UK Law and Practice Contributed by: Russell Warren and Michael Langan, King & Spalding LLP
3.3 Passive Income Dividends received by UK-resident companies are subject to UK corporation tax. However, there are broad exemptions which generally operate to fully exempt dividends received by UK-resident compa - nies. There is no withholding tax on dividends. Interest and royalties are subject to 20% withholding tax (although the withholding tax rate on interest is set to increase to 22% from 6 April 2027), but this can be reduced or eliminated under double tax treaties. There are also statutory exemptions to withholding tax on interest including: • the quoted Eurobond exemption, which provides a full exemption from UK withholding tax on interest on quoted Eurobonds; • payments to UK companies, although the interest is generally still subject to UK corporation tax on receipt; • payments to UK banks and building societies, although the interest is generally still subject to UK corporation tax on receipt; and • the Qualifying Private Placement exemption, which provides a full exemption from UK withholding tax. Rental income is subject to taxation at up to 47% for individuals, while businesses are subject to UK corporation tax at 25%. Rental income is subject to UK withholding tax at 20% (set to increase to 22% as of 6 April 2027). However, most landlords benefit from gross payment through the non-resident land - lord scheme, so there is rarely any withholding tax in practice. 3.4 Capital Gains UK tax-resident companies are subject to UK corpo - ration tax on worldwide chargeable gains, subject to any exemptions or reliefs (such as the UK participa - tion exemption) at a rate of up to 25%. Non-UK tax- resident companies are subject to UK corporation tax at a rate of up to 25% on profits attributable to a UK permanent establishment.
UK tax resident individuals are subject to progressive rates of UK capital gains tax up to 24% and subject to a GBP3,000 annual tax-free allowance. Reliefs, which can reduce the rate to 18%, subject to a lifetime maxi - mum of GBP1 million, and deferrals are available in certain circumstances. There is also an exemption for the disposal of a principle private residence. UK non-residents are subject to non-resident capital gains tax on direct or indirect disposals of UK land. Non-resident individuals are subject to UK capital gains tax on non-resident gains; non-resident compa - nies are subject to UK corporation tax on non-resident gains. 3.5 Employment Income Employment income is taxed on a worldwide basis for residents. Non-residents are taxed on UK duties. There are special rules for short-term assignments and overseas workday relief for new arrivals. Remote working is subject to the same principles, with tax based on where duties are performed. 3.6 Other Income The UK has special rules for digital services tax, apprenticeship levy, diverted profits tax (subject to a higher rate of UK corporation tax) and annual tax on enveloped dwellings (ATED) for residential property held by companies. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B Although the UK has approved the OECD’s Consoli - dated Report on Amount B (published on 24 February 2025), it has not formally adopted Amount B. 4.2 Pillar One – Amount A The UK government’s preference is to implement Pillar One and remove the UK’s Digital Services Tax (DST). However, it has delayed the expected implementation timeline to October 2027. 4.3 Pillar Two The UK’s implementation of the global minimum tax rules took effect through enactment of the Finance (No 2) Act 2023 on 11 July 2023, which applies to
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