UK Rental Income for American Landlords: UK and U.S. Tax Rules
If you are an American living in the UK and you rent out a property, the income is taxable in both the UK and the U.S., but you rarely pay tax twice. As a UK resident, you report the rent through Self Assessment, claim your personal allowance and expenses, and pay UK tax on the profit. You then report the same rent on your U.S. return on Schedule E, and the Foreign Tax Credit offsets the UK tax, so the same income is not taxed in full by both countries.
A few things to know before you file:
- You report the rent in both countries. UK Self Assessment first, then U.S. Schedule E.
- As a UK resident, you are paid your rent in full. The 20% non-resident withholding does not apply while you live in the UK.
- Mortgage interest is restricted in the UK. You no longer deduct it from profit; instead, you get a 20% tax credit.
- Depreciation is mandatory on the U.S. side. You must depreciate a foreign rental building over 30 years, which often wipes out your U.S. tax.
This guide covers how each country taxes your rent and how the Foreign Tax Credit keeps you from paying twice.
Renting out a UK home?
How the UK Taxes Your Rental Income
The UK taxes the profit from your rental, meaning rent received minus allowable expenses, and you report it through Self Assessment. You can confirm what counts as income and expenses on the government’s work out your rental income guidance.
Allowable expenses you can deduct from rent include:
- Letting agent and management fees
- Repairs and maintenance (not improvements)
- Landlord insurance
- Ground rent, service charges, and council tax you pay
- Accountancy fees for the rental
Two rules shape your UK bill:
- You get the UK personal allowance. As a UK resident, the first £12,570 of your total income is tax-free, which can shelter part of your rental profit, unlike a non-resident landlord, who may not get it.
- Mortgage interest is restricted. Since April 2020, you cannot deduct mortgage interest as an expense. Instead, you get a basic-rate (20%) tax credit for it, under the finance-cost restriction. For higher-rate taxpayers, this raises the effective UK tax on rental profit.
One thing to keep in mind for the future: if you later move back to the U.S. while keeping the property, you become a non-resident landlord, and the Non-Resident Landlord Scheme then requires your agent or tenant to withhold 20% from your rent unless you register on form NRL1 to receive it gross.
How the U.S. Taxes the Same Rental Income
As a U.S. citizen or green card holder, you report worldwide income, so the UK rent goes on your U.S. return on Schedule E, converted to U.S. dollars. The good news is that the U.S. lets you deduct the same kinds of expenses, plus one that the UK no longer fully allows: depreciation.
- Depreciation is required, not optional. You must depreciate the building (not the land) over 30 years for a foreign residential rental placed in service after 2017, using the Alternative Depreciation System on Form 4562. This non-cash deduction often reduces your U.S. taxable rental profit to little or nothing.
- Mortgage interest is fully deductible on the U.S. side, unlike the restricted UK treatment, which can leave your U.S. profit lower than your UK profit.
- Rental losses are usually passive. If you actively participate, you may deduct up to $25,000 of losses against other income, phased out between $100,000 and $150,000 of income; otherwise, losses carry forward against future passive income.
Why You Rarely Pay Tax Twice
The Foreign Tax Credit prevents the same rent from being taxed in full by both countries. You claim a dollar-for-dollar credit on your U.S. return for the UK tax you paid on the rental profit. Because the UK usually taxes the rent first and at meaningful rates, the credit often covers your entire U.S. liability on that income.
Two quirks are worth planning around. The UK and U.S. tax years do not line up (the UK runs from April 6 to April 5, the U.S. is the calendar year), so matching UK tax to U.S. income takes care. And U.S. depreciation can leave you with a lower U.S. profit than UK profit, which is generally helpful but creates excess foreign tax credits you may carry over.
A Real-World Example: From Purchase to Sale
Emma, a U.S. citizen living in London, buys a £400,000 flat to let out, and the tax follows her through the whole journey:
- Buying. Because she lives in the UK, she avoids the 2% non-resident Stamp Duty surcharge, but since she already owns her main home, the flat is an additional property and carries the 5% surcharge on top of the standard rates. The mechanics are in our guide to buying property in the UK as an American.
- Letting. She rents the flat for £18,000 a year and deducts £4,000 of expenses, taking a 20% credit for her mortgage interest on her UK Self Assessment. On her U.S. Schedule E, she deducts the same expenses plus 30-year depreciation, then claims the Foreign Tax Credit for the UK tax, so her additional U.S. tax on the rent is close to zero.
- Selling. When she eventually sells, both UK Capital Gains Tax and U.S. capital gains apply, with the Foreign Tax Credit again preventing double tax, as covered in our guide to Capital Gains Tax on UK property.
What You Do and Do Not Report
The property itself is not a financial account, so it does not go on the FBAR. But a UK bank account you use to collect rent does count toward the $10,000 FBAR threshold, along with your other foreign accounts. Keep the rental in view alongside your other UK pieces: a future sale brings Capital Gains Tax on UK property, and if you are still shopping, see our guide to buying property in the UK as an American.
Frequently Asked Questions about UK Rental Income
Yes, you report UK rental income on your U.S. return on Schedule E, because U.S. citizens are taxed on worldwide income. After deducting expenses and required depreciation and claiming the Foreign Tax Credit for the UK tax you paid, most landlords owe little or no additional U.S. tax.
Not as a direct expense in the UK. Since April 2020, UK landlords have received a basic-rate 20% tax credit for mortgage interest rather than a full deduction. On your U.S. return, however, mortgage interest is fully deductible against the rental income.
Yes. The IRS requires you to depreciate the building over 30 years for a foreign residential rental placed in service after 2017. Depreciation is mandatory, and skipping it does not avoid tax when you sell, so it is worth claiming, and it often reduces your U.S. rental tax to zero.
How Greenback Can Help
A UK rental means two tax returns that must agree, and depreciation, the Non-Resident Landlord Scheme, and the Foreign Tax Credit are where Americans lose money or miss filings. Greenback’s U.S. CPAs and Enrolled Agents work alongside in-house UK Chartered Accountants on a single account, so your Self Assessment and your Schedule E are prepared together, and your credit is calculated to keep you from paying twice.
If you let out a UK property, you can have both returns handled by one team. Learn more about how we help Americans living in the UK.
Get both your UK and U.S. returns handled by one team.
This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Property and tax rules are complex and change frequently, and your circumstances may differ. Consult a qualified tax professional about your situation before taking any action.
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