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 main rate of UK corporation tax is 25% which applies to companies with annual profits of more than £250,000. There is a small profits rate of 19% which applies to companies with annual profits of not more than £50,000, with marginal relief for profits between £50,000 and £250,000.

There is currently a 3% corporation tax surcharge on the profits of banks.

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 corporation tax rate.

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. 
• Qualifying Asset Holding Companies (“QAHCs). 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 directly, 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 £500. 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 24%, or 28% on gains from “carried interest”.

Depending on the size of the gain made, basic  rate taxpayers may pay capital gains tax at a lower rate of 18%.

Each individual has an annual capital gains tax exempt amount of £3,000.

Generally, a gain arising from the disposal of an individual’s main home (their “principal private residence”) will be exempt from capital gains tax.

From 6 April 2025, the UK’s beneficial regime for non-domiciled and deemed domiciled taxpayers – the “remittance basis” of taxation – will be abolished and replaced by a new regime.

The new regime, known as the “foreign income and gains” regime, or “FIG” regime, will be available to individuals who have been tax resident outside of the UK for at least ten consecutive years. For the first four years of the individual’s UK tax residence, they will not be subject to UK income tax or capital gains tax on their foreign income or gains, provided a claim to apply the regime is made.

The regime is far more time-limited in nature than the remittance basis regime. However, unlike under the remittance basis regime, it will be possible to bring foreign income and gains arising to the individual during the four year period to the UK without paying UK tax on such income or gains. Once the four-year period is complete, the individual will be subject to UK tax on the same basis as all other UK tax resident individuals, on a worldwide basis.

UK tax resident individuals who have previously claimed the remittance basis of taxation may be able to make use of a “temporary repatriation facility” or “TRF”, which allows them to elect to pay UK tax on unremitted foreign income and gains at a reduced rate. The TRF will end on 5 April 2028.

The UK has no personal wealth tax regime. 

From 6 April 2025, "domicile" and "deemed-domicile" will no longer be relevant concepts to chargeability to UK inheritance tax. Instead, individuals who have been UK tax resident for ten out of the previous twenty tax years (“long term residents”) immediately preceding the chargeable event will be subject to inheritance tax on their worldwide estate.

Once an individual has become a long term resident, they will cease to be within the scope of inheritance tax (on their non-UK assets) after ten years of non-UK tax residence, with the period of non-UK tax residence required decreasing the less time an individual has been a tax resident in the UK.

All individuals, regardless of residence, are subject to inheritance tax on any assets 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 long term residents) 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 (i.e. 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 have elapsed from the date of the gift, the rate at which inheritance tax is chargeable is reduced (eventually to nil) for every subsequent year that the donor survives.

The UK government 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 (i.e. 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.