United Kingdom

Resident companies are taxable in the United Kingdom on their worldwide profits (subject to an opt-out for non-UK PEs), while non-resident companies are subject to UK corporation tax on the trading profits attributable to a UK PE, the trading profits attributable to a trade of dealing in or developing UK land (irrespective of whether there is a UK PE), on gains on the direct and certain indirect disposals of UK property, and on UK property rental business profits plus UK income tax on any other UK-source income. In practice, for many companies, the application of a wide range of tax treaties, together with the dividend exemption, makes the UK corporation tax system more like a territorial system.

General corporation tax rates

The main rate of corporation tax remains unchanged at 25% for the financial year beginning 1 April 2025. This main rate applies to companies with profits in excess of GBP 250,000. For UK resident companies with augmented profits below GBP 50,000, a lower rate of 19% is generally applicable. For companies with augmented profits between GBP 50,000 and GBP 250,000, there is a sliding scale of tax rates. For corporate entities with associated companies, both profit limits are divided by the number of active companies worldwide. The main rate of corporation tax and the small profits rate will remain at 25% and 19%, respectively, for the financial year beginning 1 April 2026.

Where the taxable profits can be attributed to the exploitation of patents, a lower effective rate of tax applies. The rate is 10%. Profits can include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.

Pillar Two

The UK government has introduced the OECD’s Pillar Two rules into domestic legislation, which apply to groups with annual revenue of EUR 750 million or more. These rules include the following key elements:

• An Income Inclusion Rule (IIR), known locally as the ’multinational top-up tax‘ (MTT), which requires large UK-headquartered multinational groups to pay a top-up tax where their foreign operations have an effective rate of less than 15%.

• A domestic minimum top-up tax (DMTT), intended to be a qualified domestic top-up tax (QDMTT), which requires large groups (including those operating exclusively in the United Kingdom) to pay a top-up tax where their UK operations have an effective rate of less than 15%.
• An Undertaxed Profits Rule (UTPR), levied via the MTT, providing an alternative mechanism to collect top-up taxes that are not collected under the IIR. It broadly allocates top-up taxes between the jurisdictions that the group operates in under an allocation based on employees and tangible assets. 
• Transitional safe harbours, designed to exclude certain low-risk jurisdictions from the scope of the Pillar Two rules, to reduce the potentially significant complexity and compliance burden of the Pillar Two rules.

The IIR and QDMTT were introduced into domestic legislation via the Finance (No. 2) Act 2023, which was enacted on 11 July 2023, and apply to accounting periods beginning on or after 31 December 2023. The UTPR was enacted on 20 March 2025 as part of FA25 and applies to accounting periods beginning on or after 31 December 2024.

The general intention is that this UK legislation aligns with the OECD’s Pillar Two rules. However, the complexity of the legislation and evolving interpretation of the OECD framework means that differences may arise.

The Pillar Two rules impose certain registration, filing, and notification requirements for any in-scope group or entity. In the United Kingdom, regardless of whether a business expects to pay MTT or DMTT, the filing entity of a group (or a standalone entity) must:

• Register with HMRC via HMRC’s online portal within six months of the end of the first accounting period that they come within the scope of the rules. This cannot be completed by an agent. If the filing member is a non-UK tax resident, it will need to register for the Government Gateway in order to obtain the user ID necessary to access the system.
• Submit an information return (known as a Global Anti-Base Erosion Model Rules Information Return, or GIR) (or an overseas return notification if a GIR has already been submitted to a qualifying authority outside the United Kingdom) to HMRC within 15 months of the end of each accounting period for which they are in-scope of the UK’s Pillar Two rules (or 18 months for the first period).
• Submit a self-assessment return (or a below-threshold notification) and pay the MTT or DMTT due within the same timeframe.

Penalties may apply for late or inaccurate filings or payments, and records must be kept (unless otherwise specified by HMRC) until at least nine years after the end of the accounting period to which the records relate (or, if later, until at least six months after the completion of any compliance check opened into the accounting period in question).

For more detailed information and the most recent updates, please visit PwC’s Pillar Two Country Tracker.

Special corporation tax regimes

Apart from the specific exceptions noted below, there are no special regimes for particular types or sizes of business activity; in general, all companies in all sectors are subject to the same corporation tax rates and rules. However, certain treatments and reliefs do vary according to size, including transfer pricing, R&D credits, and some targeted anti-avoidance rules.

For large companies, there are some additional compliance and reporting requirements. Some elements of HMRC’s organisational structure and approach to avoidance and compliance are arranged by size of business (e.g. Large Business Strategy).

Oil and gas company regime

Profits that arise from oil or gas extraction, or the enjoyment of oil or gas rights, in the United Kingdom and the UK Continental Shelf ('ring-fence profits') are subject to tax in the United Kingdom at a full rate of 30%. In addition, a supplementary charge to tax (SCT) of 10% applies to 'adjusted' ring-fence profits and a further 38% ‘windfall’ tax, the Energy Profits Levy (EPL), also applies. 

