Dual National US UK: Letting a Holiday Home in France or Spain

A dual national US UK resident who lets a villa in France or Spain is taxed on the same rent three times over: locally as a non-resident, in the UK on the arising basis, and in the US on Schedule E. Relief exists at each step, but only if the three returns are prepared in the right order.

For a UK-resident US citizen, a holiday home on the Côte d'Azur, in the Luberon, on Mallorca or the Costa del Sol is rarely just a lifestyle asset once it is let for part of the summer. From the first week of paying guests it becomes a reporting obligation in three jurisdictions, each with its own rules for what counts as income, what can be deducted, how depreciation works and which tax gets credited against which. This guide, prepared by the cross-border return specialists at Jungle Tax, walks through each layer in the sequence a well-prepared file follows: the local return first, the UK return second, the US return last, then the sale and the information returns that sit alongside it.

A note on scope before we begin: French and Spanish figures below are stated cautiously and in general terms. Local rules change frequently and depend on your personal circumstances, so the local position should always be confirmed with a French or Spanish adviser. Our focus is the US and UK returns and, above all, the way the three systems interact.

Why does one holiday let create three tax returns?

Three different connecting factors apply to the same income:

• Source. France and Spain tax income from immovable property located in their territory, whoever owns it. Both the UK and US double tax treaties with France and Spain give the country where the property sits the primary right to tax the rent.
• Residence. The UK taxes its residents on worldwide income. Since the remittance basis was abolished from 6 April 2025, almost every UK resident is taxed on foreign rent as it arises, whether or not the money is brought to the UK.
• Citizenship. The US taxes its citizens on worldwide income wherever they live. Living in London does not remove the villa from your Form 1040.

Double taxation is avoided by a chain of credits rather than exemptions. The local country taxes first; the UK gives credit for the local tax; the US then gives credit for both the local tax and any residual UK tax. When the chain is built correctly, the total burden usually lands close to the highest of the three effective rates rather than the sum of them. When it is built out of sequence, or when one return is prepared in isolation, credits are lost, and they are often hard to recover later.

Layer one: local non-resident tax in France or Spain

France

Non-residents with French rental income are generally required to file an annual French income tax return declaring the rent. Furnished holiday lets are usually treated as location meublée (furnished letting income, taxed as commercial profits), and there are simplified regimes with a flat-rate allowance as well as a "real" regime with actual expenses and depreciation. Which regime applies, and whether it is beneficial, depends on turnover thresholds and classifications that have been revised repeatedly in recent French finance laws, particularly for short-term tourist lets.

Non-residents are typically subject to a minimum rate of French income tax on French-source income (historically 20% up to a threshold and 30% above), with an option to be taxed at the average rate that would apply to worldwide income if that is lower. In addition, French social levies apply to property income. For individuals covered by the social security system of another EU/EEA state, Switzerland or, following the Brexit arrangements, the UK, France generally applies only a reduced solidarity levy (in the region of 7.5%) rather than the full social charges, which have been around 17.2%. Local taxes such as taxe foncière and, for second homes, residence tax also apply, but these are property taxes rather than income taxes. All of these figures should be confirmed with a French adviser for the year in question.

Spain

Spain taxes non-residents under its non-resident income tax regime, declared on Form 210. The critical point for a UK resident is Brexit. Residents of the EU/EEA are generally taxed at a lower rate (around 19%) on net rental income, after deducting expenses such as community fees, IBI, insurance, repairs and depreciation. Residents of non-EU states, which now includes the UK, have generally been taxed at a higher rate (around 24%) on the gross rent with no deduction for expenses. There has been litigation challenging that treatment, so the position should be confirmed locally, but many UK-resident owners are still filing on a gross basis.

Spain also imposes an imputed income charge on non-resident-owned property for periods when it is not let, calculated as a small percentage of the cadastral value (typically 1.1% or 2%) and taxed at the non-resident rate. Filing frequency for Form 210 has changed in recent years. A Spanish adviser should confirm the current rates, filing calendar and any expense deductions you are entitled to.

For completeness, both countries also levy separate annual taxes on high-value holdings; they are outside the scope of this guide.

The local bank account

Almost every owner holds a local current account to receive rent and pay utilities, cleaners, community fees and local tax. That account matters later for US information reporting, and it is the source of the documentary trail every return relies on. Keep monthly statements for all three returns.

Layer two: how does the UK tax French or Spanish rental income?

