A US citizen or green card holder who lives in the UK and still lets a property in the US reports the same rent twice: on Schedule E (opens the official IRS page in a new tab) of the US return and on the SA106 foreign pages (opens the official HMRC page in a new tab) of the UK return. The treaty gives the US the first claim, and the UK then credits the US tax. The difficulty is that the two countries measure the profit differently, so the credits rarely line up neatly, and in some years one of them finds nothing to offset.
This post is for Americans in Britain who kept a house, condo or apartment in the US and let it. It goes deeper on one question than our guide to US and UK tax returns for Americans in the UK: how one US property runs through both returns each year and on sale. It covers the treaty order, the expense differences, the loss year, US-person paperwork and the sale. State returns and catch-up filings are separate questions not covered here, and the reverse case of a UK flat is in our post on letting out your UK flat.
Which country taxes rent from a US property first
The United States. Article 6 of the treaty lets the country where real property sits tax the income from letting it. The UK still taxes its residents on worldwide income, including that rent, but it gives credit for the US tax charged on the same income, up to the UK tax on it.
For a US citizen there is one more step. The saving clause in Article 1(4) of the US-UK tax treaty (opens the official IRS page in a new tab) lets the US tax its citizens as if the treaty did not exist, but Article 1(5) keeps the double taxation article, Article 24, working for them. Article 24(6) then says the UK credit for US tax on US-source income is measured by the tax the US could charge a UK resident who is not a citizen. Article 6 sets no ceiling on rent, so that limit does not cut the credit to a treaty rate as it does for dividends, although the non-citizen figure can still differ from the citizen's actual US tax.
In practice the US keeps its tax on the rent and the UK collects any excess of its own tax over the creditable US figure. The US rarely has anything left to relieve, because treaty re-sourcing applies only as far as needed to avoid double tax. Our post on re-sourcing US dividends under Article 24 shows the mechanism where it matters more, and the US-UK tax treaty page sets out the articles.
Why the profit on Schedule E differs from the UK figure
Because each country applies its own expense rules to the same rent. The US requires depreciation of the building and deducts mortgage interest in full. The UK gives no deduction for the building and restricts residential finance costs to a basic rate reduction in tax. The US profit is therefore usually the lower of the two.
HMRC's guidance on working out rental income (opens the official HMRC page in a new tab) says capital expenses cannot be claimed against rent and that residential finance costs are relieved only at the basic rate. The SA106 notes confirm that the restriction reaches an overseas property business, with unused finance costs carried forward. On the US side, IRS Publication 527 treats depreciation as compulsory: the basis of the property falls by the depreciation allowed or allowable, whether or not it was claimed.
Timing and currency add a second layer. The US return covers the calendar year in dollars; the UK return covers 6 April to 5 April in sterling. The UK credit has to be matched to US tax on rent falling within the UK year, which means apportioning two calendar years of US figures.
- Building cost: depreciated over a statutory period in the US; no deduction in the UK
- Mortgage interest: deducted in full on Schedule E; basic rate reduction only in the UK
- Losses: passive activity rules in the US; ring-fenced to the overseas property business in the UK
- Period: calendar year in the US; 6 April to 5 April in the UK
- Currency: dollars throughout in the US; each item converted to sterling for HMRC
What happens to UK tax when the US shows a loss
It is usually paid in full. Depreciation and full interest can turn a UK profit into a US loss. With no US tax on the rent, the UK has nothing to credit, and UK tax on US-source rent generally cannot reduce US tax on other income either.
Publication 514 (opens the official IRS page in a new tab) says the foreign tax credit cannot reduce US tax on US-source income, and the credit is limited by the share of taxable income that comes from abroad. Rent from a US property is US-source. The treaty can re-source income to the UK, but only to the extent needed to relieve double tax, and in a year with no US tax on the rent there is none to relieve. The UK tax on that rent is a real cost for that year.
The US loss itself may be stuck too. A rental loss is usually passive. IRS Publication 925 allows a limited special allowance for an owner who actively participates, but not for someone filing separately who lived with their spouse at any time in the year. That is the usual position for a US citizen in the UK married to a non-US spouse, as our post on filing status with a non-US spouse explains. The loss is suspended and carried forward.
