UK Property Company for a US Citizen: The US Tax Consequences of Holding Property Through a Ltd

A UK property company owned by a US citizen is a foreign corporation in the eyes of the IRS. Owning more than 50% makes it a controlled foreign corporation, which means Form 5471 every year and possible US tax on the rental profit before any dividend is paid. The UK benefits of a company are real, but for a US citizen they have to be weighed against that US cost. This guide sets out both sides and the election that can change the US answer.

Many UK landlords have moved into limited companies since mortgage interest relief for individuals was restricted. The advice a British landlord receives is sound for a British landlord. It rarely considers that one of the shareholders files a US tax return, and the US consequences are not visible anywhere in the UK accounts.

Why do UK landlords hold property through a company?

UK landlords use a company mainly because a company still deducts mortgage interest in full. The restriction commonly called Section 24 applies, in the government's own words, to individuals that receive rental income on residential property. A company is outside it. The other UK features are:

• Corporation Tax instead of Income Tax. Corporation Tax is 19% on profits of £50,000 or less and 25% on profits above £250,000, with Marginal Relief in between. An individual higher rate taxpayer pays 40% on rental profit for 2026/27.
• Tax on extraction. Profit taken out as a dividend is taxed again on the shareholder. For 2026/27 the dividend rates are 10.75%, 35.75% and 39.35%, after a £500 dividend allowance.
• Higher purchase costs. HMRC's guidance on Stamp Duty Land Tax for corporate bodies states there is a 5% surcharge on residential properties bought by companies, and a 17% rate on residential properties costing more than £500,000 unless a relief applies, such as the relief for a property rental business.
• ATED. A company owning a UK dwelling worth more than £500,000 is within the Annual Tax on Enveloped Dwellings. The charge for 1 April 2026 to 31 March 2027 starts at £4,600 for a property worth more than £500,000 up to £1 million. Reliefs exist for genuine rental businesses, but they have to be claimed on a return.

For a UK landlord who is a higher rate taxpayer, has a large mortgage and plans to keep profit in the company to buy more property, the arithmetic often favours the company. For a US citizen that is only the first half of the calculation.

How does the IRS treat a UK property company owned by a US citizen?

The IRS treats a UK private limited company as a foreign corporation unless an election is made. That classification brings three sets of rules, and which one applies depends on how much of the company the US citizen owns.

Ownership by US persons	US status of the company	Main consequences for the US citizen
More than 50%, held by US shareholders who each own 10% or more	Controlled foreign corporation (CFC)	Form 5471 each year; rental profit can be taxed as earned under subpart F or as net CFC tested income
50% or less, for example 50/50 with a non-US spouse	Not a CFC; likely a passive foreign investment company (PFIC)	Form 8621; punitive tax on dividends and on sale unless an election is made
Any percentage, with a check-the-box election in force	Disregarded entity or partnership	Rent taxed to the owner as if the property were held directly; Form 8858 or partnership reporting

Controlled foreign corporation: Form 5471 and current taxation

The Instructions for Form 5471 define a US shareholder as a US person who owns 10% or more of the vote or value of a foreign corporation, and a CFC as a foreign corporation whose US shareholders together own more than 50%. A US citizen who owns a UK property company outright, or with a US spouse, has a CFC.

Form 5471 is an information return attached to Form 1040. It reports the company's income statement, balance sheet, earnings and transactions with its owners, restated under US principles and in US dollars. The penalty for failing to file is $10,000 for each annual accounting period of each foreign corporation. If the failure continues for more than 90 days after the IRS mails a notice, a further $10,000 applies for each 30-day period, up to an additional $50,000.

The reporting is the smaller problem. The CFC rules exist to stop US persons parking passive income in a foreign company, and rent is the textbook example. Rent is generally foreign personal holding company income, a category of subpart F income, unless it is received from unrelated tenants in the active conduct of a trade or business. The regulations set a demanding standard for active, built around the company's own staff carrying out substantial management and marketing. A company with one or two flats and a letting agent will often not meet it.

Where rent is subpart F income, the US citizen includes their share in income for the year it is earned. No dividend is needed. Profit that falls outside subpart F is generally picked up instead under section 951A, the regime formerly called GILTI and described in IRS Notice 2025-72 as net CFC tested income for tax years beginning after 31 December 2025. Either way, the deferral that makes a company attractive in the UK is usually not available on the US return.

Two reliefs that can help, and their limits

There is a high-tax exception. Income can be excluded from subpart F by election if it was subject to foreign tax at an effective rate greater than 90% of the US corporate rate, which is 18.9% while the US rate is 21%. UK Corporation Tax at 19% looks as though it clears that bar. The test, however, uses income measured under US rules, with US depreciation and US timing, so the effective rate can come out lower than the UK headline rate. It has to be tested each year.

There is also an election under section 962, which lets an individual be taxed on these inclusions as if they were a US corporation and claim credit for the UK Corporation Tax the company paid. Without it, an individual shareholder gets no credit for the company's tax against an inclusion. The election has costs of its own when dividends are later paid, and it needs to be modelled, not assumed.

Not a CFC? Then check for PFIC status

Couples often split a property company 50/50. If one spouse is a US citizen and the other is neither a US citizen nor a US resident, US shareholders do not own more than 50%, and the company is not a CFC. That is not good news. The Instructions for Form 8621 define a PFIC as a foreign corporation where 75% or more of gross income is passive, or at least 50% of assets produce passive income. A company whose only business is collecting rent through an agent can meet both tests.

