United Kingdom

National insurance contributions (NICs)

Social security payments are termed 'national insurance contributions' (NICs) in the United Kingdom. These are payable by employers, employees, and those that have their own trades (the self-employed).

On 22 November 23, the Chancellor of the Exchequer announced the following changes to National Insurance.

• For the 2023/24 tax year, employees currently pay Class 1 NICs at 12% on earnings between £12,571 and £50,270 and 2% on any earnings above that. Employers also currently pay Class 1 NICs at 13.8% on their employees’ earnings year above £9,100.  
• On 22 November 23, the Chancellor announced that emergency measures to enable the main rate of employee Class 1 NICs will to be cut by 2% reducing the rate from 12% to 10% with effect from 6 January 2024.
• Self-employed individuals pay Class 2 and Class 4 NICs on their profits from self-employment. Currently for the 2023/24 tax year, Class 2 NIC is a flat rate of £3.45 per week where profits are above £12,570 and Class 4 NIC is at 9% for profits between £12,570 and £50,270 and 2% on any profits above that. 
• On 22 November 23, the Chancellor announced that compulsory Class 2 National Insurance will be abolished from April 2024. Access to entitlements and credits will be maintained in full. Those who want to contribute voluntarily can still do so. 
• Class 4 National Insurance - The 9% rate will be cut by 1% from 9% to 8% from April 2024.

Capital gains tax (CGT)

There is an annual exempt amount for capital gains that are not taxable. This is GBP 6,000 for the 2023/24 tax year, after which gains falling into the basic rate band up to GBP 37,700 are taxable at a rate of 10%. Most gains above the higher rate threshold are taxed at a rate of 20%. 

From 6 April 2024, the annual exempt amount will reduce to GBP 3,000.

Chargeable gains on UK residential property and carried interest are subject to CGT rates of 28% (higher rate) and 18% (basic rate). 

For most trustees, the annual exemption is half that of individuals.

The CGT exemption is lost if a non-UK domiciled individual claims to be taxed on the remittance basis.

Gains and losses are calculated by reference to the cost of the asset plus allowable costs of subsequent improvements (although there are special rules in the event that the asset was acquired before 31 March 1982). Deductions in computing a gain or loss will include the cost of acquisition (including the purchase price, incidental costs of purchase, and any capital enhancements) and incidental costs of disposal (including legal fees, costs of advertising, etc).

There are a number of additional CGT reliefs and exemptions available, depending on the type of transaction or the nature of the asset disposed of. For example, relief may be available on the disposal of an individual’s main home (i.e. their principal private residence [PPR]). It may also be possible to hold over gains on gifts of certain types of assets.

In relation to shares, there are special rules for identifying shares disposed of from other shares of the same class held by the taxpayer. There are also special provisions that effectively prevent sale and short-term repurchasing of shares and other fungible assets ('bed and breakfasting').

From 27 October 2021, UK residents must report and pay the CGT due 60 days after completion in respect of UK residential property disposals which result in a chargeable gain. See below for the tax rules regarding non-UK residents disposing of UK property interests.

Capital Gains Tax - Basis of taxation

As for income tax, an individual who is resident and domiciled in the United Kingdom will pay CGT on their worldwide taxable gains.

Non UK resident individuals will not generally be subject to capital gains tax, even if the asset disposed of is located in the UK. There are exceptions to this, however: UK trading assets, UK property (residential and commercial) /'property-rich' companies,   carried interest. 

Gains in respect of UK residential property owned by non-UK residents have been subject to UK capital gains tax (CGT) at 28% for a number of years, and the charge to UK capital gains tax was extended to all UK property disposed of by non-UK residents and also shares in 'property-rich' non-UK companies from April 2019. (See section ‘Taxation of gains on disposal of UK immovable property by non-UK resident individuals’ below).

There are also special rules for income and capital gains tax where a person has become non-UK resident but returns to the United Kingdom within, broadly, five years, which are referred to as the temporary non-residence rules (see below).

