Introduction: Why a Holiday Home Abroad Means Three Tax Returns
A holiday home abroad is the one asset that puts an American living in Britain under three tax systems at the same moment. France or Spain taxes the villa because the land sits there. HMRC taxes it because you live in the United Kingdom. Finally, the IRS taxes it because you hold a US passport. Each authority measures the same rent and the same gain differently, in a different currency, and on a different calendar.
At TaxYork, we prepare US and UK returns for American bankers, investors and company owners who own property across Europe. In our experience, clients plan the purchase with a French notaire or a Spanish abogado and assume the local filing ends the matter. However, the local return is only the first of three. Consequently, the holiday home abroad that was bought for August becomes the source of missed UK tax returns, a missed FBAR and unclaimed credits.
This guide follows the money through all three countries. First, it explains who taxes a holiday home abroad and in what order. Next, it covers the French and Spanish charges, the UK layer and the US layer. It then works through a full case study with real numbers, and it closes with the reporting forms that owners most often miss.
Who taxes a holiday home abroad, and in what order
Three countries tax a holiday home abroad in a fixed order. The country where the property stands taxes first, because every relevant treaty gives the situs state primary rights over land. Britain taxes second as the country of residence and gives credit for the local tax. The United States taxes third on citizenship and credits both foreign taxes, subject to its own limits.
Therefore, for any holiday home abroad, the order of filing matters as much as the rates. You cannot finish the UK return until the French or Spanish liability is known, and you cannot finish the US return until the UK figure is settled. In addition, the three tax years do not match. France, Spain and the United States use the calendar year, while Britain runs from 6 April to 5 April.
Why the US-UK treaty does not solve it
The US-UK treaty allocates taxing rights between Washington and London only. It says nothing about a holiday home abroad on French or Spanish land. As a result, two further treaties do the work on the European side, namely the UK-France and UK-Spain conventions, which you use as a UK resident. On the American side, the ordinary foreign tax credit rules of the Internal Revenue Code do the work, not a treaty article. Our treaty and foreign tax credit service deals with exactly this layering.
What France Charges the Owner of a Villa
France taxes the non-resident owner of a holiday home abroad on French rent, on the French gain, and each year on the property itself. The rates below come from the French tax authority and the official public service portal, checked in 2026.
French tax on rental income
A non-resident pays French income tax on French rent at a minimum rate. The French tax office states that the minimum is 20% on net taxable income up to €29,579 for income received in 2025, and 30% above that threshold. The French tax authority explains the calculation for non-residents, including the option to request the average rate where worldwide income is low. For a wealthy owner, however, the minimum rate normally applies.
Social levies sit on top. The standard rate is 17.2%. Nevertheless, owners insured under a UK, EEA or Swiss social security scheme, and not under a French one, are exempt from the CSG and CRDS elements and pay only the 7.5% solidarity levy. France has kept that concession for UK-insured owners after Brexit. An American paying UK National Insurance therefore normally falls into the 7.5% group.
French tax when you sell
France taxes the gain on a sale at a flat 19%, plus social levies, and the notaire deducts the tax from the proceeds. The French tax authority sets out the rules for non-resident sellers. Holding-period allowances reduce the taxable gain. For income tax, the allowance is 6% a year from the sixth to the twenty-first year and 4% in the twenty-second, so the 19% charge disappears after 22 years. For social levies, full exemption takes 30 years.
Furthermore, an additional tax of 2% to 6% applies where the taxable gain exceeds €50,000, as the French public service portal confirms. A UK resident who sells for more than €150,000 generally needs an accredited French tax representative as well, because the exemption from that rule covers sellers based in the EU, Iceland and Norway.
Annual French charges that earn no credit
Two annual French charges catch owners by surprise. First, the taxe d'habitation survives for second homes, and communes in pressured housing areas may increase their share by between 5% and 60%, as the French economy ministry explains. Second, the real estate wealth tax applies where net French property exceeds €1,300,000 on 1 January. The public service portal confirms that non-residents count French property only, including shares in property companies.
Importantly, neither charge is a tax on income. Consequently, neither earns a foreign tax credit in Britain or America. They are a pure cost of keeping a holiday home abroad in France.
What Spain Charges the Owner of a Villa
Spain is harsher than France on a UK resident with a holiday home abroad, because Brexit moved British residents into the non-EU category. The Spanish tax agency applies three separate charges.
Spanish tax on a villa you never let
Spain taxes a non-resident on imputed income even when the property stands empty or is used only by the family. The Spanish tax agency sets the base at 1.1% of the cadastral value where that value was revised in the previous ten years, and at 2% otherwise. No expenses reduce the base. The agency's rate table then applies 19% for residents of the EU, Iceland, Norway and Liechtenstein, and 24% for everyone else.
