Landlord Tax: UK Rental Income as a US Citizen

Landlord tax on UK rental income for a US citizen works in two layers: the UK taxes the rent because the property is in the UK, and the US taxes it again because it taxes its citizens on worldwide income. The foreign tax credit usually stops the second layer costing anything. The work is in getting both calculations right, because the two countries measure the profit differently.

This applies whether you live in London and let a flat in Manchester, or moved to New York and let your former UK home. Where you live changes how the UK collects the tax. It does not change the fact that both countries expect a return.

Who taxes UK rental income for a US citizen landlord?

Both countries tax it, and the treaty decides who goes first. Under Article 6 of the US–UK tax treaty, income derived from real property situated in one country "may be taxed in that other State", and the article covers income from letting. The UK therefore has the primary right to tax rent from a UK property.

The US keeps its own right to tax its citizens through the treaty's saving clause, explained in our post on the saving clause in the US–UK treaty. The US then relieves the overlap by giving a foreign tax credit (a dollar-for-dollar reduction in US tax for foreign tax paid) for the UK tax on the rent. The general mechanics are covered in our guide to double taxation relief between the US and UK.

In practice, a US citizen landlord files two returns covering the same property: UK Self Assessment for the UK tax year running from 6 April to 5 April, and a US Form 1040 for the calendar year.

How does HMRC tax UK rental income?

HMRC taxes the rental profit, meaning rent less allowable expenses, at the landlord's income tax rates. GOV.UK's guidance on working out rental income lists typical allowable costs: maintenance and repairs, water rates, council tax, utilities you pay, and letting agent fees. Capital improvements are not deductible against rent.

Three UK rules matter most for a US citizen landlord:

• Mortgage interest is restricted. Since 6 April 2020, income tax relief on residential finance costs has been restricted to the basic rate. The interest is not deducted from rent; instead it gives a tax reduction at 20%.
• The property allowance. Landlords with small amounts of rent can claim a property allowance of up to £1,000 a year instead of deducting expenses. It rarely suits a buy-to-let with a mortgage.
• Separate property rates are coming. The government has announced separate property income rates from 6 April 2027 of 22%, 42% and 47% in England, Wales and Northern Ireland, to be legislated in Finance Bill 2025-26. For a US citizen, higher UK tax on rent generally means more foreign tax credit, not more total tax, but it can leave unused credits.

Making Tax Digital for landlords

Making Tax Digital for Income Tax, HMRC's quarterly digital reporting regime, now reaches landlords. It applies from 6 April 2026 where qualifying income from property and self-employment was over £50,000 for 2024/25, from 6 April 2027 where it was over £30,000 for 2025/26, and from 6 April 2028 where it was over £20,000 for 2026/27. GOV.UK confirms that people living abroad follow the rules for their UK property income.

What if you live in the US and let out UK property?

A US citizen living in the US who lets out UK property is a non-resident landlord, and HMRC collects tax through the Non-Resident Landlord Scheme. GOV.UK treats you as a non-resident landlord if you live abroad for six months or more a year.

• Your letting agent deducts basic rate tax from the rent, after allowing for expenses it pays.
• If there is no agent and the tenant pays more than £100 a week, the tenant deducts the tax.
• You can apply on form NRL1 to receive rent without tax deducted. HMRC approves if it is satisfied you will meet your UK tax obligations, and will not approve if your taxes are not up to date.
• Either way, you declare the rental income on a UK Self Assessment return unless HMRC tells you not to.

Tax withheld under the scheme is a payment on account, not the final bill. The Self Assessment return settles the actual UK liability, and that final figure, rather than the amount withheld, is what the US foreign tax credit should be based on. For the UK filing itself, see our guide to UK Self Assessment for Americans.

How does the IRS tax UK rental income for a US citizen?

The IRS taxes UK rental income as ordinary income, reported on Schedule E in US dollars, with US rules for expenses and depreciation. Every sterling amount is translated at the exchange rate prevailing when the item is received or paid, and the IRS accepts yearly average rates in suitable cases.

Depreciation is required, over 30 years

US rules require depreciation of the building, not the land. IRS Publication 946 requires the Alternative Depreciation System for property used predominantly outside the United States, which gives residential rental property a recovery period of 30 years if placed in service after 2017, and 40 years if placed in service before 2018. Domestic US rentals use 27.5 years, so a UK property produces a smaller annual deduction than a comparable US one.

Depreciation is not optional in effect. The IRS reduces your basis by the depreciation "allowed or allowable", whichever is greater, so a landlord who never claims it still has a lower basis when the property is sold.

The foreign earned income exclusion does not help

The IRS classifies rents as unearned income, so the foreign earned income exclusion never covers them. The foreign tax credit on Form 1116 is the relief for rent, even for someone who excludes their salary.