Whilst taxed at a higher rate, ring-fence profits do benefit from a number of enhanced incentives not historically available under the general corporation tax regime, including: 

• 100% capital allowances on most capital expenditure (although since 2023 this has been available to most UK businesses) 

• extended loss carryback rules on decommissioning expenditure (not available against the EPL), and 

• investment allowances providing relief against supplementary charge for capex incurred. 

Petroleum revenue tax (PRT) is now set at 0% but is retained for technical and historical reasons. PRT refunds are subject to corporation tax and SCT in the period received. 

Effective 26 May 2022, the EPL, an additional tax on the profits of oil and gas companies was brought into effect. The rates and reliefs have changed a number of times since it was introduced. Following amendments to the regime in the Finance Act 2025, the EPL regime is broadly as follows:

• The EPL rate is 38% from 1 November 2024 (increasing from 35%).  

• No relief for EPL purposes is available for historical tax losses carried forward as at 26 May 2022 or for any decommissioning expenditure incurred.  

• The EPL will continue to 31 March 2030 (previously 31 December 2028).  

• The ‘normal’ 29% EPL specific investment allowance, originally designed to encourage investment in the UK North Sea, was removed from 1 November 2024.  

• A 66% decarbonisation investment allowance (reduced from 80% to take account of the increased tax rate) exists for capital expenditure associated with the decarbonisation of upstream petroleum production. 

The Energy Security Investment Mechanism (ESIM) means that: 

• EPL will not apply should oil and gas prices remain at or below USD 74.21/bbl for oil and GBP 0.57/thm for gas for the financial year to 31 March 2025, increasing to USD 76.12/bbl for oil and GBP 0.59/thm for gas for the financial year to 31 March 2026. These prices will be adjusted on 1 April each year, calculated based on the previous December’s consumer price index (CPI). 

• The reference price period (in which oil and gas prices must on average fall below the reference price) is a rolling six-month period, ending on the last day of each calendar month.  

The government has confirmed that if ESIM is triggered, legislation will be enacted to end the EPL effective on the last day of the reference price period in which the price went below the threshold price for oil and gas. 

Life insurance company regime

Life insurance businesses are also taxed under a special regime, which effectively includes different corporation tax rates as well as special rules for quantifying profits.

Tonnage Tax regime

Companies that are liable to corporation tax and operate qualifying ships that are strategically and commercially managed in the United Kingdom can elect (subject to certain conditions) to apply Tonnage Tax in the place of corporation tax. Tonnage Tax is an alternative method of calculating corporation tax profits by reference to the net tonnage of operated ships. The Tonnage Tax profit replaces the tax-adjusted profit/loss on a shipping business and certain related activities, as well as the chargeable gains/losses made on Tonnage Tax assets. Any other profits are taxable under the normal corporation tax regime.

A Tonnage Tax election must, broadly, be made within 12 months from the day that the company became eligible to enter the regime. However, a new window for entry into the Tonnage Tax regime for eligible companies from 1 June 2023 to 30 November 2024 was announced in Budget 2023 and implemented by a Statutory Instrument made on 9 May 2023. 

Finance Act 2024 extended the scope of Tonnage Tax to include elections into the regime by companies that manage qualifying ships, with effect for elections made on or after 1 April 2024. In addition, Finance Act 2024 increased the capital allowance limit for persons who lease ships to companies within Tonnage Tax with effect for leases entered into on or after 1 April 2024. 

Banking sector

A supplementary tax (‘banking surcharge’) is applicable to companies in the banking sector at 3% on taxable profits in excess of GBP 100 million with effect for accounting periods commencing on or after 1 April 2023. The GBP 100 million allowance applies in total to all the UK banking entities in the group and can be apportioned as the group sees fit. It is due for payment at the same time as corporation tax payments. 

Loss utilisation is restricted; pre-1 April 2015 carried forward trading losses can be set against only 25% of profits in a period (general loss rules allow 50%), and post-1 April 2015 carried forward trading losses are subject to the general loss restriction.

Real estate investment trust (REIT) regime

A UK REIT is, broadly, a UK resident company or a group of companies of which the principal company is UK tax resident, carrying on a property investment business, with property let to third-party tenants. Subject to the satisfaction of a number of conditions, REITs are taxed under a special regime.  

A UK REIT is exempt from UK tax on both rental income and gains relating to its qualifying property rental business, as well as gains on the sale of shares in qualifying UK property-rich companies. 

Profits from activities of the REIT other than the property rental business (the ‘residual business’) are subject to corporation tax in the normal way.

Tax is effectively levied at the investor level (subject to the tax status of investors) on their share of rental income that is distributed to them by the REIT as a property income distribution (PID) on which 20% withholding tax (WHT) is applied, for distributions made before 6 April 2027 (increasing to 22% for distributions made after this date), subject to certain exemptions. Distributions of exempt gains are treated in the same way (i.e. as PIDs).

