United Kingdom

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Tax Policy


UK Income Tax Rate 50%

UK Corporate Tax Rate 28%

UK Sales Tax / VAT Rate 17.5%

Personal Tax Rates

The marginal tax rate for individuals in the U.K. is 50%.

Employment, trading and investment income (other than dividends) are normally taxable at marginal rates of up to 40%. From 2010/11, there is an additional higher rate of 50% for taxable income above GBP 150,000 which makes the top marginal tax rate 50% in UK.

Year to 5 April 2011

Tax Rate

£0 – 37,400


£37,400 – 150,000




There is a 10% starting rate for savings income only, with a limit of £2,440 in 2009/2010 and 2010/2011. This does not apply if taxable non-savings income is above this limit.

Tax rates applicable to dividends in 2009/2010 are 10% for persons paying tax only in the basic rate band and 32.5% for higher rate taxpayers. A tax credit is available which reduces the effective tax rate to 0% in the basic rate band and 25% in the higher rate band. From 6 April 2010, those earning total annual income in excess of £150,000 are subject to tax on dividends at a rate of 42.5% (or 36.11% after the tax credit is taken into account).

Taxable persons comprise resident or ordinarily resident individuals, trustees and executors as well as non-resident individuals, trustees and executors on their UK source income. Resident or ordinarily resident and UK domiciled persons are subject to income tax on their worldwide income as it arises. Non-residents are normally only subject to income tax on income arising in the UK.

Broadly, UK resident or ordinarily resident individuals are liable to capital gains tax whilst non-residents are not.

Residence has historically been determined by physical presence in the UK for at least 183 days in any one tax year (6 April – 5 April), or if visits (or intended visits) for four consecutive years average 91 days or more. However, recent tax cases have shown a change in HMRC policy in using the number of days as the determining factor. Instead, a more 'qualitative' approach is being used which looks at other factors such as availability of UK accommodation, location of family and the maintenance of social or business interests in the UK.

A person is normally regarded as ordinarily resident if he has been in the UK for three years or it is clear from the date of arrival that his intention is to stay for three years or more. A person will also be treated as ordinarily resident if he becomes resident and has a UK property available for his use.

Broadly, an individual is domiciled in the country or state which he regards as his permanent home. He acquires a domicile of origin at birth, normally that of his father, and retains it until he acquires a new domicile of choice. To acquire a domicile of choice, a person must sever his ties with his domicile of origin and settle in another country with the clear intention of making his permanent home there.

An individual who is resident but not ordinarily resident in the UK, or any individual who is resident (whether ordinarily resident or not) but not domiciled in the UK, can make a claim to have his foreign income taxable on the remittance basis. A charge of £30,000 per annum applies to certain individuals making a claim to apply the remittance basis.

An employee who is resident but not ordinarily resident in the UK is only subject to UK tax on the part of his emoluments related to duties performed abroad in so far as they are remitted to the UK. However, individuals who are resident or ordinarily resident are taxed on all remuneration paid under a single contract of employment even if some of the duties of that employment are carried out overseas. It may be possible for foreign domiciled employees to continue to get relief if there are separate contracts of employment covering UK and overseas duties. The contract for the foreign duties should be with an overseas employer.

Husbands and wives are taxed separately and each is entitled to a personal allowance (£6,475 for the years to 5 April 2009 and 5 April 2010). The income of a minor unmarried child is also taxed separately, unless it originates from funds given to the child by the parent and it is in excess of £100.

Donations to UK registered charities are made net of basic rate tax. For each £80 donated by an individual, the charity receives a total of £100. Higher rate tax relief is given by extending the basic rate band by the grossed up amount of the gift (see below).

A UK resident individual under the age of 75 may join a personal pension scheme and make contributions. Tax relief for all contributions in a tax year is given on the higher of 100% of relevant UK earnings and £3,600 (gross), and is further restricted to the annual allowance (£245,000 for 2009/2010 and £255,000 for 2010/2011). The total amount an individual may contribute into a pension over his lifetime is determined by the lifetime allowance (£1,750,000 for 2009/2010 and £1,800,000 for 2010/2011). Restrictions will be applied to the tax relief available to high income individuals from 6 April 2011 onwards.