Which forms keep US payers treating you as a US person
Form W-9, not Form W-8BEN. The IRS instructions for Form W-8BEN say a US citizen should not use it, even when living outside the United States or holding another citizenship. A UK address on file can lead a manager, bank or buyer to treat a US citizen as foreign.
The Form W-8BEN (opens the official IRS page in a new tab) certifies foreign status for withholding purposes. A US citizen who signs one by mistake can find tax withheld from rent at source, which then has to be unpicked on the return. Our page on who files Form W-8BEN sets out when it applies, which for a US citizen is never.
The same point arises on sale. FIRPTA withholding (opens the official IRS page in a new tab) applies when a foreign person disposes of a US real property interest, and the buyer must decide whether the seller is foreign. A US citizen is not a foreign person, and one of the IRS exceptions is a certification of non-foreign status signed under penalties of perjury, giving name, US taxpayer identification number and home address.
- Give the property manager a Form W-9 with your Social Security number
- Check that rent statements show you as a US person with no withholding
- Update the W-9 with each bank or platform holding the rental account
- Before closing, give the buyer or closing agent a non-foreign certification
How the sale of a US rental is taxed from the UK
In both countries, with the US first. Article 13(1) lets the US tax the gain on US real property, and the UK charges capital gains tax on a UK resident's worldwide gains, with credit for the US tax on the same gain. The two gains are measured on different bases and in different currencies.
On the US return, the cost basis has been reduced by every year's depreciation, allowed or allowable. IRS Topic 409 says the part of the gain treated as unrecaptured section 1250 gain is taxed at a maximum rate set above the usual long-term capital gains rates. A fully taxable sale of the whole interest to an unrelated buyer generally releases suspended passive losses. Rental income and the gain are also within the net investment income tax (opens the official IRS page in a new tab), which is generally not creditable under domestic law; treaty-based claims are contested.
The UK gain is computed in sterling: HMRC's manual converts the dollar cost at the rate when it was paid and the proceeds at the rate on sale. Because the UK never allowed depreciation, the UK gain carries no recapture. The sale goes on the Self Assessment return for the year, due online by 31 January, and HMRC guidance on selling overseas property (opens the official GOV.UK page in a new tab) confirms UK residents pay capital gains tax on it at 18% and 24%. Our cross-border property service runs both computations together.
How it works for a teacher in Bristol with a Denver condo
Take a US citizen teaching in Bristol, married to a British husband and filing separately, who lets the Denver condo she bought before moving. The rent covers the mortgage and costs with a modest surplus. Her salary is taxed under PAYE, so the condo is why she files a UK return.
On Schedule E, depreciation and the full mortgage interest turn the surplus into a small loss. Because she files separately and lives with her husband, the special allowance is not available and the loss is suspended. On her UK return the same condo shows a profit, because the building cost is not deductible and the interest earns only a basic rate reduction. She pays UK tax on that profit with no US tax to credit, and none of that UK tax can be set against her US tax on Form 1116, because the rent is US-source.
Years later she sells to an unrelated buyer. The US gain includes the depreciation taken, taxed partly at the capped recapture rate, and the suspended losses are released against it. The UK gain, in sterling with no depreciation, may be larger or smaller depending on the dollar. The UK gives credit for the US tax on the gain, up to the UK tax on it. Our UK Self Assessment work prepares those foreign pages.
What to check each year on a US rental from the UK
One set of records, mapped to two returns, prevents most of the problems above. The US tax figure on the rent needs to be ready before the UK return is finalised, because the UK credit depends on it. The routine below follows that order.
A new arrival may be able to claim the UK foreign income and gains regime for up to four tax years, keeping the rent out of UK tax. The SA106 notes say a claim removes foreign tax credit relief on that income, gives no relief for finance costs and stops unused finance costs being carried forward. The trade-off is set out in our post on the FIG regime for US citizens.
The figures feed Form 1040, the SA100 and its foreign pages, and our individual tax returns service prepares them together. The guide for Americans in the UK places this within the yearly cycle.
- Reconcile rent, expenses and interest by calendar year and by UK tax year
- Update the depreciation schedule and the basis, even in a loss year
- Carry forward suspended US losses and unused UK finance costs separately
- Compute US tax on the rent first, then the UK credit per property
- Confirm the manager and bank still hold a current Form W-9
- Keep purchase records and exchange rates for the eventual sale
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