The overseas property business

A UK resident who lets property abroad carries on an overseas property business. All overseas lettings are pooled into a single business, separate from any UK property business. Profits are computed under UK rules, not local rules, and converted into sterling. They are reported on the foreign pages of the Self Assessment return, the SA106, in the property section, with the foreign tax paid shown alongside so that credit relief can be claimed. HMRC's Property Income Manual covers the computational rules.

The UK computation differs from the local and US computations in several important respects:

• No depreciation on the building. The UK gives no deduction for the cost of the property. Replacement of domestic items (furniture, furnishings, appliances) is relieved on a like-for-like replacement basis, not on initial purchase.
• Finance cost restriction. Mortgage interest on residential property is not deducted. Instead a basic-rate tax reduction is given, and this restriction applies to an overseas residential property business as it does to a UK one.
• Private use. Where you use the villa yourself, expenses must be apportioned, and only the portion relating to the letting is deductible.
• Furnished holiday lettings. The special furnished holiday lettings regime, which previously extended to qualifying EEA property, was abolished from April 2025. Holiday lets in France and Spain are now taxed under the ordinary property income rules, and transitional rules should be reviewed if you previously claimed FHL treatment.

Overseas property losses are ring-fenced

A loss from the overseas property business cannot be set against UK property profits, employment income or other income. It is carried forward and set only against future profits of the same overseas property business. For owners who let only a few weeks a year, this ring-fence means early-year losses frequently remain stranded unless the letting pattern changes.

Foreign tax credit relief under the treaty

The UK taxes the rental profit at your marginal rate, which for most readers is 40% or 45%. Credit is then given for the French or Spanish income tax charged on the same income, under the relevant UK double tax treaty or, failing that, unilaterally. The credit is limited to the lower of the foreign tax and the UK tax on that income, and it is restricted to the tax properly due under the treaty; any overpayment locally must be reclaimed locally. HMRC's helpsheet on relief for foreign tax paid (HS263) sets out the calculation.

Two points are frequently overlooked. First, because the UK and local profit computations differ, the income "doubly taxed" may not be the same figure, and the credit calculation must reflect that. Second, the Spanish gross-basis tax can easily exceed the UK tax on the UK-computed profit, leaving excess local tax that the UK will not credit. Whether French social levies are creditable in the UK depends on the taxes covered by the UK-France treaty; the treaty has been read as covering CSG and CRDS, but the solidarity levy paid by UK-insured owners should be reviewed specifically.

New arrivals and the FIG regime

If you became UK resident after at least ten consecutive years of non-residence, you may be able to claim the foreign income and gains (FIG) regime for your first four tax years of residence, under the rules in force from 6 April 2025. A valid claim exempts foreign rent and gains from UK tax for those years, though it has consequences for allowances and must be claimed on the return each year. It is attractive for a newly arrived American executive, but it only removes the UK layer; the local and US layers continue unchanged.

Layer three: how does the US tax a foreign holiday let?

Schedule E and currency

A US citizen reports foreign rental income and expenses on Schedule E, converted into dollars at the rates prevailing when each item was received or paid, or at a consistently applied yearly average rate. The US computation is a third, separate computation: it allows mortgage interest in full, allows foreign property taxes on a rental, and requires depreciation.

Mandatory ADS depreciation

Residential rental property located outside the US must be depreciated under the Alternative Depreciation System (ADS). For foreign residential property placed in service after 2017, the ADS recovery period is 30 years straight-line; property placed in service earlier generally uses the older 40-year ADS period. Land is never depreciated, so the purchase price must be allocated between land and building, which on Mediterranean coastal plots can be a substantial proportion of the value. Depreciation is "allowed or allowable": if you fail to claim it, the IRS still reduces your basis on sale as if you had.

Personal-use days and section 280A

The vacation home rules in section 280A are often the decisive factor for a family villa:

• If the property is rented for fewer than 15 days in the year, the rent is excluded from income and rental expenses are not deducted.
• If your personal use exceeds the greater of 14 days or 10% of the days rented at fair rental, the property is treated as a residence. Expenses are apportioned and deductions are limited to the rental income, so no rental loss can arise; excess deductions are carried forward.
• Days used by family members, or rented below fair value, generally count as personal use.

IRS Publication 527 sets out the day-counting and allocation rules in detail. Keep a contemporaneous booking calendar; it supports the UK private-use apportionment as well.

