Of the UK's roughly 130 bilateral tax treaties, the one with the United States is the most operationally different from the others. The difference sits in two words: saving clause. The 2001 UK-US Double Taxation Convention, as amended by the 2002 protocol, contains a clause at Article 1(4) that lets the United States tax its citizens on worldwide income regardless of treaty residence. For UK landlords with US connections, this changes the entire calculation. The treaty does not eliminate double tax; it only mediates it. This page walks through the saving clause itself, the UK side of a UK property position (rental income, NRCGT), the US side (Form 1040, Form 1116, FBAR), and the traps that catch US-connected landlords most often. For the OECD Model article framework that sits underneath this bilateral page, see our [UK tax treaties framework guide](/blog/non-resident-landlord-tax/tax-treaties-property-investors-treaty-framework-guide). ## The saving clause: why the UK-US treaty does not shelter US citizens Most UK tax treaties operate symmetrically. If you tie-break to non-UK residence under Article 4, the UK still has source-state rights on UK property (under Article 6 and Article 13), but your country of residence handles its own residents and credit mediation does the rest. The UK-US treaty does not. Article 1(4) of the 2001 Convention reads, in substance, that the Convention does not affect the United States' taxation of its citizens (and certain former citizens) as if the Convention had not entered into force. The clause has specific exceptions (the non-discrimination article, the mutual agreement procedure article, the dependent personal services article, certain pension articles, and a small handful of others). For income from immovable property and for capital gains on immovable property, no exception applies. The US keeps its claim. The practical consequence is that a US citizen UK-resident with a Manchester BTL is in two tax systems at once. The UK taxes the rental income under domestic law (ITTOIA 2005, with the s.272A finance-cost restriction applying as for any UK-resident individual landlord) and the saving clause leaves the US tax claim intact. The US tax claim is then offset by the UK tax already paid through the Foreign Tax Credit on Form 1116. The mediation works. Most US-citizen UK-resident landlords end up with little or no additional US tax after the credit, because UK income tax rates (20%, 40%, 45%) typically exceed US federal rates (10%, 12%, 22%, 24%, 32%, 35%, 37%). The credit covers the US side. State-level US tax (for those still tax-resident in California, New York, Virginia, or Massachusetts) is a separate problem. ## Two reader profiles: which UK-US scenario are you in? The advice differs sharply depending on which side of the Atlantic your tax residence sits. **Profile A: US citizen UK-resident with UK property.** SRT outcome is UK-resident; you treaty-tie to UK residence under Article 4 if there is any US-residence claim; but the saving clause preserves US worldwide taxation regardless. You file UK self-assessment and US Form 1040 each year. Foreign Tax Credit on Form 1116 mediates the double tax. FBAR (FinCEN 114) and FATCA Form 8938 reporting on UK accounts are routine. **Profile B: US person (citizen or green card) non-UK-resident with UK property.** You are within the UK Non-Resident Landlord scheme and the NRCGT regime on disposal. The saving clause is still in play on the US side, but the UK side simplifies to standard non-resident-landlord mechanics. You file UK self-assessment as a non-resident landlord and US Form 1040 with Schedule E (rental) and Form 1116 (credit for UK tax paid). **Profile C: UK national US-resident with UK property.