2018 US Tax Year End Planning: Mortgage Redemptions

Beware of a tax trap for those US taxpayers who have a non-US (i.e. UK) mortgage and are about to sell their property and redeem the mortgage.

Last updated: 2 November 2018

This tax trap includes US taxpayers with UK mortgages who have a mortgage contract about to expire (i.e. a 2 year fixed rate deal) and are considering transferring to a different mortgage.

Generally, the British pound is down against the dollar compared with the last decade, which means it costs less in dollars to relinquish a mortgage than it did when the pound was stronger. The IRS (Internal Revenue Service) unfortunately tax this dollar gain as income which can surprise a lot of people, in particular when the actual value of the property may have gone down in dollar terms as a result of the British pound devaluation. It is possible to harvest excess foreign tax credits in such a situation, so we would encourage you to seek advice and plan against any nasty surprises.

What should I do?

Consider the foreign exchange position before changing mortgage contracts.

We recommend that individuals seek professional advice where appropriate before taking any action, so please fill out the form below if you have any questions. 

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