UK resident shareholders are generally treated as receiving property income, which is subject to corporation tax/income tax at the investor’s marginal tax rate. However, investors who are exempt from UK tax can reclaim any WHT to put them into a position equivalent to investing directly in UK real estate.

For non-resident investors, it may be possible to reclaim some or all of the WHT on dividends, depending on the terms of any relevant double tax treaty (DTT).

Qualifying asset holding company (QAHC) regime

The QAHC regime was introduced with effect from April 2022, and slightly amended in 2023, in order to mitigate the tax roadblocks that prevent the use of a UK company to act as a holding company/intermediate holding company. 

A QAHC must be at least 70% owned by diversely owned funds managed by regulated managers, or certain institutional investors, and exists to facilitate the flow of capital, income, and gains between investors and underlying investments. There are a number of detailed provisions relating to the regime, but broadly, in terms of the benefits, it is allowed tax exemption/benefits in respect of:

• Gains on the disposal of certain shares and non-UK property. 
• The profits of an overseas property business.
• The obligation to deduct income tax at the basic rate on payments of interest.
• Modified rules in relation to deductions for interest and other finance costs on debt funding the QAHC.

Also, there is capital (as opposed to income) treatment of payments in the hands of investors made where a QAHC redeems, repays, or repurchases its own shares, and an exemption from stamp duty/stamp duty reserve tax (SDRT) on repurchases by a QAHC of share and loan capital.

In the Autumn Budget 2025, the government has indicated that a consultation process will commence to explore options for legislative change to the regime. We have no further information at this stage on what the potential changes could be.

Residential Property Developer Tax (RPDT)

A UK RPDT was introduced with effect from 1 April 2022. It applies to a company or corporate group that holds or has held interests in land/property as trading stock in the course of a trade and is subject to corporation tax on trading profits from residential property development activity. The tax applies at a rate of 4% to annual profits exceeding GBP 25 million (on a group basis, where relevant).

Income tax for non-resident companies

A non-resident company is subject to UK corporation tax on the trading profits of a UK PE and, irrespective of whether there is a UK PE, the trading profits attributable to a trade of dealing in or developing UK land, as well as profits from a UK property rental business. Non-resident companies are also subject to UK corporation tax on gains on the direct and certain indirect disposals of UK property (see 'Capital gains on disposal of UK immovable property by non-UK residents’ in the Income determination section).

Any other UK-source income received by a non-resident company is subject to UK income tax at the basic rate, currently 20%, increasing to 22% from 6 April 2027, without any allowances (subject to any relief offered by a DTT, if applicable). This charge has most commonly arisen in relation to UK rental income earned by a corporate non-resident landlord (NRL), which, until 5 April 2020, was within the scope of UK income tax. The United Kingdom operates an NRL scheme that requires the NRL's letting agent or tenants to withhold income tax at 20% at source unless they have been notified that the NRL has applied for and been given permission to receive gross rents. The NRL scheme is continuing, notwithstanding that corporate NRLs are now within the scope of corporation tax in respect of the profits of their property rental business (see ‘Non-resident companies within corporation tax on UK property rental business income from 6 April 2020' in the Income determination section).

Diverted Profits Tax (DPT)

DPT is due to be repealed for accounting periods beginning on or after 1 January 2026 and replaced with a simpler corporation tax charge on Unassessed Transfer Pricing Profits (UTPP), subject to a rate six percentage points above the standard corporate tax rate (thereby currently 31%). The new mechanism will retain a streamlined version of DPT’s notice system and two gateway tests, with access to treaty benefits and MAP under the CT regime.  Those changes to the gateway tests, mean that previous DPT analyses will need to be revisited. DPT applied in two circumstances:

1. where groups create a tax benefit by using transactions or entities that lack economic substance (as defined), involving an effective tax mismatch outcome and the insufficient economic substance condition is met, and/or
2. where foreign companies have structured their UK activities to avoid a UK PE involving an effective tax mismatch outcome and the insufficient economic substance condition is met and/or the tax avoidance condition is met.

There are several situations or types of transactions that are not within the scope of the DPT rules.

The following were not within the scope of the DPT rules in either of the circumstances outlined above:

• transactions where the parties are both SMEs,
• situations where the tax mismatch arises from loan relationships (and derivatives hedging loan relationships), and
• transactions involving the receipt of payments by the following types of bodies:
• pension funds
• person with sovereign immunity
• certain investment funds, and
• charities.

The following are not within the scope of the DPT rules in the second circumstance only:

• total UK-related sales revenue is less than GBP 10 million for the period, or 
• total UK-related expenses are less than GBP 1 million for the period.

Companies were required to notify HMRC if they are potentially within the scope of DPT (even if it is anticipated that there will be no DPT payable, e.g. due to credit relief) within three months of the end of the accounting period to which the notification would relate. The legislation was complex and subjective in places, and it had the potential to apply more widely than might be expected.

Local income taxes

There are no local or provincial taxes on income, although legislative powers are in place to introduce a reduced rate of corporation tax in Northern Ireland. It is not clear when the reduced rate will be introduced or at what rate.