** The saving clause does not apply to you because it is about US citizens (and certain former citizens), not about anyone US-resident. Your position is treaty-symmetric: UK retains source-state rights on UK property under Article 6 and Article 13. The US taxes you on worldwide income because you are US tax-resident under US domestic rules. Foreign Tax Credit on the US side mediates. The UK side is standard NRL mechanics if you have left UK residence. The rest of this page focuses on Profile A, which is the most distinctive UK-US scenario, with notes on Profile B and Profile C where the position diverges. ## UK side: rental income under Article 6 Article 6 of the UK-US treaty gives the UK primary taxing rights on UK rental income. There is no treaty relief from UK tax on this category. UK income tax under ITTOIA 2005 Part 3 applies as for any UK landlord. For a US-citizen UK-resident landlord, the UK position is identical to a UK-national UK-resident landlord: - Rental profit computed on the cash basis (default for unincorporated landlords) or the accruals basis where elected. - Section 24 (s.272A ITTOIA 2005) finance-cost restriction: mortgage interest is added back to profit; a 20% tax credit applies against income tax. - Personal allowance of £12,570 available (UK and EEA nationals get it under domestic UK law; US nationals get it where the treaty preserves it, but UK-resident US citizens get it as UK residents in any event). - 20%, 40%, and 45% rates on the slice of rental profit above the allowance, by reference to total taxable income. For a US-citizen non-UK-resident landlord (Profile B), the same charge applies but the NRL scheme overlays it. The letting agent (or tenant, where direct) withholds 20% basic rate on the rent (net of agent-deductible expenses) unless the landlord holds NRL1 gross-payment approval. See our [non-resident landlord scheme complete guide](/blog/non-resident-landlord-tax/non-resident-landlord-scheme-uk-complete-guide) and [20% NRL withholding mechanics page](/blog/non-resident-landlord-tax/nrl-withholding-tax-20-percent-basic-rate-deduction) for the operational detail. ## UK side: capital gains under Article 13 and NRCGT Article 13(1) of the UK-US treaty gives the UK primary taxing rights on capital gains from UK immovable property. Article 13(2)(a) covers shares in property-rich entities. These provisions track OECD Model 2017 form. For a US citizen UK-resident, a disposal of the Manchester BTL is within UK-resident CGT rules: - 24% on the gain above £3,000 annual exempt amount for residential property (basic rate 18% applies for that portion of the gain within the unused UK basic rate band). - 60-day UK property return required where tax is due (the UK-resident position, narrower than the non-resident position which requires the return on every disposal). - Private Residence Relief, lettings relief (shared-occupation only since April 2020), and the standard CGT computation rules. For a US-citizen non-UK-resident (Profile B) selling a UK property, the [Non-Resident CGT regime](/blog/non-resident-landlord-tax/non-resident-cgt-uk-property-rates-reporting) at TCGA 1992 s.1A and Schedules 1A, 1B, and 4AA applies. The 60-day return is mandatory on every disposal regardless of tax due. Rebasing options (5 April 2015 default for residential, 5 April 2019 for non-residential) may favour the taxpayer. The US then has its own claim on the gain. The saving clause leaves it intact. The US computation runs on Schedule D / Form 8949 in US dollars; the foreign tax credit on Form 1116 (passive category, with the gain typically sourced to the UK under US sourcing rules) offsets the US tax. ## US side: Form 1040 alongside your UK SA return A US-citizen UK-resident landlord with a Manchester BTL files two annual returns: 1. **UK Self Assessment** by 31 January following the tax year (paper deadline 31 October). Property income goes on the UK Property pages (SA105). If the landlord has any foreign income or gains, the foreign pages (SA106) add the calculation. 2. **US Form 1040** by 15 April (with automatic two-month extension to 15 June for US citizens abroad; further extension to 15 October on Form 4868). Rental income goes on Schedule E. UK tax paid feeds Form 1116. Foreign accounts may require FBAR (FinCEN 114, due 15 April with automatic extension to 15 October) and FATCA Form 8938 (filed with the 1040 where thresholds met). The tax-year mismatch matters. The UK tax year runs 6 April to 5 April; the US tax year runs 1 January to 31 December. Foreign tax credit on Form 1116 requires careful apportionment of the UK tax paid in (say) UK 2025/26 against the US 2025 calendar year. Methods vary; most US-side practitioners use either the "paid" method (foreign tax in the year paid) or "accrued" method (in the year accrued). Once elected, the method generally binds. ## Foreign tax credit: Form 1116 (US) and SA106 (UK) Foreign Tax Credit is the principal mediation mechanism. It works in both directions. **US side: Form 1116.