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View the related Tax Guidance about Double tax treaties

Non tax-advantaged share option schemes

Non tax-advantaged share option schemesSummaryAs with any other discretionary option plan, a non tax-advantaged share option plan involves the granting of a specific number of options to an individual. These options provide that the individual can, at an agreed date or point in time, acquire a given number of shares (the underlying shares) for a fixed price. These share schemes used to be known as ‘unapproved’ share option plans.Given that there is both no up-front cost to acquiring the options and no requirement for the individual to pay over any monies unless the underlying shares increase in value, there is little risk attached to the receipt of options. As a result, the tax treatment and tax rates applicable will often appear to be very similar to cash bonuses.Key considerationsGrant of optionsThe terms of the options need to be set out in a suitable legal document known as ‘the Rules’. The Rules govern all pertinent matters between the company and employee and, given the tax complexities that can occur in such arrangements, a suitable and up to date precedent should be obtained.One of the key terms is the price that the individual has to pay to acquire the share, known as the exercise price. As no income tax charge arises when the non tax-advantaged options are granted, no matter the exercise price, the exercise price can be set at any figure from zero upwards. Under a non tax-advantaged plan, there is no limit as to how many options are granted.

Short-term business visitors (STBVs)

Short-term business visitors (STBVs)What is a short-term business visitor?An STBV for UK tax purposes is an individual who performs duties for a non-UK employer and as a part of those duties has been asked to spend a short period working in the UK. There is a common misconception that there is automatically neither a UK tax liability, nor are there any reporting requirements for the UK host employer in such circumstances. This is rarely the case. The PAYE obligations in respect of the STBV depend on whether an Appendix 4 or Appendix 8 arrangement is agreed with HMRC.However, if an employer has only one or two employees potentially affected by the STBV rules, then it may be administratively easier to consider applying for an NT (no tax) PAYE code on an individual basis instead.Although not necessarily connected directly to UK tax obligations, in his Spring Budget 2023 statement (paragraph 3.43) the Chancellor confirmed that additional leeway would be introduced to short business visit rules. The changes made so far are of an employment law nature, including limited extensions to the permitted rights for visitors to work in the UK for short periods, as outlined at:Visit the UK as a Standard Visitor. It is possible the tax STBV rules may be also relaxed at a later date, if so, updated guidance can be expected to be issued by HMRC in due course.Eligibility for an Appendix 4 or Appendix 8 arrangementThere are two arrangements that can be agreed with HMRC for

Remittance basis charge or assessment of worldwide income and gains

Remittance basis charge or assessment of worldwide income and gainsSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.This guidance note explores whether those who are entitled to use the remittance basis should do so. Before this question can be answered, the individual needs to understand:•the scope of the remittance basis•whether they have to make a claim for the remittance basis, and•whether they have to pay the remittance basis charge for making a claimThe decision as to whether to use the remittance basis is made on an annual basis. If an individual chooses not to use it, then they are taxable in the UK on their worldwide income and gains using the arising basis of assessment, as if they were resident and domiciled in the UK.This means the individual must declare all their overseas income and gains in the year in which they arise, even if none of it is brought into the UK.Who can use the remittance basis?Certain individuals are taxable in the UK on their UK income and gains alone, and pay UK tax on foreign income and gains only if these are remitted (brought) to the

Setting up overseas ― branch or subsidiary

Setting up overseas ― branch or subsidiaryAlthough a UK company can do a reasonable amount of business in another country without a taxable presence in that country, eventually the company may need to consider whether to establish a more formal presence in such a country. This is generally done by way of a branch (also called a permanent establishment or PE) or subsidiary. For a a discussion of when this decision should be considered and a general introduction to the tax issues that can arise when a UK company decides to expand overseas, see the Setting up overseas ― companies guidance note.The decision will often usually depend on commercial factors, particularly where there are regulatory requirements. For example, a branch rather than a subsidiary may be greatly preferred where regulatory requirements demand a particular level of capital as this may be more easily satisfied through a branch structure where the parent company capital is taken into account.Where there is no particular commercial pressure for one legal form over another, tax issues may influence the decision.Note that due to the restrictions on the use of losses (see below), if the trade is entirely overseas then a local subsidiary is generally the best choice of structure. This is a different analysis to where the trade is partly in the UK and partly overseas (which is the usual situation, and which this note mainly addesses).This note focuses on the UK tax issues that can arise from operating overseas through a branch or

