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  • Residence and basis for taxation

    A company will be treated as a UK resident if it is incorporated in the UK or centrally managed and controlled (generally at the board level) in the UK.

    Domestic 

    A resident company is subject to UK corporation tax on its worldwide income and gains (subject to relief for any tax paid on the same income or gains in other jurisdictions). The company may elect to leave out of account all trading profits and losses arising from branches outside the UK.

    Foreign

    A non-resident company is not subject to UK tax except on:

    • Income from a business carried on through a UK permanent establishment or from a trade of dealing in or developing UK land (irrespective of whether there is a UK permanent establishment)
    • Other UK source income, but only to the extent of any withholding tax borne by that income, and
    • Capital gains arising on disposals of certain UK assets only (see Capital gain)
  • Taxable income

    Domestic

    Taxable income of a resident company is equal to all gross income and gains less applicable deductions.

    Foreign

    Taxable income of a non-resident company is equal to the gross income of the business carried on through the UK permanent establishment less any deductions applicable to that UK business.

  • Tax rates

    The standard corporation tax rate is 19%. It is proposed that this will be reduced to 17% with effect from April 1, 2020.

  • Tax compliance

    Corporation tax returns are due within 12 months of the end of a company's accounting period, and the tax should be paid within 9 months of the end of that accounting period. UK companies can choose the date which marks the end of their accounting period, December 31 and March 31 are common, but any date can be chosen.

    Larger companies are required to make quarterly payments in respect of corporation tax: the first payment is due 6 months and 13 days after the start of the company's accounting period (based on an estimate of the year's profits), and the final payment is due 3 months and 14 days after the end of the company's accounting period.

  • Alternative minimum tax

    Not applicable for this jurisdiction.

  • Tax holidays, rulings and incentives

    Tax holidays

    Not applicable for this jurisdiction.

    Tax rulings

    No broad-based rulings are available. On certain issues, taxpayers can request a private letter ruling that applies only to the specific issue.

    Tax incentives

    There are tax incentives for specific activities and behaviors, including R&D credits and enhanced deductions for expenditure on certain types of environmentally-friendly installations or for investment in economically deprived parts of the UK. The patent box regime will offer a reduced effective 10% rate of corporation tax for income from certain IP which is developed or managed in the UK.  There are capital allowances at different rates on various items of machinery and plant and a new 2% allowance on building costs involved in constructing new commercial buildings.

  • Consolidation

    Eligible corporations may enter into a "group payment arrangement," whereby one company makes itself responsible for administering the corporation tax affairs of all members of the group. However, all UK companies are required to file separate corporation tax returns, calculate their respective liabilities separately and remain liable for their own corporation tax.

  • Participation exemption

    Almost all dividends received from foreign subsidiaries are exempt from corporation tax except where anti-avoidance legislation applies. Capital gains recognized on the sale of shares in foreign or UK subsidiaries are exempt from tax provided that:

    • The subsidiary is a trading company (ie, one whose income is substantially derived from activities other than passive investment) or the holding company of either a trading group or a trading sub-group, and
    • The selling company has held the shares in the subsidiary for at least 12 months in the last 6 years
  • Capital gain

    Capital gains realized by a company is taxed at the same rate as trading income. Capital losses may reduce capital gains but not trading income. Certain types of profits and losses – those from debt and intellectual property – are always treated as income under special regimes which reflect the accounting treatment of those types of assets.

    Capital gains realized by non-resident companies are not taxed in the UK, even if they arise on the disposal of UK assets, unless:

    • The asset is used for the purpose of a trade carried on by the company through a UK permanent establishment, or
    • The asset comprises an interest in UK residential property which is subject to non-resident capital gains tax (NRCGT) or ATED CGT

    From April 2019, non-resident companies will be liable to UK tax on gains realized on the direct or indirect disposal of UK real estate generally, subject to certain exemptions, and special rules for collective investment vehicles.

  • Distributions

    Distributions paid by a UK company are generally treated as dividends to shareholders. UK company law forbids distributions which exceed accumulated realized profits and restricts a company's ability to repay capital, which generally requires a court order. A return of capital to shareholders is therefore unusual in the UK.

  • Loss utilization

    Trading losses can be carried forward indefinitely and can be carried back 1 year (or in certain limited circumstances up to 3 years). Trading losses can also be surrendered between group companies (provided, in the case of losses arising prior to April 2017, that they are utilized in the year in which they arose). However the use of carried forward trading losses is limited to the first £5 million of taxable profit (per group) plus 50% of profits in excess of £5 million.

  • Tax-free reorganizations

    Many forms of group reorganization can be achieved on a tax-free basis, due to a combination of reliefs, principally an automatic deferral of corporation tax on transfers of capital assets (including shares) between two UK resident group companies, and relief where shares are transferred in consideration of an issue to the transferor of shares or loan notes in the transferee.

  • Anti-deferral rules

    Under the UK controlled foreign company (CFC) rules, a UK resident company may be taxed on the income of its foreign subsidiary. The scope of these rules is intended to be limited to situations where UK-source income has been artificially diverted into an overseas, low tax jurisdiction, particularly tax havens.