** US-citizen UK-resident landlords claim a credit against US tax for the UK income tax paid on the same income. The credit is computed by category (passive income, including rental, is one category) and is restricted to the US tax that would otherwise be due on that category at US rates. Where UK rates exceed US rates (often the case at 40% and 45% UK marginal rates), excess foreign tax can be carried back one year and forward ten, within the passive category. **UK side: SA106 and HS304.** Where the US side has any UK-tax claim that needs releasing under treaty (rare for property; more common for dividend / royalty / pension scenarios), the UK return uses the foreign pages plus the [HS304 helpsheet](https://www.gov.uk/government/publications/non-residents-relief-under-double-taxation-agreements-hs304-self-assessment-helpsheet). Where a UK national US-resident (Profile C) has UK rental income subject to UK tax, the credit goes on the US Form 1040 / Form 1116 the same way as Profile A. The treaty article that authorises the credit is Article 24 (Relief from Double Taxation) of the UK-US treaty, which couples to TIOPA 2010 ss.18 and 130 on the UK side and the US Internal Revenue Code s.901 on the US side. ## Worked example: Sarah, US citizen UK-resident, Manchester BTL Sarah, a US citizen, moved to the UK in 2021 for an in-house legal role. SRT outcome: UK-resident every year since 2021/22. She purchased a Manchester BTL in 2023 for £280,000 with a £196,000 interest-only mortgage; current value £335,000; annual rent £18,000; mortgage interest ~£8,800 a year (2026/27); allowable expenses (agent commission, insurance, repairs, gas safety) ~£3,200. **UK position (2026/27).** - Rental income £18,000 less allowable expenses £3,200 = £14,800 taxable rental profit (mortgage interest is added back per s.272A ITTOIA 2005). - Sarah has UK employment income £85,000 (PAYE handles that side). - Adding rental profit £14,800 takes her well into the higher-rate band. Income tax on the rental slice at 40% = £5,920. - Section 24 credit: 20% of £8,800 mortgage interest = £1,760, capped at the lower of 20% of rental profit before finance cost (20% of £23,600 = £4,720) and 20% of taxable income (more than enough). Credit applied: £1,760. - Net UK income tax on the rental, after credit: £5,920 minus £1,760 = £4,160. Class 2 NIC does not apply (rental is not earnings for NIC). **US position (US calendar year 2026, approximately).** - Schedule E rental income £18,000 (converted to USD at spot rates throughout the year, say ~$22,800). - Schedule E expenses: same UK expenses plus US-allowable depreciation on the building. The US depreciation rules (residential rental property: 27.5-year straight-line under MACRS) are more generous than UK on the cost-recovery side; net Schedule E loss is common in the early years even where UK Schedule shows a profit. - Mortgage interest fully deductible on Schedule E in the US (not subject to s.24-style restriction). UK basis adjustment may apply where US-position depreciation has been claimed. - US passive-income loss limitation under IRC s.469 may suspend Schedule E losses, but a US-citizen high-earner with active management may meet the real estate professional election (rare for someone with a UK full-time job) or have the loss suspended for later use. - Net US tax on the rental: often nil or low because of depreciation. Form 1116 credits the UK tax paid (£4,160 ≈ $5,300 at illustrative rates) against any US tax that does arise. **Net cash position.** Sarah pays UK income tax of about £4,160 on the Manchester BTL each year and rarely owes any additional US federal tax. State tax depends on her last US state of residence; if she severed California residence cleanly when she moved in 2021, there is no California claim. **Disposal scenario.** If Sarah sells the Manchester BTL for £335,000 in 2027/28 (gain ~£55,000 before disposal costs), UK CGT runs at 24% on the gain above the £3,000 annual exempt amount = ~£12,500 UK CGT. The US capital gains rate at her income level is 15% on the dollar-equivalent gain after any depreciation recapture (recapture at ordinary rates on the depreciation claimed). Form 1116 credits the UK CGT against the US tax. Net: she usually owes no additional US capital gains tax; US depreciation recapture may produce a small ordinary-income US tax line. **Compliance overlay.