UK Tax on US Rental Income: Follow One Rent Payment and See What Is Left

Here is the short answer.

Your American rent gets taxed twice over. Once by the US, then again by the UK. You do not pay tax twice on the same money, because the UK gives you credit for the US tax. But you do end up paying the higher of the two rates.

For almost every British investor, that higher rate is the UK one (no surprises there).

So the useful question is not "will I be taxed twice." It is "how much is left." I have looked at the wider question of whether US property suits a British investor at all in is buy-to-let in the USA a good investment. Let me show you, by following a single rent payment from a tenant in Kansas City all the way to your bank account in the UK.

Follow one rent payment

Let us use a real property. A house in Kansas City that cost $175,000 and rents for $1,800 a month. It is one of the five I priced up in the best buy-to-let markets in the USA.

You are a UK resident, and a higher-rate taxpayer. You own the house through a US company (LLC), which is how most people do it.

Your tenant pays $1,800. That is where our story starts.

What the US takes

The US taxes you first, because the property is there. That is normal. The country where the building sits gets first bite of the cherry.

You pay tax on your profit, not your rent. So you take off the mortgage interest, the property tax, the insurance, the management fee, the repairs. Then you take off depreciation, which lets you write off part of the building's value each year even though nothing has been spent.

Depreciation in the US is huge. On a house it runs over 27 and a half years. It very often wipes out the whole profit on paper. For example, I have not paid any US income tax on my US rental income for eight years. In that time I have held over a hundred rentals at once.

I should be straight with you about that, though. I live in Brazil. So I have no UK tax bill for the depreciation to run into. If I lived in the UK, HMRC would simply collect what the IRS did not, and that is the whole point of this article. On this one, I am the exception rather than the example.

So, for a lot of British owners, the US bill comes to nothing, or close to it.

That feels like a win. But hold that thought, because it is somewhat of a trap.

What the UK takes

Now the UK side.

You live here, so the UK taxes your worldwide income. Your American rent is foreign property income. It goes on the foreign pages of your tax return.

Three things surprise people.

There is no special rate. Foreign rent is taxed like UK rent. At your normal rate. For a higher-rate taxpayer that is 40% today.

You work out the profit again, using UK rules. Not the US figure. And UK rules are less generous, mainly because of the next point.

You get no depreciation. The UK does not allow it on residential property. So the deduction that wiped out your US bill does nothing at all here.

That third point is where the money goes.

The Section 24 mistake

This is the one I see most often, and it is expensive.

Since 2020, UK landlords can no longer deduct mortgage interest from rental profit for properties owned in their own personal name. You get a tax credit worth 20% of the interest instead. If you pay 40% tax, you are being taxed on money you paid to a bank, and getting only half of it back.

That rule is often called Section 24. Most people believe it applies to UK property only.

It does not. It applies to UK residents letting residential property anywhere in the world. That includes America. HMRC says so plainly in its own manual at PIM2058.

I have to admit something here. An earlier version of an article on this site suggested buying in America might get you around Section 24. That was wrong and I have corrected it. It got past me, and if you read it before I fixed it, I am sorry.

So on a US property with a mortgage, you are taxed on your interest and handed 20% back. Here is what that costs on the Kansas City house, where the loan is $238,000 at 6.75%.

Just over $3,000 a year, on a house that rents for $1,800 a month. Thanks, HMRC.

The one thing to remember: the deductions that make a US rental look good are US deductions. The UK does not give you most of them, and it taxes the result at your normal rate. Work out your UK bill before you buy, not after your first tax return.

Why the credit disappoints you

The UK does stop you being taxed twice on the same money. That part works.

It is called the foreign tax credit. Whatever you paid the US comes off your UK bill.

Here is why it disappoints people. The credit does not reduce your total tax below the UK level. It only stops you paying more than that.

In plain terms: the UK works out what it thinks you owe, subtracts whatever America already took, and collects the difference. You end up paying the UK rate in total, split between two countries.

So if the US takes 15% and the UK wants 40%, you pay 15% there and 25% here. Total 40%. If the US takes nothing, you pay 40% here. Total 40%.

Same answer either way.

Paying less US tax can leave you worse off

Now the part that catches almost everyone, and it follows straight from the last section.

If depreciation wipes out your US tax bill, you have paid the US nothing. So you have no credit to claim. So the UK collects the whole 40%.

And it is worse than neutral, for one reason nobody mentions. This is also why a pension wrapper does not rescue it, which I covered in can you hold US property in a SIPP.

