My parents have been resident aliens in the US for the last 5 years,
during that time they retained their home in the UK and rented an
apartment in the US (WI).  Now they want to sell their home in UK and
transfer the proceeds (in the low 6 figures $) to their US bank
account.  My question is
1.Will the IRS be looking a portion of this money? My parents having
worked all their lives and put everything into the house DO NOT want
the IRS to just take a cut.
Please with your answer could you provide the sources of the relevant
information....many thanks

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Clarification of Question by daveusa-ga on 01 Oct 2006 15:11 PDT

To clarify, my parents have NOT been renting out their home in the UK
.  there is no income from this property, they just wish to sell and
transfer funds to the US but are afraid they will be taxed on the
profit of the sale by the US tax authorities.  Their house in UK is
their ownly owned home.

Your parents will probably be liable for UK Capital Gains Tax (40%) on their home.

The market value when they started renting out will be the basis.

I doubt if there is any exposure to US taxes.

Of course, house prices in the UK have escalated hugely over the past
5 years, so that a house that sells today for, say, £200,000 may only
have been valued at, say, £120,000 5 years ago: a gain of £80,000 with
a possible exposure to CGT of £32,000.

Quite a swipe!

thanks for the comments - any UK tax they will deal with, they just
dont want to  get hit twice by taxmen!

Greetings,
Your question is about how the Treaty between UK and USA on the
avoidance of double taxation treats the proceeds from selling real
estate.

I believe this is the relevant document:
http://www.hmrc.gov.uk/pdfs/ukusa_dtconvention.pdf

This may help, but since it seems to predate the above, maybe it is no
longer applicable:
http://www.hmrc.gov.uk/international/usaem.pdf

As I read the first site, the sale of the UK property "may" be taxed by the UK.
I interpret that "may" is used in the treaty to avoid the treaty's
specifying that one or the other country "will" tax such a
transaction, since this may not be the case, depending on
circumstances specific to an individual sale or future changes in
national tax law.

My general understanding of these treaties (being a US citizen living
in Germany) is that income from real estate is only taxed by the
country where the property is located and not by the other country,
and (I believe !) such tax is not included in the offsetting of tax to
avoid double taxation AND is not subject to taxation by the other
country.

But I am not a tax or legal professional, and as you should read in
the disclaimer below, nothing posted here is a substitute for
appropriate professional advice.  Reading the document, you will
understand the need for a professional opinion.

Ah well, if they've never rented it out ...

It can be assumed that it's their only or main residence in the UK and
the sale should certainly escape CGT.

Now, why did I assume that they had rented it out?

I suggest that your parents instruct a solicitor (to arrange the
conveyancing) from their UK address and they should stress that it is
their only residence in the UK.

Sorry but I don't know about the US side of things.

Good Luck!

Bryan

A further thought.

As this is merely a transfer of capital then I would argue that it
should not be subject to US Taxes.

Of course, I know NOWT about US Taxes.