For example, a villa with a recently revised cadastral value of €600,000 produces deemed income of €6,600 and Spanish tax of €1,584 a year. Notably, neither HMRC nor the IRS recognises any income in that situation. Because credit relief only offsets home-country tax on the same income, this charge on a Spanish holiday home abroad is a dead cost in both systems.
Spanish tax on rental income
Spain taxes a non-EU resident on gross rent. The agency's non-resident manual states that the base is the full amount without deducting any expenses, and that only EU and qualifying EEA residents may deduct costs. The rate is 24%. Therefore, a UK-resident American who collects €60,000 of rent pays €14,400 in Spain, even if agents, cleaning and repairs cost €25,000.
Britain taxes the same letting on profit. In that example the UK profit is €35,000, and at 45% the UK tax is €15,750. The Spanish tax absorbs almost all of it. However, once expenses rise further, Spanish tax exceeds the UK tax on that income, and the excess is simply lost.
Spanish tax when you sell, and new filing dates
Spain taxes a non-resident's gain at 19%, and the buyer must withhold 3% of the price and pay it to the tax agency on account. In addition, the filing calendar changed in 2026. The agency's note on Form 210 deadlines explains that, for 2026 income, the imputed-income return window opens on 1 April and closes on 31 December 2027. The annual rental return for 2026 moves to the first 20 days of April 2027. Imputed income for 2025 remains due by 31 December 2026.
How HMRC Taxes a Holiday Home Abroad
HMRC taxes a UK resident on worldwide income and gains, so a holiday home abroad enters the UK return from the first euro of rent. The UK layer has four parts that owners routinely overlook.
UK income tax on overseas rent
Overseas lettings form a separate overseas property business, reported on the foreign pages of the Self Assessment return. GOV.UK confirms that you pay tax in the normal way on overseas property. Accordingly, rent is taxed at up to 45% in 2026/27, with relief for mortgage interest restricted to a basic rate credit. Moreover, the Government has legislated separate property income rates of 22%, 42% and 47% from 6 April 2027, so the top UK rate on rent from a holiday home abroad is about to rise by two points.
Americans who became UK resident recently have a different option. The four-year foreign income and gains regime can exempt the overseas rent and gain from UK tax altogether. Nevertheless, a US citizen who removes the UK tax simply exposes the income to the IRS with a smaller credit. Our guide to the FIG regime trap for US citizens explains the arithmetic.
Which French and Spanish taxes HMRC will credit
HMRC credits only the foreign taxes it lists as admissible. For France, HMRC's Double Taxation Relief Manual admits French income tax and the solidarity levy. In contrast, it lists the CSG and the CRDS as inadmissible. This distinction is the most valuable technical point in this article.
Specifically, an owner inside the UK National Insurance system pays the 7.5% solidarity levy, and HMRC credits all of it. An owner who cannot show UK, EEA or Swiss social security cover pays 17.2%, and the CSG and CRDS portion earns no UK credit. On €48,000 of French profit, that uncredited portion is about €4,650 a year. Similarly, the Spanish imputed-income tax earns nothing, because there is no UK income to set it against.
UK capital gains tax, measured in sterling
HMRC charges capital gains tax on the sale at 18% or 24%, after a £3,000 annual exempt amount. Importantly, you compute the gain in sterling. You convert the purchase price at the rate on the purchase date and the sale price at the rate on the sale date. As a result, a holiday home abroad sold at its original euro price can still show a sterling gain if the pound has weakened.
The 60-day property return does not apply, because that regime covers UK residential property. Instead, you report the overseas gain through Self Assessment. GOV.UK also notes that the real-time service cannot handle foreign tax credit relief for overseas property.
The stamp duty sting on your next British purchase
A holiday home abroad raises the cost of your next home in Britain. GOV.UK states that the higher rates apply where the new purchase will not be the only residential property worth £40,000 or more that you own anywhere in the world. The surcharge is five percentage points. Therefore, an American renting in London who buys a first British home for £2,000,000 while owning the villa pays an extra £100,000. Our guide to buying a second home in Britain covers the exceptions.
How the IRS Taxes a Holiday Home Abroad
The IRS taxes a US citizen on worldwide income wherever that citizen lives. For a holiday home abroad, four US rules produce results that neither France, Spain nor Britain shares.