Passive activity rules

A rental is a passive activity. Losses can only offset passive income, subject to a $25,000 special allowance for active participation that phases out between $100,000 and $150,000 of modified adjusted gross income. At the income levels of our clients the allowance is almost always fully phased out, so losses (often created by ADS depreciation) are suspended and released on a fully taxable disposal. Where the average guest stay is seven days or less, the activity may not be a "rental activity" at all for these purposes, which changes the analysis and should be reviewed.

Form 1116: crediting the local and UK tax

Foreign income taxes are claimed on Form 1116, generally in the passive category. Two creditable taxes may sit in that basket for the same rent: the French or Spanish income tax, and any residual UK tax left after UK credit relief. Because UK rates on property income (40% or 45%) typically exceed the US rate and the US profit is reduced by depreciation, the credits commonly eliminate the regular US tax on the rent and create excess credits that can be carried back one year and forward ten.

The 3.8% Net Investment Income Tax is a different matter. The IRS position is that foreign tax credits do not reduce NIIT, so a residual US charge frequently remains even when the regular tax is fully sheltered. Treaty-based arguments exist in some fact patterns, but they must be disclosed and should be assessed carefully rather than assumed.

US treatment of French social charges

French social levies need particular care. The US and France have a totalization agreement, and the long-standing IRS position is that French social contributions covered by that agreement are not creditable foreign income taxes; the courts have largely supported that view in recent litigation. The analysis may differ for a levy charged on someone who is not affiliated to the French social security system, such as the solidarity levy paid by UK-insured owners, and practitioners take differing views. Any credit claimed for French social charges should be a deliberate, documented position, not a default. Spain generally imposes no comparable social levy on non-resident rental income.

How do the three systems compare?

Issue	France / Spain (local)	UK (HMRC)	US (IRS)
Basis of charge	Source: property located there	Residence, arising basis (FIG regime for eligible new arrivals)	Citizenship, worldwide
Return	French income tax return / Spanish Form 210	SA106 overseas property pages	Schedule E, Form 4562, Form 1116
Typical rate (indicative)	France: minimum non-resident rate plus social levy; Spain: around 24% on gross for UK residents	20%, 40% or 45% on profit	Up to 37% plus 3.8% NIIT
Building depreciation	Available in some regimes	None; replacement of domestic items only	Mandatory ADS, 30 years for post-2017 residential
Mortgage interest	Depends on regime	Basic-rate tax reduction only	Deductible
Personal use	Imputed income may apply (Spain)	Apportion expenses	Section 280A 14-day / 10% tests
Losses	Local rules	Ring-fenced to overseas property business	Passive; generally suspended for high earners
Double tax relief	Primary taxing right; no credit given	Credit for local income tax, capped at UK tax	Credit for local tax and residual UK tax; not against NIIT
Gain on sale	Local CGT; buyer withholding in Spain	UK CGT at residential rates on annual return	Capital gain in dollars; section 121 generally unavailable

Worked illustration: a Provence villa let for eight weeks

The following figures are deliberately rounded and illustrative only. They ignore currency movements within the year and assume no mortgage.

A UK-resident US citizen, taxed at 45% in the UK and 37% in the US, owns a villa bought in 2019 for €1,000,000, of which €400,000 is attributable to the building. It is let for eight weeks, producing €60,000 of gross rent, with €15,000 of letting-related expenses (management, cleaning, a share of insurance and local charges) after apportioning out the family's own three weeks.

1. France. French income tax on the rental profit is, say, €9,000, plus a solidarity levy of, say, €3,000. Both figures depend on the regime and must be confirmed locally.
2. UK. UK profit is €45,000 (no building depreciation). UK tax at 45% is €20,250. Credit is given for the €9,000 French income tax (and potentially the levy, subject to review), leaving residual UK tax of about €11,250.
3. US. ADS depreciation is €400,000 / 30, about €13,333, so US net rental income is about €31,667. Regular US tax at 37% is about €11,717. Available passive-category credits are €9,000 French plus €11,250 residual UK, a total of €20,250, which eliminates the €11,717 and leaves roughly €8,500 of excess credits to carry forward. NIIT at 3.8%, about €1,203, may remain payable.

Total tax on the rent is approximately €9,000 + €3,000 + €11,250 + €1,203, or about €24,450: roughly the UK rate plus the French levy and NIIT, not the sum of three full charges. Now contrast Spain: 24% on the gross €60,000 is €14,400. The UK tax on the €45,000 profit is still €20,250, so the full Spanish tax is credited, but if the UK profit were smaller (for example, in a year with heavy repairs), the gross-basis Spanish tax could exceed the UK tax and the excess would be lost for UK purposes, although it may still be usable on the US return.

