Moved to the US but Kept Your UK House? Here's What It Means for Your US Tax Return

Keeping the UK house was rarely a strategic decision. For most UK-origin professionals who moved to the US, it was a mixture of sentiment, uncertainty about the move, and the practical ease of letting the property. Years later, the same house is inside two tax systems at once, each with its own calendar, its own deductions, and its own view of the mortgage.

This article is aimed at UK-origin US residents who continue to own UK residential property after moving to the US, typically a former main home now let to tenants, occasionally a buy-to-let kept for diversification. It explains how the UK and US tax systems each look at the property, where they align and where they do not, and what happens on eventual sale. It is educational in nature. Treatment of any individual property is fact-specific and should be confirmed in writing by qualified US tax counsel, with UK advice taken separately.

The Starting Point: US Worldwide Income on the UK Property

US tax residents are taxed on worldwide income. UK rental income is US-taxable as it arises. Gain on eventual disposal is US-taxable in the year of sale. UK situs does not remove the property from US scope; it places it inside both systems, with the US-UK treaty and the foreign tax credit under IRC § 901 and § 904 available to mitigate double taxation. Article 15 sets out the worldwide-income baseline for new US residents; this article takes that as read.

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The UK End: Non-Resident Landlord Scheme and UK Self Assessment

The NRL Scheme

HMRC's Non-Resident Landlord Scheme is the mechanism for collecting UK tax on rent paid to landlords whose usual place of abode is outside the UK. By default, the letting agent, or the tenant directly, where there is no agent, deducts UK basic-rate tax from rent before paying it over. Landlords can apply on Form NRL1 to receive rent gross, on the basis that they meet their UK tax obligations through Self Assessment. Approval is not automatic and requires an up-to-date UK compliance history.

UK Rental Tax Through Self Assessment

UK rental profits are computed under UK rules on a UK tax year basis (6 April to 5 April) and reported via Self Assessment. Allowable UK deductions include mortgage interest (with the 20%basic-rate tax credit mechanism for individuals introduced in 2017 to 2020),letting agent fees, landlord insurance, repairs (distinguished from capital improvements), and replacement of domestic items under the specific UK relief that succeeded the general wear-and-tear allowance. UK depreciation is not an allowable deduction for residential buildings.

The US End: Schedule E and Foreign Rental Rules

Allowable US Deductions

UK rental profit is reported on Schedule E, applying US rules that differ from UK rules at several points. US deductions follow US categories: mortgage interest, property taxes, management fees, insurance, repairs, and depreciation. Items that are capital under UK rules may still be deductible under US rules on different timing, and vice versa. The US Schedule E profit figure can therefore differ materially from the UK Self Assessment profit figure for the same period.

ADS Depreciation at 30 Years

Depreciation is one of the more mechanical US-UK differences. Foreign residential rental property is required under IRC §168(g)(1)(A) to use the Alternative Depreciation System. The Tax Cuts and Jobs Act shortened the ADS recovery period for residential rental property placed in service after 31 December 2017 to 30 years (reduced from 40). US-situated residential property uses a 27.5-year life under the standard system. The UK system has no parallel depreciation deduction for residential buildings. The same property produces different deductible-expense profiles and a different adjusted US basis from the UK return.

The Sterling Mortgage and Section 988 Foreign Currency Exposure

A US resident's UK sterling mortgage is a foreign currency transaction under IRC § 988. Principal repayments can, in principle, produce ordinary-income FX gain or loss on the paydown if the spot rate at the time of payment differs from the rate at origination. The analysis follows Rev. Rul. 90-79 and subsequent practitioner commentary. Re-mortgaging or paying off the loan is a § 988 event separate from any gain on the underlying property. This is a commonly-missed item on cross-border returns. Individual treatment depends on the specific mortgage, the payment history, and the taxpayer's functional currency.