Individuals who are UK resident but neither domiciled nor deemed domiciled in the United Kingdom, can elect for the remittance basis of taxation. Under the remittance basis gains realised on UK situs assets will be taxable as they arise (even if the non-UK domiciled taxpayer receives the sale proceeds offshore). However, gains on non-UK situs assets will only be taxable if the proceeds are remitted to the United Kingdom. Exceptions to this do apply in relation to certain carried interest arrangements and where interests in UK property are held via a non-UK company. 

If a taxpayer claims the remittance basis of taxation, the taxpayer will give up any entitlement to the tax-free capital gains annual exemption. In addition, if an individual has been resident in the United Kingdom in at least seven out of the previous nine years, the individual will have to pay GBP 30,000 a year in order to claim the remittance basis. This charge is GBP 60,000 for those non-domiciled individuals that have been resident in the United Kingdom for 12 out of the past 14 years. 

The choice of claiming or not claiming the remittance basis can be made annually, so that a taxpayer can calculate each year whether claiming the remittance basis will cost more or less than being taxed on the arising basis on worldwide income and gains. Once an individual has been resident in the United Kingdom for 15 out of the previous 20 tax years, they are deemed UK domiciled and the remittance basis is no longer available.

Temporary non-residence rules

An individual who leaves the United Kingdom for a period of non-residence of less than five full tax years and who was resident in at least four of the seven tax years prior to the departure will be taxed on a disposal while non-UK resident of any assets that were acquired before ceasing to be UK resident. The assets are treated as if they were disposed of in the year of return to the United Kingdom. Care is therefore needed when individuals come to and leave the United Kingdom.

CGT rebasing

Individuals who became deemed domiciled on 6 April 2017 under the 15/20 year test were able to rebase their directly held foreign assets to their market value as at 5 April 2017, subject to various conditions being met.

Taxation of gains on disposal of UK immovable property by non-UK resident individuals 

If an individual is not resident in the United Kingdom, they will not be subject to UK tax on most gains even when the asset is situated in the United Kingdom (unless the gains arise on UK trading assets). 

As of April 2019, all gains on  UK property and certain disposals of shares in UK property-rich companies, disposed of by non-resident individuals are subject to UK CGT. Prior to April 2019, direct disposals of UK residential property were subject to UK tax for non-UK resident individuals, with the value of the property being rebased to April 2015. There were also additional rules for residential properties held in corporates. The indirect disposal rules apply where a person makes a disposal of an entity in which it has at least a 25% interest (or any interest where the disposal has an appropriate connection to certain collective investment vehicles) where that entity derives 75% or more of its gross asset value from UK land.

The 25% ownership test looks for situations where the person holds at the date of disposal, or has held within two years prior to disposal, a 25% or more interest in the property-rich company. This holding may be directly, through a series of other entities, or via connected persons.

The 75% 'property richness' test looks at the gross assets of the entity being disposed of. Where a number of entities are disposed of in one arrangement, their assets are aggregated to establish whether the 75% test is met.

There is a trading exemption, so that disposals of interests in property-rich entities where the property is used in a trade are excluded from the charge.

Existing reliefs and exemptions available for capital gains continue to be available to non-UK residents, with modifications where necessary. The provisions of any relevant double tax treaty (DTT) would also need to be considered.

Losses arising to non-UK residents under the new rules are available. There are options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. However, where the original acquisition cost is used in the case of an indirect disposal, and this results in a loss, this will not be an allowable loss.

Disposals must normally be reported and the tax paid by individuals and trusts within 30 days of the disposal, or 60 days in respect of sales completed after 27 October 2021. 

General information on the taxation of gains

Where the taxpayer has invested in assets that are denominated in a foreign (i.e. not sterling) currency, care is needed over foreign exchange gains realised on the disposal of the asset. There is an exemption for gains on foreign currency acquired by the holder for personal expenditure outside the United Kingdom and to foreign currency held in bank accounts, but it does not extend to foreign currency held in other ways. 

Artwork and other chattels

There are no specific rules for artwork, and the taxation of income or capital gains will be applied under general principles.