Double tax relief for IHT

Double tax relief for IHTWhere a double tax treaty has been entered into between the UK and a foreign territory, double tax relief for inheritance tax (IHT) will apply. Where unilateral relief can also apply, the provision that provides the greatest relief can be claimed. See the Unilateral relief for IHT guidance note. Where a double tax treaty applies it should be considered in detail. Double tax treaties can be divided into those entered into before 1975 and more recent treaties.Although domicile is removed as the connecting factor for IHT from 6 April 2025 it remains as a common law concept and its relevance for determining issues concerning Wills, succession law, situs of assets and double tax relief remains unchanged. See the Domicile for UK inheritance tax guidance note in general and for details of changes to the domicile rules for UK IHT after 5 April 2025.Pre-1975 treatiesThese include situs codes and have been made with:•France•India•Italy•Pakistan (not including Bangladesh)They apply only to IHT imposed on death and not for lifetime chargeable transfers or IHT charged on failed potentially exempt transfers (PETs). The pre-1975 treaties provide exemptions to UK IHT rather than credits against tax. This means that the tax is exempt from being paid, rather than being calculated as due but with a credit allowed for the amount of the foreign tax paid.Overriding deemed domicile rules ― before 6 April 2025The pre-1975 treaties can, in some circumstances, override the deemed domicile rules contained in IHTA

Abolition of the remittance basis from 2025/26

Abolition of the remittance basis from 2025/26Prior to 6 April 2025, UK resident individuals who were not domiciled or deemed domiciled in the UK had the choice to pay tax on:•the remittance basis ― broadly meaning that UK tax was only paid on foreign income and gains to the extent that these were brought to the UK in the tax year, or•the arising basis ― meaning UK tax was payable on worldwide income and gains arising in the tax yearFrom 6 April 2025, the remittance basis of taxation is repealed as a consequence of the abolition of the concept of domicile. This is replaced with a regime linked to the number of years of UK residency, which is colloquially referred to as the foreign income and gains regime (FIG regime). Although this is not a statutory term, it is used in this guidance note as a useful shorthand to reference the new regime. This regime is open to anyone who meets the residence conditions, including those who would have been considered UK domiciled prior to 6 April 2025. The FIG regime applies to the individual’s first four tax years of UK residence and means that the individual is not taxable in the UK on foreign income and gains arising in that four year period (with some exceptions).However, that does not mean the remittance basis rules can be forgotten, as advisers will still need to know and be able to apply the current rules for previously unremitted foreign

Foreign income and gains regime ― relief for foreign employment income

Foreign income and gains regime ― relief for foreign employment incomePrior to 6 April 2025, UK resident individuals who were not domiciled or deemed domiciled in the UK had the choice to pay tax on:•the remittance basis ― broadly meaning that UK tax was only paid on foreign income and gains to the extent that these were brought to the UK in the tax year, or•the arising basis ― meaning UK tax was payable on worldwide income and gains arising in the tax yearFrom 6 April 2025, the remittance basis of taxation is repealed as a consequence of the abolition of the concept of domicile. This is replaced with a regime linked to the number of years of UK residency, which is colloquially referred to as the foreign income and gains regime (FIG regime). Although this is not a statutory term, it is used in this guidance note as a useful shorthand to reference the new regime. This regime is open to anyone who meets the residence conditions, including those who would have been considered UK domiciled prior to 6 April 2025. The FIG regime applies to the individual’s first four tax years of UK residence and means that the individual is not taxable in the UK on foreign income and gains arising in that four year period (with some exceptions).Note that this does not mean the remittance basis rules can be forgotten, as advisers will still need to know and be able to apply the current