What happens when you sell the holiday home?

Local capital gains tax

Both France and Spain tax non-residents on gains from local property. France applies a flat rate of income tax to property gains (historically 19%) plus social levies, with taper relief based on years of ownership that can eventually exempt the gain entirely, and a surcharge on large gains. Spain taxes non-resident gains at a flat rate (around 19% in recent years) and requires the buyer to withhold 3% of the price on account, which you offset or reclaim by filing a return. The municipal plusvalía may also be due in Spain. Confirm all local figures with a local adviser before the sale.

UK capital gains tax on a foreign property

A UK resident is liable to UK CGT on the worldwide gain, computed in sterling using the exchange rate at acquisition and at disposal, so currency movements alone can create or reduce a gain. Residential property rates are 18% and 24% from 6 April 2024. The UK 60-day return regime applies to UK residential property, not to a foreign villa, so the gain is reported on the annual Self Assessment return with credit for the French or Spanish tax on the same gain. Private residence relief is not normally available for a holiday home that has never been your main residence.

US gain in dollars

The US gain is computed in dollars: the dollar cost at the purchase-date exchange rate, less depreciation allowed or allowable, compared with dollar proceeds at the sale-date rate. A villa that has not risen in euro terms can therefore show a US gain or loss purely from currency. Depreciation taken is taxed as unrecaptured section 1250 gain at up to 25%; the balance is long-term capital gain at up to 20%; and NIIT may apply on top. Suspended passive losses are released on the sale. Where a euro mortgage is repaid, a separate foreign currency gain or loss under section 988 can arise, and a currency gain on a mortgage is taxable even where a corresponding loss may not be deductible.

The section 121 exclusion is generally unavailable for a holiday home, because it requires ownership and use as your principal residence for two of the five years before sale. Foreign tax on the gain is credited on Form 1116, but timing mismatches between local, UK and US recognition need attention.

FBAR, Form 8938 and reporting the property itself

• FBAR (FinCEN 114). If the aggregate maximum value of your foreign financial accounts, including the French or Spanish rental account, exceeds $10,000 at any time in the year, every account must be reported. See the IRS guidance on the Report of Foreign Bank and Financial Accounts.
• Form 8938. Specified foreign financial assets, including the local bank account, are reported where you exceed the thresholds; for a single filer living abroad these are $200,000 at year end or $300,000 at any time (double for joint filers).
• The property itself. Foreign real property held directly in your own name is not a specified foreign financial asset and is not reported on Form 8938 or the FBAR. The income and expenses appear on Schedule E instead.
• Held through a company? If the villa is owned through a French SCI or a Spanish company, the answer changes: the entity's US classification determines whether Forms 8865, 8858 or 5471 are required, and interests in foreign entities can become reportable. This is a frequent source of missed filings.

If you have let a villa for years without reporting it on your US return, or without filing FBARs for the local account, the IRS streamlined procedures are designed for exactly this situation. Our IRS streamlined filing team regularly brings non-wilful filers back into compliance, and our FBAR penalty calculator gives an indication of the exposure before you decide.

Preparing the three returns in the right order

1. Finalise the local return and the local tax actually due, reclaiming any overpayment locally.
2. Compute the UK overseas property profit under UK rules, convert to sterling, and claim credit only for the local tax properly due under the treaty.
3. Compute the US Schedule E result with ADS depreciation, apply section 280A and the passive rules, and claim Form 1116 credits for the local tax and residual UK tax.
4. Reconcile tax years: the UK year runs 6 April to 5 April while France, Spain and the US use calendar years, so rent and tax must be allocated to the correct period in each system.
5. File the FBAR and Form 8938 as needed, and keep a single set of workpapers that ties all three computations to the same bank statements and booking calendar.

Owners with property in several countries, or combined with a UK let, benefit from having one team prepare the US returns and UK Self Assessment together, so that the credit chain is coherent rather than assembled after the fact.

Speak to a cross-border specialist

A let villa in France or Spain can be efficient and fully compliant, but only when the local, UK and US returns are prepared as a single piece of work. If you are a UK-resident US citizen with a holiday home abroad, whether you are current with every filing or several years behind, we would welcome a confidential conversation. Contact our cross-border team to arrange a private consultation and a clear, fixed-scope plan for your returns.