The term 'chattel' means 'tangible movable property' and includes assets such as paintings and antiques. Assets such as buildings, land, leases, or shares are not chattels. A ‘wasting’ chattel is a chattel with a predictable useful life not exceeding 50 years, such as machinery (including antique clocks and watches). Wasting chattels are not taxable when sold. A non-wasting chattel is tangible movable property that will last for more than 50 years (e.g. paintings, antiques, jewellery). If a non-wasting chattel is disposed of for GBP 6,000 or less, any capital gain is exempt from CGT and losses are not allowable. If it is disposed of for more than GBP 6,000 (or is part of a set), further rules apply to calculate the tax due.

Consumption taxes

Value-added tax (VAT)

The standard rate of VAT is 20%.

See the Other taxes section in the Corporate tax summary for information on VAT returns and payments.

Net wealth/worth taxes

Tax is not charged on an individual's wealth each year in the United Kingdom.

Inheritance, estate, and gift taxes

Inheritance tax (IHT) is payable on a taxpayer’s death on the value of assets (not covered by any reliefs or exemptions) that are above the available nil rate band (NRB). The NRB has been GBP 325,000 since 6 April 2009 and is frozen until 5 April 2028. 

IHT is also payable during life on certain 'chargeable lifetime transfers', the most common of which are transfers into most types of trusts. Where an individual makes a lifetime transfer that isn’t immediately chargeable, it may become chargeable if the donor dies within seven years of making the gift. This is referred to as a 'potentially exempt transfer' (PET).

Non-UK domiciled individuals are only charged to IHT on chargeable lifetime transfers of UK assets or assets situated in the United Kingdom on their death, including UK residential property (and some loans and collateral used in connection with UK residential property), even if owned via a non-UK company. Advice needs to be taken if overseas funds are used as collateral for loans brought to the United Kingdom or in connection with UK residential property. See the ‘Property Taxes’ section below.  

Non-UK situated assets owned by a non-UK domiciled individual (who is also not deemed domiciled) is called 'excluded property' for IHT purposes and will not form part of that individual’s UK estate.

Once a non-UK domiciled individual has been resident in the United Kingdom for 15 out of the previous 20 years, they will become 'deemed domiciled' in the United Kingdom for all taxes and will be liable to IHT on their entire worldwide assets unless this is overridden by an applicable tax treaty.

Usually, spouses and civil partners have unlimited spouse exemption in respect of assets passing between them during lifetime and on death, so no IHT arises on such gifts. 

However, the spouse exemption is limited to GBP 325,000 in respect of gifts from a UK-domiciled individual to their non-UK domiciled spouse or civil partner. There is no limit in respect of assets passing from a non-UK domiciled spouse/civil partner to a UK-domiciled spouse/civil partner or where both spouses/civil partners have the same domicile.

Individuals who are domiciled outside the United Kingdom who have a UK-domiciled spouse or civil partner can elect to be treated as domiciled in the United Kingdom for the purposes of IHT. All the consequences of such an election must be considered and advice should be taken.

Property taxes

Local authorities are financed partly by the imposition of council tax, which is a property-based tax levied on the occupier of a domestic dwelling at a flat rate per dwelling. Unoccupied dwellings are also taxed on the property’s owner. The remainder of local authority finance comes from the imposition of the uniform business rate on business property and from central government grants.

Taxation of UK residential property

IHT

From 6 April 2017, ‘closely’ held non-UK companies (broadly ones owned by five or fewer shareholders) or partnerships holding UK residential property have been brought within the charge to UK IHT.

Most loans provided by individuals, trusts, closely held companies, or partnerships for the acquisition, maintenance, or enhancement of UK residential property have also been brought within the charge to IHT in the hands of the lender, as well as security provided for such loans.

This means that IHT will be chargeable in a number of additional circumstances, for example, where the individual dies whilst owning such a company's shares, where such a company's shares are gifted into or out of a trust, and on the ten-year anniversary of the trust if the trustees own shares in a non-UK resident company that in turn owns a UK property.