The same instructions confirm that a US shareholder of a CFC is generally not subject to the PFIC rules for that stock. So the 100% owner is protected from PFIC treatment by being in the CFC regime, and the 50% owner is not. Our guides to the PFIC definition and the Form 8621 instructions explain the tests and the elections available.

A worked comparison: the same flat held personally and in a company

Illustrative example, with invented figures: a US citizen in London, a higher rate taxpayer, owns a flat producing rent of £24,000, with running costs of £4,000 and mortgage interest of £9,000. Held personally, UK tax for 2026/27 is 40% of £20,000, or £8,000, less a 20% tax reduction on the £9,000 of interest, or £1,800: £6,200. Held in a UK company she owns outright, profit is £11,000 after interest and Corporation Tax at 19% is £2,090, leaving £8,910. If all of it is paid out, dividend tax at 35.75% on £8,410 (after the £500 allowance) is about £3,007, for a UK total of about £5,097. If it is kept in the company, the UK total is £2,090.

On UK figures alone the company wins, clearly so if profit is retained. On the US return the picture changes. The company is a CFC. Unless the high-tax exception is elected and met, the £11,000 of rental profit, recomputed under US rules, is taxed to her in the year it is earned even though she has taken nothing out. She files Form 5471 annually. The professional cost of that form each year can exceed the UK tax saved on a single property. How the same rent is taxed when held personally is covered in our guide to UK rental property and US taxes.

Can a check-the-box election fix the US side?

An entity classification election can remove the corporate rules for US purposes, and it is the most widely used planning tool for a US citizen with a UK property company. Form 8832 lets an eligible entity choose how it is classified for federal tax purposes: as a corporation, a partnership, or an entity disregarded as separate from its owner.

The key points from the form and its instructions are:

1. A private limited company is eligible. By default a foreign entity whose members all have limited liability is an association taxable as a corporation, but it may elect otherwise. A UK public limited company is on the list of entities that are always corporations and cannot elect.
2. One owner means disregarded; two or more means partnership. The US then treats the owner as holding the property, receiving the rent and paying the expenses directly.
3. Timing is limited. An election cannot take effect more than 75 days before the date it is filed, or more than 12 months after.
4. It is not easily reversed. Once an entity elects to change its classification, it generally cannot change again for 60 months.

With the election in force there is no CFC, no subpart F, no net CFC tested income and no PFIC. The rent goes on Schedule E with 30-year depreciation, as for a property held personally. The UK Corporation Tax the company pays is treated as paid by the owner and can be claimed as a foreign tax credit. A disregarded entity is reported on Form 8858 under the Instructions for Form 8858, a lighter filing than Form 5471.

What the election does not fix

• It is best made at the start. An election for a new company, effective from formation, has no US tax cost. An election for an existing company is treated as a liquidation of the company for US purposes, which can trigger US tax on any gain in the property and the shares.
• The UK ignores it. The company remains a company for UK tax. Dividends are still taxed in the UK when paid, while the US sees only a transfer of the owner's own money. Matching UK dividend tax to US income for credit purposes takes planning.
• Currency rules follow. With the company disregarded, the owner is treated as the borrower on the company's sterling mortgage, and repayment can produce a currency gain or loss in dollars.
• The non-US spouse is unaffected. A partnership election changes the US citizen's position. The British spouse still simply owns shares in a UK company.

When does a UK property company still make sense for a US citizen?

A UK property company can still be the right answer for a US citizen in a limited set of cases. The pattern we see is:

• More likely to work: a new purchase, not a transfer; a large mortgage relative to rent; an owner taxed at the UK higher or additional rate; profit retained to fund further purchases; and a check-the-box election made from formation so that the US taxes the rent on a flow-through basis.
• Less likely to work: one or two unmortgaged properties; an owner who needs the rent to live on, so that dividend tax is paid every year; a property already owned personally with a large gain; or a 50/50 holding with a non-US spouse set up without US advice.

The question is never the UK saving alone. It is the UK saving less the extra US tax, less the annual cost of US reporting, over the period you expect to hold the property. That is a spreadsheet, and it should be built before the company is formed.

What US citizens get wrong with UK property companies

• Forming the company on UK advice alone. The 75-day window for a clean election can close before anyone mentions it.
• Not filing Form 5471. The form is due whether or not the company made a profit or paid a dividend.
• Assuming no dividend means no US tax. The CFC rules tax passive income as it is earned.
• Splitting the shares 50/50 with a British spouse to avoid CFC status. This can move the US spouse from the CFC rules into the PFIC rules, which are usually worse.
• Transferring an existing property into a company. The UK generally treats this as a sale at market value, with Capital Gains Tax for the owner and Stamp Duty Land Tax for the company, before any US analysis begins.
• Overlooking director's loans. Money lent to the company and repaid is a common way to extract cash in the UK. On the US side the loan is a sterling debt with its own currency consequences.
• Leaving the company accounts off the FBAR. Accounts you control or can sign on are generally reportable.

Getting the structure right before you buy

Holding UK property through a company is a UK structure with a US price. The price can be acceptable, and sometimes the election brings it close to nil, but only when the decision is made with both tax systems on the table. The cases that go wrong are almost always companies formed first and examined later.

US/UK Cross Border Tax is a team of US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco. We model a UK property company for a US citizen on both returns before the purchase, and we prepare Form 5471, Form 8858 and the company's US filings through our business tax returns service. If you are a landlord considering a company, or a founder with a UK Ltd already in place, contact us for a fixed fee quote.