FBAR and Form 8938 on the Rental Account

The UK bank account that receives rent and pays the mortgage is a foreign financial account for FBAR and a specified foreign financial asset for Form 8938. Rental balances count toward the aggregate thresholds. The account is not a separate tax event; it is a reporting line that needs to be captured, especially where a UK savings account associated with the property carries a reserve or sinking-fund balance.

Eventual Sale: Two Separate Computations on the SameDisposal

UK Side, Private Residence Relief and the 60-day Deadline

UK Private Residence Relief under ss. 222to 226 TCGA 1992 can exempt some or all of the UK CGT on disposal of a property that was the individual's only or main residence for part of the ownership period. Letting relief has been restricted since 6 April 2020 to periods of qualifying shared occupation with the tenant. Non-UK-residents disposing of UK residential property are required to report the disposal via HMRC's 'Capital Gains Tax on UK Property' service and pay any UK CGT due within 60 days of completion (the window was reduced from 30 days to 60 days in October 2021).

US Side, Section 121 Exclusion and Section 988 on Proceeds

IRC § 121 allows exclusion of up to$250,000 of gain ($500,000 married filing jointly) on sale of a principal residence where the ownership and use tests (two of the preceding five years)are met. A property kept as a rental after a move may still qualify if sale occurs within the five-year window. US gain is computed in US dollars using spot rates at acquisition and disposal; an FX component on proceeds is a § 988item. UK CGT paid is, under usual analysis, a creditable foreign income tax under § 901, subject to § 904 limitations; specific creditability should be confirmed for the individual disposal.

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An Illustrative Example

The scenario below is hypothetical. It shows how annual reporting and eventual disposal fit together. It does not describe any individual and it is not a recommendation.

Illustrative only,  not a recommendation

Consider a hypothetical UK-origin US resident who moved  to Boston six years ago, kept the London flat that had previously been her  main home, and let it out through a UK letting agent. The property is worth  around £600,000, with a sterling mortgage of roughly £250,000. Each US tax  year she reports rental profit on Schedule E, applying ADS depreciation over  the 30-year life on foreign residential property, and takes the foreign tax  credit for UK tax paid under Self Assessment. The UK Self Assessment profit and  the US Schedule E profit are not equal, the US adjusted basis and deductions  differ from the UK computation, and ADS depreciation has no UK counterpart.  Four years in, she refinances the UK mortgage; the payoff produces a § 988 FX  event computed on spot rates at origination and payoff. Two years later she  sells. The UK disposal is reported via HMRC's 'Capital Gains Tax on UK  Property' service within 60 days, with Private Residence Relief applied for  the period of main residence. The US disposal is computed in US dollars, with  § 121 exclusion available if the two-of-five-years test is met, a § 988 FX  element on proceeds, and a foreign tax credit for the UK CGT paid. The  illustrative point is that the same sale produces two separate computations  on two separate timetables. Individual facts differ and any actual position  should be modelled in writing by qualified US and UK tax counsel.

Questions To Raise With A Qualified Adviser

These are not recommendations. They are questions to take into a conversation with a cross-border adviser who understands both sides of the Atlantic.

• Do I hold NRL1 approval with HMRC so that rent is paid gross, and is my UK Self Assessment up to date?
• Is the US Schedule E computation using ADS depreciation on the correct 30-year life, and has the US adjusted basis been documented from the date the property was placed in service as a foreign rental?
• Has the sterling mortgage been reviewed for § 988 FX exposure on principal payments, and has any refinance or paydown during my US-resident period been captured?
• Is the UK bank account that receives rent included in FBAR and Form 8938 at the correct aggregate thresholds?
• Have UK tax paid and US tax due on rental profit been reconciled each year, and is the foreign tax credit position documented and supportable?
• For an eventual sale, has the interaction of UK Private Residence Relief, US § 121 exclusion, UK 60-dayreporting, and US § 988 on proceeds been modelled for likely sale-year scenarios?
• Has the position been reviewed jointly with my UK and US tax advisers, and is there a single written file on the property covering both systems?