Selling in UK, buying in US. 1031 an option?

12 Replies

Hi, need some advice!

Next spring I will be putting my flat in London on the market. I bought it in 2010 with a mortgage (a private loan from a friend) the price has almost doubled by now, and as I got married to an American in 2011 - I have been here in Atlanta most of the time since then. The flat has been rented out for the past year and a half.

I would like to sell it and buy rental property here. 

I have an ITIN, but no Social Security number as Immigration just delay and delay. I can't put my life on hold any longer, and I always file jointly for taxes with my partner, if that helps.

I heard about the 10% witholding, and that it can be avoided if necessary, but I don't know how I'd go about rolling the sale of a UK property to another person in the UK when I think, for a 1031, it has to go via an intermediary who, I'm guessing, is in the US.

Hi @Alex Miles ,

The majority of investors/taxpayers do not realize that foreign property can qualify under Section 1031, but the exchange has to be between foreign properties.  You can sell and 1031 Exchange foreign property as long as you reinvest in other foreign property otherwise it would not be considered like-kind property for 1031 Exchange purposes. 

There are many nuances involved in the administration of a 1031 Exchange in a foreign country because no other country has the 1031 Exchange or understands how it works.  It takes an experienced Qualified Intermediary who understands the differences and knows how to works with the local laws, regulations and customs. 

On further consideration, the UK is not a good place for buy-to-let. Considering you can't deduct depreciation or mortgage interest, and it takes a 25% deposit to even get a five year fixed rate mortgage - I might be better off just paying the capital gains tax and bringing the money over here.

Alex,

I currently live in the UK and think you are getting out of the London market at the right time. If you want to 1031 to another property in England I would recommend Cambridge or Bury St Edmunds. Cambridge has a great 100 year city plan. Both are very popular places for US military members to rent and usually stay for 2-3 years. The cash flows are terrific.

Matt

Originally posted by @Bill Exeter :

Hi @Alex Miles ,

The majority of investors/taxpayers do not realize that foreign property can qualify under Section 1031, but the exchange has to be between foreign properties.  You can sell and 1031 Exchange foreign property as long as you reinvest in other foreign property otherwise it would not be considered like-kind property for 1031 Exchange purposes. 

There are many nuances involved in the administration of a 1031 Exchange in a foreign country because no other country has the 1031 Exchange or understands how it works.  It takes an experienced Qualified Intermediary who understands the differences and knows how to works with the local laws, regulations and customs. 

If he is a UK citizen, would a 1031 exchange help him.  How do you avoid foreign taxes if you do a 1031 exchange?

Mark

When we sold our UK houses and exchanged funds, the pound to dollar rate was closer to 2 dollars for 1 pound.  The currency exchange rots right now.  Food for thought on a large sum of money.

Originally posted by @Mark Creason :

If he is a UK citizen, would a 1031 exchange help him.  How do you avoid foreign taxes if you do a 1031 exchange?

Mark

Hi Mark,

The 1031 Exchange would only help him if the sale of the U.K. property triggered a U.S. income tax consequence.  I doubt there would be any U.S. tax consequences if he is a U.K. citizen selling U.K. property.

Originally posted by @Kerry Baird :

When we sold our UK houses and exchanged funds, the pound to dollar rate was closer to 2 dollars for 1 pound.  The currency exchange rots right now.  Food for thought on a large sum of money.

Excellent point!  The foreign currency exchange rate (FX) is always a concern whether you are selling and paying the tax or are selling and structuring a 1031 Exchange.  The foreign currency exchange is absolutely something that must be addressed, expecially when completing a foreign property 1031 Exchange transaction.

Originally posted by @Bill Exeter :
Originally posted by @Mark Creason:

If he is a UK citizen, would a 1031 exchange help him.  How do you avoid foreign taxes if you do a 1031 exchange?

Mark

Hi Mark,

The 1031 Exchange would only help him if the sale of the U.K. property triggered a U.S. income tax consequence.  I doubt there would be any U.S. tax consequences if he is a U.K. citizen selling U.K. property.

Thanks or the clarification.

Mark