Buying Foreign Real Estate via corporation - Will this be a PFIC?
Attorney · St Petersburg Fl / Cambridge UK · Member since 2018 · 19 posts · 4 votes
Hi all,
I’m a US Citizen but we are stationed in the UK. From a UK tax perspective it’s better (by far) to buy new rentals via a Limited Liability Company. But I’m concerned from a US tax perspective that owning a foreign corporation who’s income is entirely passive (ie rent) will be classed as a Passive Foreign Investment Company (a PFIC) and I believe the taxes for these are bad too! Are there any accountants on here with experience in this area?
Many thanks
Owen
@Owen Franks, Hi Owen, just saw this thread now as I've been searching for anyone in the same boat as me. This stuff is so complex. I'm originally from New England but have been in London for many years. Happy to share on this topic but I'm also looking for an accountant who knows the US, UK and real estate.
I went to an expat forum in October and met a few accountants who seemed to know both US and UK tax code well but didn't personally have that many clients investing in rental property. I will probably contact them in the New Year to talk further since it was a short meet and greet format. I can share their details though over private message. When I asked my existing UK tax accountant about using a US LLC to invest in property she sent me a law firm's review of a recent Supreme Court case on UK tax treatment of US LLCs that didn't fully clarify the issue (!?!?!). Basically she was saying, if the Supreme Court hasn't even clarified this tax law, how can I as a lowly accountant do so.
I'm waiting to see how my capital gains taxes turn out on a sale I just had before deciding next steps in property. Might try cash only in lower price markets (e.g. some of the quirky deals I've heard about on the BP podcast).
BTW 1031 Exchanges don't seem to be recognised in the UK (according to the advice I got).
If you do find a good accountant you may want to explore how the taxes work for your domicile status. If you are non dom, I thought you could leave the US income offshore. I am domiciled here already so can't use that avenue. Again a complex area but may be worth a look for you.
The PFIC code sections are nuanced. You should engage a CPA familiar with international taxation, especially since you seem to live abroad and are contemplating investing in foreign companies.
Generally yes, a foreign corporation that holds and rents real property would be a PFIC...however a controlled foreign corporation (CFC) is statutorily excluded from being a PFIC and is subject to a different set of rules.
@Owen Franks, Hi Owen, just saw this thread now as I've been searching for anyone in the same boat as me. This stuff is so complex. I'm originally from New England but have been in London for many years. Happy to share on this topic but I'm also looking for an accountant who knows the US, UK and real estate.
I went to an expat forum in October and met a few accountants who seemed to know both US and UK tax code well but didn't personally have that many clients investing in rental property. I will probably contact them in the New Year to talk further since it was a short meet and greet format. I can share their details though over private message. When I asked my existing UK tax accountant about using a US LLC to invest in property she sent me a law firm's review of a recent Supreme Court case on UK tax treatment of US LLCs that didn't fully clarify the issue (!?!?!). Basically she was saying, if the Supreme Court hasn't even clarified this tax law, how can I as a lowly accountant do so.
I'm waiting to see how my capital gains taxes turn out on a sale I just had before deciding next steps in property. Might try cash only in lower price markets (e.g. some of the quirky deals I've heard about on the BP podcast).
BTW 1031 Exchanges don't seem to be recognised in the UK (according to the advice I got).
If you do find a good accountant you may want to explore how the taxes work for your domicile status. If you are non dom, I thought you could leave the US income offshore. I am domiciled here already so can't use that avenue. Again a complex area but may be worth a look for you.
Hi @Jennifer S., thanks for the message - sorry for the delayed reply I don't always get notifications on here for some reason. It sounds like we are in the same boat tax wise! I think I'll keep things simple for now, and maybe just have my wife invest in US properties in her name only (as she is not a dual national) and not complicate things further. That said, if you get any progress or find a good UK/USA CPA who also knows real estate I'd love their details!
Best wishes,
Owen
Hi @Owen Franks, hope you have been doing well amidst the current global challenges! I wanted to just come back and let you know a new piece of info I just learned from a video on tax shared with me by another BP member. There may be big issues around having a non US citizen hold US property with respect to the estate tax ($60k threshold vs $11million). There seem to be ways to mitigate - so something for you to ask when the time is right - but just wanted to share that in case you are pursuing the avenue of your wife having the property in her name. Secondly, if she is domiciled in the UK, she may run into the problem of how the mortgage interest is treated back in the UK, if the property is not held in a US LLC. This may not matter in the beginning if her marginal tax rate isn't too high-but I don't know what it might look like after a few properties add up and normal income is added to it. No tax advice here --I am not an accountant just sharing potential issues to iron out. BTW I did reach out to one accountant here with stated expertise in both US and UK tax but I didn't hear back at all. So I grind on! :)