The net investment income tax

Rental income counts as net investment income for the 3.8% net investment income tax, which applies above modified adjusted gross income of $200,000 for single filers, $250,000 for joint filers and $125,000 for married filing separately. Higher-income landlords should check the interaction with foreign tax credits specifically rather than assume the credit covers it.

UK rental income, HMRC and IRS rules compared

The same property produces two different profit figures. This table shows where they diverge.

Item	UK (HMRC)	US (IRS)
Tax year	6 April to 5 April	Calendar year
Currency	Sterling	US dollars, translated item by item or at yearly average rates
Mortgage interest	Not deducted; basic rate tax reduction (20%) for residential property	Deducted in full against rent
Building depreciation	No deduction for the building or capital improvements	Required: 30 years ADS (post-2017) for foreign residential property
Relief for the other country's tax	Not usually needed; the UK taxes first	Foreign tax credit on Form 1116
Collection if you live abroad	Non-Resident Landlord Scheme withholding, or NRL1 approval	No withholding; estimated tax if a US liability arises

Illustrative example: a US citizen who moved from London to New York lets their former flat for £24,000 a year, pays £9,000 of mortgage interest and £3,000 of other costs. HMRC taxes a profit of £21,000, because the interest is not deducted, and gives a tax reduction of £1,800, which is 20% of the interest. The US return deducts the interest in full, leaving £12,000 before depreciation, and less after it, before conversion to dollars. The US profit is much smaller than the UK one, so the UK tax normally exceeds the US tax on the same rent and the foreign tax credit reduces the US tax on it to nil.

The mismatch usually favours the landlord on the US side, but not always. In years with large repairs, capital improvements or a loss, the calculations can move the other way, which is why both returns should be prepared from one set of numbers.

Does a UK rental property go on the FBAR or Form 8938?

A UK property owned directly does not go on either form. The IRS comparison of Form 8938 and FBAR requirements confirms that directly held foreign real estate is not reportable on either. Two things around the property are reportable, though:

• The UK bank account that receives the rent counts towards the FBAR's $10,000 aggregate threshold, along with your other non-US accounts.
• If the property sits inside a UK company, the company is a specified foreign financial asset for Form 8938, valued including the property, and it can bring further US forms with it.

Our post on the FBAR versus Form 8938 sets out both thresholds in full.

What happens when you sell a UK rental property?

Both countries tax the gain, and the deadlines are short on the UK side. For 2026/27, UK Capital Gains Tax on residential property is 18% on gains within the basic rate band and 24% above it, with a £3,000 annual tax-free allowance. A UK resident must report and pay within 60 days of completion if tax is due. A non-resident must report every disposal of UK property within the deadline, even when no tax is due.

The US calculation differs in three ways:

1. Dollar measurement. The gain is the dollar sale price less the dollar cost, so exchange rate movement alone can create or remove a US gain. A sterling mortgage can also produce a separate exchange gain when it is repaid.
2. Depreciation recapture. The part of the gain equal to depreciation is unrecaptured section 1250 gain, taxed at a maximum 25% rate.
3. The main home exclusion. A former home that you let out may still qualify for the US exclusion of up to $250,000 of gain, or $500,000 on a joint return, if you owned and lived in it for at least two of the five years before the sale. Publication 523 excludes gain equal to depreciation after 6 May 1997, and limits the exclusion for periods of non-qualifying use after 2008.

Because the UK tax on the gain is creditable against US tax on the same gain, the right order is to model both returns before exchanging contracts, not after.

What US citizen landlords get wrong

• Leaving the rent off the US return because UK tax has already been paid on it. The US still expects it reported, with the credit claimed.
• Skipping depreciation. It reduces basis whether or not it is claimed, so skipping it only loses the deduction.
• Using the 27.5-year US schedule for a UK property, instead of the 30-year ADS period.
• Claiming the withheld NRL tax as the credit rather than the final Self Assessment liability.
• Missing the UK 60-day report on a sale because no UK tax was due, which non-residents must file regardless.
• Forgetting the rent account on the FBAR. The property is not reportable; the account it pays into usually is.

Getting both returns right

The practical steps for a US citizen with UK rental property are the same each year:

1. Keep one set of sterling records for rent and expenses, with dates, so both returns can be built from them.
2. Confirm the UK position: Self Assessment registration, NRL1 status if you live abroad, and whether Making Tax Digital applies.
3. Prepare the UK return first, since the final UK liability drives the US credit.
4. Build the US Schedule E in dollars, with ADS depreciation from the date the property was first let.
5. Claim the foreign tax credit on Form 1116.
6. Include the rent account in the FBAR aggregate.

Our page on landlord tax on UK rental income for US citizens explains how we handle both returns together, and the cross-border property service covers purchases, sales and restructuring. If you are an American living in the UK with other income too, our checklist of tax obligations for Americans living in the UK covers the rest of the year.

US/UK Cross Border Tax is US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco, so the HMRC and IRS numbers for the same property come from one set of records. If you are about to let, sell or refinance a UK property, talk to us before the paperwork is signed.