Ask the Experts: How can I avoid a US/UK tax double whammy?

The Telegraph – April 2015

An expat with duel British-American nationality wants to sell her UK home, but is worried about the tax bill in both countries .

Q. I have duel citizenship in the UK and USA. I live and pay taxes in the US but also pay taxes in the UK. I own property in both countries. I bought my house in London about 16 years ago, which I lived in for three years and have since rented out. I have declared this income to both UK and USA. I am up to date on all taxes owed to each country.

I am trying to plan what is best to do with my UK house. I will move back to London this summer for four years or more. I could sell the house after a year, once it is my primary residence, but I don’t want to lose a huge percentage to capital gains tax.

Are there any options that I am overlooking? I would be most grateful if you could advise.

Libby Morris

A. Howard Bilton, chairman, The Sovereign Group (www.sovereigngroup.com)

As you are a US citizen you will be subject to US tax on your worldwide income, capital gains and estate irrespective of where you live.

Once you move back to the UK and become UK tax resident again you will also be subject to UK tax on your worldwide income and capital gains. You are almost certainly still liable to UK inheritance tax, irrespective of residence and other considerations, if you are UK domiciled. I don’t have sufficient information to determine your domicile but it sounds as though you are and have always have been UK domiciled.

The good news is that there is a tax treaty signed by the UK and USA which generally operates to eliminate double taxation and gives you a credit against tax paid in one country against tax due in another on the same income or capital gains. So in practice, once you become UK resident again, you will end up paying only the highest level of taxation in either place but not the sum total of tax due in both. More…