The 14-day rules that Europe ignores
Section 280A sets two day-count tests. First, if you let the villa for fewer than 15 days in the year, the rent is excluded from US income and no rental deductions are allowed. France, Spain and Britain have no equivalent exclusion, so a fortnight of summer letting can be taxable in two countries and invisible in the third. Second, the villa counts as a residence where personal use exceeds the greater of 14 days or 10% of the days let at a fair rent.
Section 280A then limits your deductions. You must allocate running costs between rental days and personal days, and rental deductions cannot create a loss. Consequently, a family that spends six weeks at their holiday home abroad cannot shelter other income with it.
Thirty-year depreciation and the recapture it creates
A holiday home abroad that you let must use the alternative depreciation system. Section 168(g) applies that system to property used predominantly outside the United States and sets a 30-year recovery period for residential rental property. Depreciation is not optional in practice, because the IRS reduces your basis by the amount allowed or allowable.
This matters at sale. Britain, France and Spain give no depreciation on a dwelling, so their gains ignore it. The US gain, however, is larger by every dollar of depreciation, and that slice is taxed at up to 25%. The balance is taxed at 20% once taxable income exceeds $613,700 for joint filers in 2026.
Foreign tax credits, the high-tax rule and the NIIT
You report the rent on Schedule E and claim French, Spanish and UK income taxes on Form 1116. Rental income normally sits in the passive category. However, where the foreign tax on it exceeds the top US rate, the high-tax rule in section 904 moves the income into the general category. For a holiday home abroad taxed at 45% in Britain, that reclassification is the norm.
On the positive side, the IRS has accepted since 2019 that the French CSG and CRDS are creditable. Therefore, the levies HMRC refuses to credit can still reduce US tax. On the negative side, the 3.8% Net Investment Income Tax applies to rent and gains, and the IRS confirms that foreign tax credits cannot reduce it. In addition, foreign property taxes on a personal-use holiday home abroad are not deductible at all under section 164(b)(6).
Dollars, euros and the mortgage
The IRS measures everything in dollars. You translate the purchase price at the rate on the purchase date and the sale price at the rate on the sale date. Hence the US gain can differ sharply from both the euro gain and the sterling gain. Furthermore, repaying a euro mortgage after the euro has weakened against the dollar produces a separate taxable currency gain, while a currency loss on a personal mortgage is not deductible. Our article on the section 988 trap on foreign mortgages explains the mechanics.
Holding the Villa Through a Company
Many French and Spanish lawyers recommend a local property company to hold a holiday home abroad. For an American in Britain, that structure is treated three different ways by three tax authorities.
The French SCI: transparent, opaque and a partnership at once
A French société civile immobilière is the standard vehicle. France generally treats it as transparent and taxes the members. HMRC, in contrast, lists the SCI as opaque in its published classification of foreign entities. Meanwhile, the IRS applies its default rules. Under Treasury Regulation 301.7701-3, a foreign entity with two or more members is a partnership where at least one member lacks limited liability, and SCI members are personally liable for its debts.
Consequently, one holiday home abroad can produce French tax on the members, UK tax on a company basis, and US partnership reporting on Form 8865. The credits then fail to line up, because each country attributes the income to a different taxpayer at a different time.
The UK benefit charge and the rule that removes it
A company-owned villa raises a UK employment tax question, since directors who use company accommodation normally face a benefit-in-kind charge. However, section 100A of ITEPA 2003 disapplies the charge for living accommodation outside the UK. The company must be owned by individuals, its main or only asset must be the property, and its activities must be incidental to holding it. Therefore, a company that also lets commercially or holds other assets can lose the protection.
Illustrative Case Study: A Provence Villa Owned From London
Daniel and Rachel are US citizens who have lived in London for eleven years. Both pay UK National Insurance, both are additional rate taxpayers, and they file a joint US return. In 2018 they bought a villa in Provence for €1,600,000, of which €1,200,000 related to the building. This holiday home abroad case study is illustrative and uses assumed rates of €1.15 to the pound, $1.16 to the euro and $1.33 to the pound.
The 2026 letting year in three countries
In 2026 they let the villa for 84 days and used it for 42 days. Gross rent was €90,000. France computed a net taxable profit of €48,000. French income tax was 20% of €29,579 plus 30% of the balance, which gives €11,442. The 7.5% solidarity levy added €3,600. Total French tax was therefore €15,042, or about £13,080.
Britain computed a profit of £44,000 under UK rules and charged 45%, which is £19,800. HMRC credited the whole £13,080, because both French charges are admissible. Accordingly, the UK top-up was £6,720.