** FBAR (FinCEN 114) on her UK bank accounts because aggregate balances are over $10,000. FATCA Form 8938 if total foreign financial assets exceed $200,000 at year-end (joint filer threshold). The Manchester BTL is real property and is NOT a financial account, so it does not feed FBAR or 8938 directly. The rental account into which the rent lands is reportable. ## Common traps: state-level tax, FBAR, FATCA, gift and estate tax Five traps catch US-connected UK landlords most often: 1. **US state-level residence.** Federal worldwide-income taxation applies to all US citizens. State-level taxation also applies until state residence is severed. California, New York, Virginia, and Massachusetts have aggressive residence rules that survive a physical move abroad. Sever state residence properly (sell the state home or rent it on arm's-length terms, surrender the driver's license, switch voter registration, change banking) before relying on a UK-resident position for state purposes. 2. **FBAR (FinCEN 114).** US persons with non-US financial accounts whose aggregate value exceeds $10,000 at any point in the year file FBAR annually with FinCEN. UK current accounts, savings, ISA accounts, and the letting-agent client-money account where rents collect all count. Penalties for non-wilful failure start at $10,000 per year per account; for wilful failure, materially higher. The 10-year US enforcement record on FBAR is unforgiving. 3. **FATCA Form 8938.** Filed with Form 1040 where aggregate foreign financial assets exceed thresholds ($200,000 at year-end / $300,000 at any point for single US-residents-abroad filers, double for joint filers). UK real property is NOT reported on 8938 directly, but the cash account into which UK rent lands is. 4. **US gift and estate tax.** US citizens are within US worldwide estate tax. The unified credit exemption for 2026 is $13.99 million per individual, with an unlimited spousal deduction for transfers to a US-citizen spouse (qualified domestic trust required where spouse is non-US-citizen). UK IHT applies on UK situs property regardless. The UK-US estate tax convention (1978) sits separately from the income treaty and provides credit relief for the estate tax claim. 5. **Mismatched depreciation.** The US allows residential rental depreciation that the UK does not (UK gives wear-and-tear-equivalent relief differently for unfurnished and furnished lets; capital allowances are limited for residential property). When the property is sold, the US recaptures depreciation at ordinary rates; the UK does not. The basis difference can produce an unexpected US tax line on disposal even where Form 1116 covers the rest. ## What to do next: a checklist - **Confirm your profile.** Are you Profile A (US-citizen UK-resident), Profile B (US-person non-UK-resident), or Profile C (UK-national US-resident)? The treaty mechanics apply differently to each. - **Get joined-up advice.** UK side and US side need to be reconciled annually, especially the foreign tax credit calculation. A UK property-tax specialist coordinating with a US-side CPA is the standard pattern. - **File on time on both sides.** UK self-assessment 31 January; US Form 1040 15 April (extensions available); FBAR 15 April (auto-extended to 15 October). - **Plan disposals carefully.** UK NRCGT (or UK-resident 60-day return where applicable) lands within 60 days of completion. US Schedule D / Form 8949 lands with the next federal return. Pre-disposal modelling should run both sides simultaneously, including depreciation recapture and state-level claims. - **Look at the broader cluster.** The [UK tax treaties framework guide](/blog/non-resident-landlord-tax/tax-treaties-property-investors-treaty-framework-guide) sets the OECD Model context. The [non-resident CGT rates page](/blog/non-resident-landlord-tax/non-resident-cgt-uk-property-rates-reporting) and the [non-resident self-assessment filing requirements](/blog/non-resident-landlord-tax/non-resident-landlord-self-assessment-filing-requirements) cover the Profile B operational detail. The saving clause makes the UK-US treaty unusual. It does not make the UK property position more expensive; it makes it more complicated to administer. The mediation through Form 1116 generally works. The traps are reporting (FBAR / FATCA), state tax, and depreciation mismatch, not the headline rate calculation. Plan around those.