UK Law and Practice Contributed by: Russell Warren and Michael Langan, King & Spalding LLP
2.2 Tax Residence of Individuals The UK uses the Statutory Residence Test, which can treat individuals as automatically non-UK resident or automatically UK resident. For the former, individuals will always be non-UK resident: • if the individual has been UK tax resident in one of the last three tax years, if they spend fewer than 16 days in the UK; or • if they spend fewer than 45 days in the UK where they have been UK tax resident in any of the three preceding tax years; or • the individual works full time overseas for the whole tax year with no significant breaks, spends fewer than 91 days in the UK and fewer than 31 work days in the UK. If an individual does not satisfy the automatic tests for non-residents, then there are automatic UK residence tests. These are, broadly: • the day count test – if the individual spends 183 or more days in the UK in the tax year; or • the UK home test – if the individual has a home in the UK for 91 or more consecutive days (part of which falls in the tax year), uses it for at least 30 days, and either has no overseas home or spends fewer than 30 days in any overseas home; or • the UK work test – if the individual works sufficient hours in the UK over a 365-day period where all or part of the 365-day period is in the current tax year with no significant breaks from UK work. If the conditions of neither test are met, then residence is determined by reference to “sufficient ties” to the UK. This factor considers UK connections, such as family, work and accommodation, with fewer ties required the more days an individual spends in the UK. 2.3 Taxation of Resident Individuals UK tax residents are subject to worldwide taxation on income and gains, subject to any treaty relief or domestic law exemptions. See 2.1 General Principle of Territorial Taxation for further details on the transitional FIG and temporary repatriation provisions applicable following the aboli - tion of the “non-dom” regime.
2.4 Taxation of Non-Resident Individuals Non-residents are taxed on UK-source income, including employment income for duties performed in the UK, rental income from UK property, and cer - tain capital gains (especially on UK property). The UK applies withholding tax on annual UK-source inter - est at a rate of 20% (increasing to 22% from 6 April 2027) but this is subject to treaty relief as well as other exemptions for non-residents. There is also withhold - ing tax at a rate of 20% for UK royalties, which is again subject to treaty relief. The UK has a wide-ranging network of treaties, many of which provide full relief for withholding tax, but clearance must be received from His Majesty’s Revenue and Customs (HMRC) to make interest payments at the treaty rate. 2.5 Tax Residence of Legal Entities A company is UK tax resident if it is incorporated in the UK or if its central management and control is exercised in the UK. 2.6 Definition of Permanent Establishment The UK’s definition of “permanent establishment” is broadly aligned with the OECD Model, focusing on a fixed place of business or a dependent agent. Treaty definitions generally follow the OECD Model, with some variations depending on the specific treaty. HMRC is in the consultation process for the purposes of more closely aligning the UK’s rules on permanent establishment with the latest international consensus on the definition of a permanent establishment and the attribution of profits to a permanent establishment. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Rental income from UK property is taxable in the UK for both residents and non-residents. Since April 2020, non-resident companies receiving UK property income are subject to UK corporation tax. 3.2 Business Profits Business profits of UK resident companies are taxed on worldwide income at the corporation tax rate (25% standard, with a small profits rate of 19% up to GBP250,000). Non-resident companies are taxed on profits attributable to a UK permanent establishment.
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