High income individuals are defined as those with annual income in excess of £150,000 including employer pension contributions and in excess of £130,000 without taking those contributions into account. Anti-forestalling rules apply in 2009/2010 and 2010/2011 to prevent pensions being 'topped-up' in advance of these new rules.

There are also some lifetime exemptions such as an annual exemption of £3,000; £2,500 or remoter issue £1,000. Transfers between spouses are exempt from IHT except when the transfer is made to a foreign domicile spouse by a UK-domiciled spouse, when the exemption is limited to £55,000.

Company Tax rates

The main rate of corporation tax in UK is 28% (except for ring fence profits from oil rights and extraction). A reduced rate of 21% applies to small companies (i.e. companies with taxable profits of less than GBP 300,000).

A UK resident company is liable to corporation tax on all its sources of income and capital gains, wherever arising. A company is deemed resident in the UK if it is incorporated in the UK or has its central management and control located in the UK.

A non-resident company carrying on a trade in the UK through a permanent establishment located in the UK is liable to corporation tax on all income and gains attributable to that establishment.

Corporation tax rates are fixed for each financial year ended 31 March. If the company's accounting period does not coincide with the financial year, its profits must be time-apportioned and the corporation tax rate is applied accordingly.


1 April 2010 – 31 March 2011

£0 – 300,000


Over £1,500,000


Marginal relief applies to companies with profits between £300,000 and £1,500,000.

Large companies (broadly, those with profits taxed at 28%) are required to pay their tax in instalments (generally in four equal instalments). The first payment is due six months and 14 days from the first day of the accounting period. There is a de minimis limit which enables companies with an annual corporation tax liability of £10,000 or less to avoid making such payments.

For companies not required to pay their tax in instalments, corporation tax is due for payment nine months and one day after the end of the company's accounting period.

Other taxes

Stamp duty, at a rate of 0.5%, is payable by the purchaser (whether or not UK resident) on the transfer of shares in a UK incorporated company. Stamp duty on property transactions was largely replaced on 1 December 2003 by stamp duty land tax (SDLT) which is payable on UK land and buildings transactions and the rates are between 1% and 4%. Special provisions apply to leases.

For the year to 5 April 2010, social security contributions are broadly charged on employees at a rate of 11% on earnings over £476 per month up to earnings of £3,656 per month and 1% thereafter. There is no upper limit to the employer's contribution which is broadly charged at 12.8% of an employee's earnings over £476 per month. It was announced in the Pre-Budget Report 2009 that all national insurance contribution rates will increase by 1% from 6 April 2011 so that the rates referred to above become 12%, 2% and 13.8% respectively.

Value Added Tax Rates

The standard VAT rate in UK reverted to 17.5% on 1 January 2010, with a reduced rate of 5% for certain items (the rate was reduced to 15% for the period 1 December 2008 to 31 December 2009). There also are some specific zero-rated reliefs and exemptions.

VAT is charged on the supply of most goods and services made by businesses in the UK. VAT is collected at each stage of the supply chain, generally when title to the goods passes or when services are performed. The burden of the tax falls on the ultimate consumer.

Supplies of goods or services made in the UK by foreign entities can give rise to a requirement to register for VAT in the UK. From 1 May 2009, VAT registration is compulsory for businesses making UK taxable supplies exceeding £68,000 p.a. although voluntary registration is sometimes available for businesses trading below this level.

From 1 January 2010, the standard rate of VAT in the UK is 17.5%. Some supplies, such as the grant of certain interests in land, insurance, education, financial services, and health and welfare, are exempt from VAT (i.e. no VAT is charged but recovery of VAT on related purchases may be restricted). There is the 'option' for businesses to charge VAT on non-residential property transactions in order to recover VAT incurred, subject to anti-avoidance restrictions.

The export of goods from the UK, plus UK supplies of some other goods and services (eg books, food, children's clothing) are zero-rated. Others are subject to VAT at the reduced rate of 5% (eg certain building works and energy saving products).