  • Foreign tax credits

    Subject to limitations, foreign tax credits are available for foreign taxes paid. In the relatively rare situations where dividends received from overseas subsidiaries are not completely exempt from UK corporation tax, the amount of tax payable on the dividend will be subject to a credit for foreign tax paid or withheld by the subsidiaries (subject to a cap to combat certain avoidance structures).

  • Special rules applicable to real property

    An additional annual tax charge (the annual tax on enveloped dwellings or ATED) is made on companies which own or control residential property of more than £500,000 in value. Various exemptions apply to companies which develop, lease or trade property or use the property for other business purposes, which should have the effect of restricting the charge to companies which are used to avoid tax on the private homes of high net worth individuals. The amount of the charge varies from £3,600 to £226,950 according to the value band into which the property falls.

    Certain capital gains incurred by companies owning UK residential property within the ATED charge on the sale of such property is also subject to an ATED-related capital gains tax at 28%. NRCGT may also be chargeable on any gains on residential property held by a non-UK tax resident (at rates of either 18% or 28% for individuals or 20% for companies). Where the property is subject to both ATED-related CGT and NRCGT, ATED-related CGT will take precedence, with any excess gains being charged to NRCGT.

    From April 2019, direct and indirect disposals by non-residents of all types of UK real property (residential and commercial) will be subject to UK tax and the ATED-related CGT will be abolished.

  • Transfer pricing

    Arm's-length principles generally are applied under UK law to transactions between related entities. The UK rules generally follow OECD principles.

  • Withholding tax

    Dividends, royalties, interest, rents, etc 

    There are no withholding taxes on dividends paid by a UK company to any shareholder.

    A 20% withholding tax applies to royalties, yearly interest and rents paid by a UK letting agent or tenant to a non-resident company, subject to reduction under an applicable income tax treaty, and in the case of rents, the non-resident landlord scheme.

    It is sometimes possible to structure loan arrangements so that payments equivalent to interest fall outside the definition of yearly interest (such as the use of discounted bonds). Interest payable on a loan instrument listed on a recognized stock exchange is not subject to any withholding.

    Service fees 

    Certain payments for construction services provided in the UK are subject to a form of withholding tax at either 30% or 20% unless the party providing the service is registered for gross payment.

  • Capital duty, stamp duty and transfer tax

    No capital duty. Stamp duty is payable at 0.50% on transfers of shares, but there is an exemption for most transactions within groups, and for transfers of shares in companies which are listed on the London Stock Exchange's Alternative Investment Market (AIM).

    Transfers of real estate within the UK are subject to a transfer tax, however, the specific tax and the applicable rate depends upon which part of the country the real estate is situated in.

    England and Northern Ireland (SDLT) – if the property is situated in England or Northern Ireland, rates of up to 5% apply on the transfer of non-residential property. Higher graduated rates apply to the transfer of residential property of up to 12%, where the value of the property exceeds £1,500,000 and a punitive 15% rate can apply to certain acquisitions of residential property by corporate entities. Higher rates of SDLT also apply to purchases of additional residential properties and by companies (3% above the normal graduated rates of SDLT).

    Scotland (LBTT) – if the property is situated in Scotland, rates of up to 4.5% apply for non-residential property and higher graduated rates apply to the transfer of residential property of up to 12%, where the value of the property exceeds £750,000.  A further 3% above the normal LBTT rate applies to purchases of additional residential properties in Scotland.

    Wales (LTT) – if the property is situated in Wales, rates of up to 6% apply for non-residential property and higher graduated rates apply to the transfer of residential property of up to 12%, where the value of the property exceeds £1,500,000. A further 3% above the normal LTT rate applies to purchases of additional properties in Wales.

  • Employment taxes

    Employers must withhold income tax (ie, pay as you earn or PAYE) and a social security tax (ie, primary national insurance contributions). Employers must also pay secondary national insurance contributions. Secondary contributions are deductible by an employer for UK corporation tax purposes, but it is not permitted to recover them from the employee. There are no withholding obligations at a local level in the UK.

  • Other tax considerations

    VAT applies generally at 20% to supplies of goods and services taking place in the UK, subject to a reduced rate of 5% for specified goods and services, and exemptions and zero-rating of certain goods and services.

  • Key contacts
    Richard Woolich
    Richard Woolich
    Partner DLA Piper UK LLP [email protected] T +44 (0)20 7153 7336 View bio

Capital gain

United Kingdom

Capital gains realized by a company is taxed at the same rate as trading income. Capital losses may reduce capital gains but not trading income. Certain types of profits and losses – those from debt and intellectual property – are always treated as income under special regimes which reflect the accounting treatment of those types of assets.

Capital gains realized by non-resident companies are not taxed in the UK, even if they arise on the disposal of UK assets, unless:

  • The asset is used for the purpose of a trade carried on by the company through a UK permanent establishment, or
  • The asset comprises an interest in UK residential property which is subject to non-resident capital gains tax (NRCGT) or ATED CGT

From April 2019, non-resident companies will be liable to UK tax on gains realized on the direct or indirect disposal of UK real estate generally, subject to certain exemptions, and special rules for collective investment vehicles.