When you sell, the US charges you depreciation recapture. It claws back the tax on the depreciation you took. And here is the sting: US rules charge recapture on depreciation "allowed or allowable". That means you are charged on what you were entitled to claim, whether you claimed it or not.

So you cannot simply decline depreciation to dodge the recapture. You would pay more US tax every year and still face the same charge on sale.

Put it all together and depreciation, for a UK resident, is not a saving. It saves you tax in Kansas City, the UK collects it instead, and then America charges you again when you sell.

I am not aware of anyone else writing this down. I would love to be told I have it wrong, because it took a lot of modelling and some expensive advice to arrive at.

April 2027 makes it worse

One more thing, and it is already law rather than a plan.

From 6 April 2027, the UK will tax property income at its own separate rates. They are 22%, 42% and 47%. Two points higher than today at every level.

It was announced at the Autumn Budget in November 2025 and it is written into the Finance Act 2026.

Your US rent is property income, so this hits it. From April 2027 a higher-rate taxpayer pays 42% on US rental profit instead of 40%.

Two points sounds small. On thin margins it is not, and it stacks on top of everything above.

There is one detail I could not pin down. Section 24 gives you a credit worth 20% of your interest, and 20% is the basic rate. When the property basic rate becomes 22%, does that credit rise to 22% as well, or stay at 20%? I could not find a clear answer. Ask your accountant, because if it stays at 20% while your rate goes to 42%, the gap gets wider again.

One thing worth noting. The new rates hit property held in your own name. They do not touch UK property held in a company, which pays corporation tax instead. So this change widens the gap between the two routes. That is the subject of its own article and I will link it here when it is written.

What this means in practice

I ran a full ten-year model on this. A real Liverpool terrace against a comparable Kansas City house, same assumptions, same money.

On income you want to spend now, the US property came last. A higher-rate taxpayer ended up with far less in the bank than from a UK property held in a company. The company route produced several times the after-tax income.

Those figures were worked out on 2025/26 rates, so treat them as dated. But the direction is clear, and April 2027 pushes it further the same way.

On long-term wealth, the answer flips. The US wins, and it is nothing to do with tax. It is the mortgage. An American loan pays itself off. A UK buy-to-let mortgage is usually interest only, so in year ten you owe what you owed on day one. I set both side by side in buy-to-let mortgages in the USA.

So the honest summary is this. If you want income to spend, the UK tax system makes American property hard work. If you are building wealth over decades and not drawing the cash out, American financing does something a UK mortgage cannot.

Two different jobs. Pick which one you are doing before you pick a country.

What you have to file

Briefly, because this is where people get caught out on admin rather than tax.

A US return. Usually a 1040-NR, or a company return if you own through an entity. You need a US tax number. There is more on the US side in my US tax guide for foreign investors.

A UK self assessment return, with the foreign pages completed.

And watch the dates. The US tax year runs January to December. The UK year runs 6 April to 5 April. They do not line up, so your US figures never drop neatly into your UK return.

One newer obligation. Making Tax Digital for Income Tax now applies to landlords whose combined property and self-employment income tops £50,000. That means digital records and quarterly updates to HMRC, not one return a year. It started in April 2026 and it catches plenty of people by surprise.

None of this is hard. It is just more than people expect, and it is why I keep saying you need an accountant qualified in both countries.

What I would do

Three things.

Work out your UK bill before you buy. Not the US one. Not the yield. The number you keep after HMRC. If a seller shows you a return, ask whether it accounts for UK tax. It will not. I have written about what else gets left out of those figures in what British investors get sold in the USA.

Be clear about the job. Income now, or wealth later. The answer changes which country and which structure suits you.

And get a dual-qualified accountant early. Not a UK accountant who has read about America. Not a US accountant who has heard of HMRC. Someone who files in both. They cost more and they are worth it, and the ones I have seen go wrong went wrong at the structure stage, before anyone had collected a penny of rent.

If you want to work out the numbers on a specific property, the free tools in my investor starter kit will size the deal and the cash you need. They will not do your tax return.

The bottom line

Both countries want a share of your American rent. Between them they will take the UK rate, because the UK rate is higher. The credit stops you paying twice, and that is all it does.

The deductions that make a US rental look attractive are US deductions. The UK ignores most of them. Depreciation, the biggest one, is worth close to nothing to you, and America charges you for it again when you sell.

None of that means do not buy in America. I buy there and it has been good to me. But buy it knowing what lands in your account, not what lands in your US profit and loss.

Remember, investing is a game of probabilities. The tax is not one of them. It is arithmetic, and you can do it before you commit.