Ingleton Partners’ Tom LR Griffiths on how buying property in the UK affects US expats

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More than 40% of US expats own property in the country they’re living in, according to a survey from HSBC. From the 1,836 US expat surveyed between March and April 2018, 28% also still own a property in the US. 

The survey also shows 12% own a property both in the US and their host country, 6% own a property in a different country and 40% own no property at all. 

How does buying property in the UK affect US expats? 

Property ownership in terms of tax is classed as a separate asset from fixed income and any equities they hold. For US expats in the UK, there are challenges ahead for being granted a mortgage. They face completely different rules than they’re used to in the US and may not even be eligible. 

While there are various considerations US expats must be aware of when buying property in the UK, it’s certainly possible. Obtaining a mortgage in the UK depends entirely on the US expat’s personal and financial circumstances. The first consideration is whether they’re eligible. 

UK mortgage lenders have different criteria

UK lenders do not have a consistent approach when granting mortgages to US expats, which can make the process even more confusing. Some US expats will find they are automatically declined for a mortgage from certain lenders. Others will be eligible as long as they meet certain criteria, and still others will be told they need to have lived in the UK for a certain amount of time. 

If the US expat has indefinite leave, then they should be able to get a mortgage from any high street lender without too much difficulty. However, if they don’t and they are on a visa of some description, the process becomes significantly more difficult. If they are also paid in a foreign currency, the difficulty of obtaining a mortgage ramps up again. US expats in this position will generally need to head to a private bank. 

Another key consideration for lenders is whether the US expat owns other property overseas. Depending on the kind of property they own, and where it is, this might e absorbed into the calculation of affordability by the lender in the UK. 

There are various major differences between lending rules in the US and the UK that any US expat should consider when applying for a mortgage. Planning properly and thoroughly understanding their obligations in both countries is always advised. 

For example, in the UK when someone sells their main private residence, they don’t have to pay tax on the gains made. In the US, just the first $250,000 of the gain from selling is free from tax. This is equivalent to around £200,000, depending on exchange rates. 

Difference between US and UK tax rules

Another example of differences between the two countries comes with the sale of a property by a mixed US/UK couple. If they make a profit from the sale of their main property of residence, then the US half of the couple would be eligible to pay tax, while the UK partner wouldn’t. A good way to plan for this would be to put the house in the UK spouse’s name only, rather than as joint owned, so that there is no tax liability on gains from selling the property. An alternative way to deal with this scenario, is the US half of the marriage gifting their share of the property to their spouse at least a couple of years before they put it on the market. 

In short, US expats have far more to consider when it comes to tax, property ownership and liability than UK citizens. Where they source their capital to make the down payment and pay stamp duty is also important. If money is brought into the UK from outside, then there is the chance that it will be taxed. It’s vital to understand what kinds of tax charges might apply, as no-one wants the surprise of a sudden tax bill when they’re trying to buy property. 

Don’t forget the foreign currency exchange rate

The final major point to keep in mind is the constantly fluctuating exchange rates. These can impact the gains from selling property. This is because the exchange rate from the day the property was bought and sold are used to work out how much of the property gain is taxable in local currency. For example, when a mortgage denominated in UK currency is paid off on foreign-owned property, the owner has to work out whether there has been a gain or loss depending on exchange rates. 

If the mortgage costs less when it’s settled because of a fluctuating exchange rate, the amount of gain is taxed at normal income tax rates. Without fully understanding how the currency has changed over the time the property has been owned, the US expat owner could unintentionally create big begins in local currency. This is another reason why planning ahead is a necessary step for US expats. 

Buying property in the UK is more complex for US expats. Understanding the regulations and taxable income associated with this asset class is vital. Engaging an expert, such as Ingleton Partners ensures that there are no surprises when it comes to selling the property.