diff --git a/src/basic/terminal-util.c b/src/basic/terminal-util.c
index 2da4f1c2fb..ecdc241247 100644
--- a/src/basic/terminal-util.c
+++ b/src/basic/terminal-util.c
@@ -1713,6 +1713,16 @@ static bool on_dev_null(void) {
         return cached_on_dev_null;
 }
 
+bool term_env_valid(const char *term) {
+        /* Checks if the specified $TERM value is suitable for propagation, i.e. is not empty, not set to
+         * "unknown" (as is common in CI), and only contains characters valid in terminal type names.
+         * Valid $TERM values are things like "xterm-256color", "linux", "screen.xterm-256color", i.e.
+         * alphanumeric characters, hyphens, underscores, dots, and plus signs. */
+        return !isempty(term) &&
+                !streq(term, "unknown") &&
+                in_charset(term, ALPHANUMERICAL "-_+.");
+}
+
 bool getenv_terminal_is_dumb(void) {
         const char *e;
 
diff --git a/src/basic/terminal-util.h b/src/basic/terminal-util.h
index dde1430243..7ac5661104 100644
--- a/src/basic/terminal-util.h
+++ b/src/basic/terminal-util.h
@@ -118,6 +118,7 @@ void columns_lines_cache_reset(int _unused_ signum);
 void reset_terminal_feature_caches(void);
 
 bool on_tty(void);
+bool term_env_valid(const char *term);
 bool getenv_terminal_is_dumb(void);
 bool terminal_is_dumb(void);
 
diff --git a/src/vmspawn/vmspawn.c b/src/vmspawn/vmspawn.c
index 73df1cbadd..1891ac8bad 100644
--- a/src/vmspawn/vmspawn.c
+++ b/src/vmspawn/vmspawn.c
@@ -3031,6 +3031,24 @@ static int run_virtual_machine(int kvm_device_fd, int vhost_device_fd) {
                 r = strv_prepend(&arg_kernel_cmdline_extra, "console=hvc0");
                 if (r < 0)
                         return log_oom();
+
+                /* Propagate the host's $TERM into the VM via the kernel command line. TERM= is
+                 * picked up by PID 1 and inherited by services on /dev/console, and
+                 * systemd.tty.term.hvc0= is used by services directly attached to /dev/hvc0 (such
+                 * as serial-getty). While systemd can auto-detect the terminal type via DCS
+                 * XTGETTCAP, not all terminal emulators implement this, so let's always propagate
+                 * $TERM if we have it. */
+                const char *term = getenv("TERM");
+                if (term_env_valid(term)) {
+                        FOREACH_STRING(tty_key, "systemd.tty.term.hvc0", "TERM") {
+                                _cleanup_free_ char *p = strjoin(tty_key, "=", term);
+                                if (!p)
+                                        return log_oom();
+
+                                if (strv_consume_prepend(&arg_kernel_cmdline_extra, TAKE_PTR(p)) < 0)
+                                        return log_oom();
+                        }
+                }
         }
 
         _cleanup_free_ char *fstab_extra = NULL;