The US return looked different again. Rent was $104,400. Direct letting costs of $23,200 were deductible in full. Shared running costs of $34,800 and annual depreciation of $46,400 were allowed at two-thirds, the rental share of total use. As a result, US net income was only about $27,000. US tax at 37% was roughly $10,000, fully covered by credits. Nevertheless, the 3.8% NIIT of about $1,000 remained payable, and some $16,400 of unused credits carried forward.
What the family actually paid, and what a sale would add
In total, the couple paid €15,042 to France, £6,720 to HMRC and about $1,000 to the IRS. Their overall rate was the UK rate of 45%, plus the NIIT. Had they been outside the UK social security system, French levies would have been €8,256 instead of €3,600. HMRC would have refused credit for the CSG and CRDS element, adding roughly £4,050 of cost each year.
A sale would produce three different gains. Suppose they sell for €2,100,000 after eight years. France taxes a euro gain reduced by holding-period allowances. Britain taxes a sterling gain of roughly £435,000 at 24%. The United States taxes a dollar gain of roughly $830,000, because about $250,000 of depreciation has reduced basis. Hence the US gain is the largest of the three, and the 3.8% NIIT on it, more than $31,000, cannot be credited by anyone.
The Reporting Most Owners Miss
With a holiday home abroad, the tax itself is rarely the largest risk. In our experience, missed reporting causes more damage than rates do.
FBAR, Form 8938 and the local bank account
French and Spanish utilities, taxes and agents all require a local bank account. That account is reportable. You must file an FBAR where your foreign accounts together exceed $10,000 at any time in the year, as the IRS guidance on foreign bank account reporting explains. A London current account alone usually breaches that figure, so the villa account simply joins the list. A missed FBAR on a small euro account is one of the most common errors we see.
The holiday home abroad itself is different. The IRS states that directly held foreign real estate is not a specified foreign financial asset. However, an interest in a foreign entity that holds the property is reportable on Form 8938, and the property's value counts in valuing that interest. For joint filers living abroad, the Form 8938 threshold is $400,000 at year end or $600,000 at any time. Our FBAR and FATCA reporting service covers both forms.
Missed UK tax returns and missed US returns on villa rent
Owners often assume that paying French or Spanish tax settles everything. It does not. Rent from a holiday home abroad belongs on the UK return every year, and automatic exchange of information means HMRC already receives data on overseas accounts. Likewise, the rent belongs on Form 1040 even where credits remove the tax, because unused credits only carry forward if you claim them.
Where several years are missing, the correction should be made on both sides together. Our US tax return preparation for expats and our IRS Streamlined Filing service deal with missed US returns, while HMRC's disclosure routes deal with missed UK tax returns.
How TaxYork Can Help
TaxYork provides comprehensive tax preparation and compliance for Americans in Britain who own a holiday home abroad. We prepare the US and UK returns together, so the foreign tax paid in France or Spain is claimed once in each system and in the right category.
Specifically, we reconcile three sets of figures. We convert the local profit into the UK overseas property computation, identify which French or Spanish charges HMRC will credit, and then rebuild the result under US rules with the day-count allocation and 30-year depreciation. In addition, we prepare the FBAR and Form 8938, and we bring earlier years up to date where reporting was missed. We work alongside your French notaire or Spanish gestor, who remain responsible for the local filings.
Conclusion
A holiday home abroad is taxed first where it stands, second where you live and third where you hold citizenship. France charges at least 20% on rent plus social levies, and 19% plus levies on a gain. Spain charges 24% on gross rent, taxes an empty villa on deemed income and withholds 3% on sale. Britain then taxes the same income at up to 45%, and the IRS adds 30-year depreciation, the day-count rules and an uncreditable 3.8% charge.
Therefore, the outcome depends less on any single rate than on how the three computations fit together. Ultimately, the owners who pay least are those who know which taxes each country will credit, who keep records in three currencies, and who file every return on time. Careful preparation turns a holiday home abroad from a three-country problem into a single, predictable cost.
Contact Us
If you own or plan to buy a holiday home abroad, speak to our team before the next filing deadline. You can book a consultation with TaxYork, email hello@taxyork.com or call 020 3488 8606. We will review your French or Spanish position alongside your US and UK returns and tell you exactly what each authority expects.
Disclaimer
This article provides general information only and reflects the rules published by the French, Spanish, UK and US tax authorities as at October 2026. It is not legal or tax advice, and the case study is illustrative. Rates, thresholds and filing dates change, and French and Spanish rules vary by region and by personal circumstances. Please speak to a qualified professional about your own position before acting. TaxYork prepares US and UK tax returns and does not advise on French or Spanish law.