Buying Foreign Real Estate via corporation - Will this be a PFIC?

[Owen Franks]

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

[Jennifer S.]

@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.