United Kingdom country tax guide

English. Foreign documents should be translated in English when provided to the UK tax authority (HM Revenue & Customs (“HMRC”)

Liability to UK corporation tax will arise if

1. a corporate entity is tax resident in the UK; or 
2. a corporate entity has a branch (a form of permanent establishment) in the UK.

Under UK domestic law, if a company is incorporated in the UK, it is considered to be UK tax resident (subject to any double tax treaty provisions). 

UK tax resident companies will generally be subject to UK corporation tax on all income, profits and capital gains earned in an accounting period, regardless of where in the world they arise. This is subject to possible double taxation relief for foreign source income, profits and gains. A UK branch of an overseas office will generally only be taxed on the profits arising from its activities in the UK.

 The current rate of UK corporation tax for tax year 2022/2023 is 19%. This will increase to 25% on 1 April 2023. The lower rate of 19% will continue to apply to companies with annual profits of not more than £50,000, with marginal relief for profits of up to £250,000.

There is currently an 8% corporation tax surcharge on the profits of banks. In light of the increasing main rate of corporation tax, banking surcharge will be reduced to 3% from 1 April 2023.

Corporate wealth tax

The UK does not have a corporate wealth tax.

Dividends

Receipts of the majority of dividends (and other qualifying distributions) by UK corporation tax payers are exempt from corporation tax, regardless of whether the dividends have a UK or overseas source. This is subject to anti-avoidance rules. Where a “small” company is in receipt of dividends, 
more numerous conditions must be met for an exemption to apply.

Generally, payments of dividends by UK companies are not subject to UK withholding tax.

The payment of a dividend is not deductible for the payer company in computing profits for 
corporation tax purposes. 

Interest

Generally, there is an obligation for UK tax resident companies to withhold tax at the basic rate of income tax (20%) on payments of interest. 

Capital gains tax

Gains on disposals by UK corporation tax payers are subject to corporation tax on chargeable gains at the standard rate of 19% (for tax year 2022/2023), increasing from 1 April 2023.

The substantial shareholdings exemption (“SSE”) exempts gains (and disallows losses) which would otherwise be chargeable to corporation tax where the corporate seller:

1. holds a substantial shareholding (broadly 10% or more) of the shares in a trading company or group (which may be UK or non-UK); and
2. has held these shares for a continuous 12-month period in the six years prior to the date of the disposal. 

Certain types of company which primarily undertake investment activities are subject to special corporation tax regimes. For example:

• Real Estate Investment Trusts (“REITs”). Where a company is within the UK REIT regime, it is exempt from tax on the net income profits and capital gains of its property rental business. 
• Investment Trusts. Approved investment trusts are exempt from corporation tax on chargeable gains. 
• Open-ended Investment Companies (“OEICs”). Open-ended investment trusts are exempt from tax on certain investment income and from corporation tax on chargeable gains. 

A new regime for Qualifying Asset Holdings Companies (“QAHCs”) is planned to be introduced next year. The aim of the regime is to provide investors in QAHCs with after-tax returns similar to those which they would receive if they invested in the underlying assets direct, and for the QAHC itself to pay no more tax than is proportionate to the activities it performs.

An individual’s tax residence in the UK in a given tax year is determined by a statutory test known as the “statutory residence test”. The test looks at an individual's circumstances (such as work, family and accommodation), as well as the number of days spent in the UK in a given tax year. The UK tax year starts on the 6th April and ends on the 5th April in the following year.

If an individual is UK tax resident in a given tax year, the starting point is that their worldwide 
income and gains are subject to UK income and capital gains tax. Certain reliefs from double taxation are available under relevant double tax treaties, and under domestic law.

Subject to double tax relief, non-UK tax residents are liable to UK income tax only on their UK source income.

The Marriage Allowance lets an individual transfer £1,260 of their Personal Allowance to their husband, wife or civil partner (where the lower earner has a taxable income of less than the Personal Allowance).

Specific taxation of dividends / interest / capital gains?

Dividends

Each UK tax resident individual is entitled to a yearly tax-free dividend allowance of £2,000. The tax-free dividend allowance does not reduce an individual’s total taxable income for the purposes of determining how much of an individual’s basic rate or higher rate band has been used.

The rate at which dividend income is taxed depends upon the taxpayer’s income tax band.

Capital gains

Higher rate taxpayers pay capital gains tax at a rate of 20%. 

Depending on the size of the gain made, basic rate taxpayers may pay capital gains tax at a lower rate of 10%.

In each case:

• the applicable rate is increased by 8% if the gain relates to the disposal of residential property (unless a relief for principal private residences applies, in which case the gain is exempt); and
• each individual has an annual capital gains tax exempt amount of £12,300.

The remittance basis regime is a beneficial tax regime which applies to those who are non-domiciled and non-deemed-domiciled in the UK. 

Domicile is a separate concept from tax residence and is not governed by statute but case law. Very broadly, an individual’s domicile aligns with the place they consider to be their permanent home (and this can change over an individual’s lifetime). Under statute, an individual can become deemed-domiciled in the UK where they have, for example, been UK tax resident for a certain number of years. 

The remittance basis regime allows UK tax residents, who are not domiciled or deemed domiciled in the UK, to be subject to UK income and capital gains tax only on (i) UK income and gains and (ii) “remittances” of foreign income and gains to the UK (rather than on their worldwide income and gains).

The UK has no personal wealth tax regime. 

UK domiciled and deemed-domiciled individuals are chargeable to inheritance tax on their worldwide assets. Individuals not domiciled or deemed-domiciled in the UK are chargeable to inheritance tax on their assets which are situated in the UK. The main rate of inheritance tax in the UK is 40%.

There are various exemptions and reliefs, the main ones being:

• (for UK domiciled and deemed domiciled individuals) a full exemption for inter-spouse transfers; and
• (for all individuals) the “nil rate band”, whereby the first £325,000 of an individual's estate which is chargeable to inheritance tax is charged at a rate of 0%. 

Lifetime transfers to certain trusts are immediately chargeable to inheritance tax at half the main rate of inheritance tax (ie 20%).

The UK does not have a “gift tax”. However, UK inheritance tax can be chargeable on certain lifetime gifts which are made within seven years of a donor's death. All gifts are therefore known as “potentially exempt transfers” (“PETs”). If a donor dies within seven years of making a gift, the gift becomes within the charge to UK inheritance tax. After three years since the date of the gift have elapsed, the rate at which inheritance tax is chargeable is reduced (eventually to nil) for every subsequent year that the donor survives.

The UK government recently closed the Tier 1 (Investor) Visa route for new applicants. A specialist immigration lawyer should be consulted.

Since the UK’s withdrawal from the European Union, this will depend on the rules of the destination country. A specialist immigration lawyer should be consulted.

Trusts are widely used and recognised in the UK. Trusts which are recognised by UK law may be UK or non-UK resident.

Trusts are subject to a specific and complex (but not necessarily disadvantageous) tax regime in the UK. As a trust is not itself a legal entity, liability to the various taxes may fall on the trustees, the settlor (ie the individual who establishes the trust and transfers assets to it) and the beneficiaries of the trust. 

Inheritance tax, capital gains tax and income tax are all applicable taxes in relation to trusts; how these apply will depend on the residence of the trustees and the category of the trust. 

Trustees of certain trusts are under an obligation to provide and maintain information about the trust and its beneficiaries with HMRC’s Trust Registration Service.