council tax. 

you do NOT owe the US money for owning a house in the UK.  you will not owe US property taxes on a UK house. 

I am a US citizen, and purchased a UK house 2 years ago.  I pay UK mortgage, UK council tax.  I pay US taxes (but on income I make from jobs/stocks that are based in the US).  The house purchase has not effected my US taxes at all. 

A few different bits & bobs:

1. If you sell the UK house/flat at a gain then that gain is taxable in the States

2. If you borrow now (at $2 to the £) and repay the entire mortgage at - say - $1.75 to the £) you will have a foreign currency gain to report on your US return.

3. If you die owning the property & there is a US estate tax when you die then there may be US estate tax on the value you leave your non-American citizen spouse.

Because these are all real US tax problens the standard advice is for the non-American spouse to own the entire property.   You'll just need to make sure this is acceptable to the mortgage lender.

I see I see. Thank you for clearing that up. So any money I make over £40k will have significant tax in the us? Sucks but ok. I think we will get the house in dh's name for those reasons. will they take my income into consideration even though I will not be in on the mortgage? I mean thats a heck of a lot of disposable income?!

1. If you sell the UK house/flat at a gain then that gain is taxable in the States

question quya- the UK doesn't tax me on the capital gains made on a UK property, as long as it was my primary residence, right?  I thought the US didn't tax on the capital gains, as long as it was the primary residence, as well?  Did I misunderstand this?

Hi meggles - For US tax purposes you get to exempt $250,000 worth of the gain on your main residence ($500,000 if married filing a joint return) providing you owned & used the home as your main home for 2 out of the 5 years before sale.

Now at the moment prices of homes are not growing that fast but of course this could change over the long-term...

thanks guya.  what is the rate of tax if the gain exceeds $250,000?

15% now (assuming owned >1 yr), but likely to rise to 20% if certain candidates get elected.  Look online for your candidate's tax proposals and see if you like what you see. 

Obama - He's got some really aggressive tax on offshore corps!  Self-employed people in Britain often set up corps as the taxes are lower. 
Dems - all dems are raising cap gains to at least 20%
Reps - most reps are getting rid of inheritance tax - a very foolish move, as it motivates/incentives philanthropic acts (think Gates and Buffet) on a massive scale.

I understand the 2008 foreign treaty exclusion has been raised to $85,700 this year.

I see I see. Thank you for clearing that up. So any money I make over £40k will have significant tax in the us? Sucks but ok.

You not only get to subtract the $85,700 from income, but you get credit for foreign tax paid on income above that amount.  Since UK taxes are high you will likely be OK as these will offset US tax liability.  Only problem is the US gives credit for foreign taxes on each type of income separately (salary, interest, capital gains, etc).  This means you could get hit for some tax on capital gains (tax free in UK up to about £8K) and interest earned on ISA accounts (tax free UK savings account).

If you're a high earner you may want to take advantage of UK rules for non-domiciles which allow you to only pay tax on what you bring into the UK.  You could have your employer pay into an offshore account (not all that difficult as most high street banks can set this up).    I think for this to work you need to be able to prorate income based on days out of the UK so it only works if you travel a lot for work and/or pleasure.  This may be worth exploring further with a tax adviser (insert plug for Lizzit or Guya here).   I didn't know about this when I settled in over here and wish I did, it could have saved me thousands.