Long-term UK residence for IHT (6 April 2025 onwards)

Long-term UK residence for IHT (6 April 2025 onwards)This guidance note sets out the conditions that need to be fulfilled to be treated as long-term UK resident (LTUKR). It details the rules for those arriving in and those leaving the UK and the special rule for young persons. It also considers the transitional rules for those who leave the UK before 6 April 2025.IntroductionThe long-term UK residence (UKLTR) rules replace the long-standing domicile rules (see the Domicile for UK inheritance tax guidance note) as the connecting factor for UK inheritance tax purposes from 6 April 2025. The UKLTR status of an individual will determine whether their overseas assets are within the scope of inheritance tax or are excluded property. Domicile will continue to be important for other purposes (see below). ‘Formerly domiciled residents’ will now be treated in the same way as other individuals; there are no longer special rules that apply to them to decide their LTUKR status.Significance of Long-term UK residence (LTUKR)If the individual is in scope to UK IHT by being LTUKR, then all of their worldwide assets which they own absolutely (outright) will be charged to IHT. IHT will be charged on non-UK assets held in a trust at times when the settlor is long-term resident. This is a significant amendment of the excluded property trust rules. Trust assets will therefore move in and out of charge based on long-term residence at the time of the settlor at the time of the charge. This is

Transfer pricing and financing arrangements

Transfer pricing and financing arrangementsTransfer pricing rules also apply to financing arrangements. Loans between connected companies where one of those companies controls the other, or where both are under common control, are subject to the regime. The transfer pricing legislation takes precedence over the loan relationships legislation and the rules on the corporate interest restriction. See the Corporate interest restriction ― overview guidance note. The same principles of transfer pricing as set out in the UK transfer pricing in practice guidance note apply to financing transactions. Additional details and examples are provided in the OECD’s Transfer Pricing Guidance on Financial Transactions which have become part of the main OECD Transfer Pricing Guidelines republished in 2022.One important aspect of transfer pricing for loans is thin capitalisation, ie a company does not have enough capital to support the debt. A company will be considered to be thinly capitalised where:•a loan exceeds the amount which the borrower would or could have borrowed from an independent lender, or•the terms of the loan differ from those that would have been agreed with such a lender, eg a higher interest rateTIOPA 2010, s 152; INTM413200Where thin capitalisation occurs, the interest on the excessive part of the loan will be disallowed as a deduction in arriving at the assessable profits or allowable losses of the borrower. This is on the basis that the borrower would not have had a deduction for that amount if the loan had been arranged with a third party. See

Permanent establishment

Permanent establishmentA company that is not resident in the UK will only be subject to UK corporation tax if it carries on a trade in the UK through a permanent establishment. Where it does so, it will be subject to UK corporation tax on all profits that are attributable to the UK permanent establishment. There are exceptions to this rule for any person:•dealing in and developing UK land ― see the Transactions in UK land guidance note for further information•directly or indirectly disposing of UK land ― see the Disposals of UK land by non-resident companies (NRCG regime) ― overview guidance note•that generates profits from a UK property business ― see the Non-resident landlords scheme (NRLS) guidance noteCTA 2009, s 5(2)This guidance note outlines when an overseas company will have a permanent establishment in the UK and how to calculate the profits attributable to that permanent establishment.The same principles may apply when determining whether a UK company has a permanent establishment in another country. In any case, where a double tax treaty is in place, this will typically provide that a UK company is only subject to tax in another country if it has a permanent establishment there. Most of the UK’s double tax treaties follow the Organisation for Economic Co-operation and Development (OECD) model tax treaty and the definition of permanent establishment is therefore the same as the UK definition.As part of the OECD’s base erosion and profit shifting (BEPS) project, changes were proposed under