Stamp duty land tax (SDLT)

Acquisitions of residential property by non-natural persons (NNPs) are charged at rates of up to 15% (as a result of the specific NNPs provisions for residential property worth more than GBP 500,000, or under the general residential property provisions, which include the additional 3% ‘second home’ supplement). An additional 2% surcharge also applies to the acquisition of residential property by non-resident purchasers from 1 April 2021.

Further taxes relevant to UK residential property

There is an Annual Tax on Enveloped Dwellings (ATED) and, from April 2019, the ATED gains rules have been replaced by the new non resident gains on immovable property regime, which taxes non-residents on gains on direct and certain indirect disposals of UK immovable property generally (see ‘Taxation of gains on disposal of UK immovable property by non-UK resident individuals’ above) .

An NNP is defined as a company, partnerships with a corporate partner, and collective investment vehicles. The definitions of an NNP are aligned, as far as possible, so that the same definition applies in respect of the annual ATED charge, SDLT, and the historic ATED CGT extension.

Both UK resident and non-UK resident NNPs are within the scope of all aspects of these rules.

Trustees are not NNPs under any of these measures.

Annual tax on enveloped dwellings (ATED)

The chargeable period runs from 1 April to 31 March.

• The ATED is levied on and paid by a NNP that holds UK residential property.
• The relevant valuation date to determine whether the value is greater than GBP 500,000 is 1 April 2022 or the date of acquisition if later, to be used from 2023.
• The return and payment must be submitted to HMRC by 30 April at the start of each year.
• If a property comes within the ATED part way through the year, then a return will be required within 30 days if the NNP has acquired a chargeable interest in a dwelling, or within 90 days if because of another reason, for example the completion of conversion work.
• The return requires details of the chargeable person, the address of the property, the Land Registry title, and the self-valuation of the relevant property, among other things.
• Where residential property is part of a larger mixed-use property, only the value of the residential parts will be relevant for these purposes. There are also provisions to aggregate the value of connected party interests and to combine values where properties are linked.

The amount of the annual charge on properties valued above GBP 500,000 owned by NNPs for the 2023/24 tax year is as follows:

The ATED charges increases in line with the consumer price index (CPI) each year and is pro-rated where the property is not held for the whole period. However, the property value bands are not indexed linked. ATED is also pro-rated when a property comes in and out of one of the reliefs during the charging period.

Luxury and excise taxes

There are no luxury and excise taxes applicable to individuals in the United Kingdom.

Stamp taxes

Acquisitions of residential property in England and Northern Ireland by companies and similar NNPs and by individuals acquiring second homes are charged at rates of up to 15% (whereas acquisitions by individuals who do not own any other properties or who are replacing their main residence are capped at 12%). Companies and NNPs are subject to the 15% rate where the consideration exceeds GBP 500,000 and the company is not using the property for one of certain specific business purposes. Individuals and trusts will be subject to the 15%/12% rate where the consideration exceeds GBP 1.5 million. An additional 2% surcharge also applies to the acquisition of residential property by non-resident purchasers from 1 April 2021. 

Acquisitions of non-residential or mixed property in England and Northern Ireland are charged to SDLT at graduated rates of up to 5%; the 5% rate applies for the portion of the consideration exceeding GBP 250,000.

Land and buildings in Scotland are subject to Scottish land and building transactions tax (LBTT) in place of SDLT. Rates are graduated up to 12%, which applies to a transaction value for residential properties in excess of GBP 750,000 (or up to 18% where the additional 6% for second homes or buy-to-lets applies), and up to 5% for non-residential properties.

Land and buildings in Wales are subject to Welsh Land Transactions Tax in place of SDLT. Rates are graduated up to 12%, which applies to a transaction value for residential properties in excess of GBP 1.5 million (or up to 16% where the additional 4% for second homes or buy-to-lets applies), and up to 6% for non-residential properties.

Air passenger duty

Individuals leaving the United Kingdom by air are obligated to pay a duty, which in practice is invariably included in the cost of the air ticket. Rates of duty are based on a system of geographical banding and class of travel.