Why buy a property?

The UK property market has proved a comfortable home for investors’ wealth in recent years. Central London properties have been particularly resilient in spite of some difficult global economic conditions. Even the vote to Brexit has not deterred many international investors, lured by the cheaper currency. It remains an option for all those on longer-term assignment in the UK.

How can I sort out my currency exposure?

Currency markets have been particularly volatile in recent months, as central bankers have unleashed new measures. In general, expats need to ensure that their currency exposure is as predictable as possible and, where feasible, matched to their income. They will also need to bear in mind that they need to report to the relevant US authorities in USD and the UK authorities in GBP.

Expats should consider their currency exposure when changing a lump sum to make a significant purchase, but also their ongoing commitments in local currency, such as a mortgage and household bills. Expats may also retain some expenses in their country of origin – this may be maintenance payments or letting expenses for their main residence.  

The danger is that if liabilities and income are not in the same currency, investors may face significant variability in their monthly outgoings.

What about capital taxes?

The purchase of any asset exposes expats to domestic capital gains tax rules if it is eventually sold at a profit. Expats need to be wary of assuming that the same capital gains tax rules apply in their host country as do in their home country.

In the UK, for example, a Principle Private Residence relief applies, so an individual’s only or main residence is exempt from capital gains tax. Expats and non-domiciliaries are not, in many cases, entitled to this relief and therefore it is worth careful planning. If an US citizen is married to a UK citizen, it can make sense to put the house in the UK citizen’s name, for example (although there will be other considerations).

In contrast, US citizens are entitled to an exemption of $250k of gains per person on their main property; gains above this figure are then taxed. 

Equally, if a US family is returning to the US, they may still be liable to UK capital gains tax on residential property, even if they have become non-resident. They need to tell HM Revenue and Customs (HMRC) if they have sold or disposed of UK residential property after 5 April 2015. Calculating the ultimate liability is complex and will depend how long they have been resident in the UK and whether they plan to return. Don’t forget currency may be deemed to be part of the gain.

Are there any other taxes to be wary of?

Each country has its own individual inheritance tax laws. It is easy to assume that inheritance tax is covered by cross-border treaties, but this doesn’t always work in practice. The issue may be particularly complicated when there is a US/UK marriage. For example, the ‘spouse exemption’ that exists in the UK, which allows assets to be transferred tax free to a spouse on death, does not apply to non-UK domiciled spouses. Transfers to non-domiciled spouses may also not be eligible for other inheritance tax exemptions.

It is now possible to make a UK domicile election to get round some of these problems but this can have knock-on effects on other assets and how they are treated by both the UK and the US. 

There are also complexities on the other side and US citizens may remain liable for US inheritance tax in spite of being resident in the UK. In all cases, the consequences of poor planning can be significant – this means that the structure of ownership between a ‘mixed marriage’ must be looked at carefully.

In conclusion

UK property has been a fantastic investment for many expats, but it is not without its pitfalls. The importance of an adviser who understands the complexities that come with international assignments and relocation cannot be underestimated. Getting it wrong can be extremely costly, while good planning can save a great deal of money. There needs to be prudent planning around any asset purchase to ensure that wealth is properly preserved.

About London & Capital

The London & Capital US family office has been specialising in advising US citizens and Green Card holders on tax optimised investment solutions since 1989. 

If you would like to discuss the above further, please get in contact via email or via telephone 0207 396 3388.


If you would like to discuss this topic further, please get in contact via email or via telephone 0207 396 3388.