United Kingdom

Personal income tax rates

Income tax is charged at graduated rates, with higher rates of income tax applying to higher bands of income. Tax is charged on total income (from all earned and investment sources) less certain deductions and allowances. 

In Autumn 2022, it was announced that the current personal allowance and certain tax thresholds would be frozen until April 2028.

The main allowance is a tax-free amount known as the ‘personal allowance’, which is 12,570 pounds sterling (GBP) in 2024/25. Most individuals can claim a personal allowance, unless they are claiming the remittance basis (see below) or their income is over GBP 125,140. If one’s income is over GBP 100,000, one’s personal allowance will be reduced by GBP 1 for every GBP 2 that one’s income exceeds GBP 100,000.

The net amount after allowances is usually referred to as an individual's taxable income. The graduated rates of income tax vary slightly depending on whether the income is from earnings or investments.

Income tax bands and rates for taxpayers resident in England, Wales, or Northern Ireland are as follows:

* The 0% starting rate is for savings income only. If non-savings income (which takes up the first ‘slice’ of income) is above this limit, then the 0% starting rate will not apply.

Note that dividends are always treated as the top slice of income and will be taxed at an individual's highest marginal tax rate (see Dividend income in the Income determination section for rates specifically applicable to dividends). ‘Savings income’ is the next slice down, and other income (such as earnings) will be the lowest slice. The most common form of ‘savings income’ is interest, but certain other forms of income are also included.

** A dividend allowance applies to the first GBP 500 of an individual’s dividend income in 2024/25. The allowance operates as a 0% tax rate. Please note this does not apply to dividends from shares held within an Individual Savings Account (ISA). 

The dividend allowance does not reduce total income for tax purposes. Dividend income that is within the ‘allowance’ still counts towards an individual’s basic and higher rate limits.

Scottish Income Tax

Individuals resident in Scotland pay Scottish Income Tax on employment income, pension income and most other taxable income, apart from dividend and savings income, which is taxed at the rates above, in line with the rest of the United Kingdom.

The Scottish Income Tax rates are as follows:

Trustees and income tax

The income tax rates paid by trustees depend on the type of trust involved. 

The first GBP 1,000 of income arising to the trustees of accumulation or discretionary trusts is taxed at either 8.75% (dividends) or 20% (all other income). Thereafter, income is taxed at 39.35% (dividends) or 45% (all other income).

Interest in possession trustees pay income tax at 8.75% (dividends) or 20% (all other income). Income mandated to the beneficiary is taxed on the beneficiary and should be included on their tax return.

Trustees do not qualify for the dividend allowance.

There are special rules for other types of trusts (e.g. non-resident trusts, settlor-interested trusts, and trusts for vulnerable people). Advice should be sought as trust taxation is a complex area.

Basis of taxation in the United Kingdom

Please note that, in the March 2024 Budget, the government announced plans to abolish the current tax regime for non-UK domiciled individuals. The following sections set out the rules as currently in place in the United Kingdom, but it must be noted that these are unlikely to remain in force beyond the current 2024/25 tax year. For more information on the expected changes, please see the Significant developments section.

An individual's basis of taxation in the United Kingdom depends on both their residence and domicile position.

If an individual is resident and domiciled in the United Kingdom, they will be taxed on their worldwide income and capital gains.

If an individual is not a UK tax resident, they will generally be subject to income tax only on their UK-source income. 

Currently, if an individual is resident but neither domiciled nor deemed domiciled in the United Kingdom, they can elect to use the remittance basis of taxation. This means that, in general, their non-UK income (and capital gains) are only taxed if they are remitted to or used in the United Kingdom. Different rules apply in respect of employment income.

UK resident but non-domiciled individuals (UKRNDs) and the remittance basis of taxation

Meaning of domicile

At present, an individual’s domicile status is a key factor in determining how their non-UK income and gains are taxed whilst they are resident in the United Kingdom. The concept of domicile for UK tax purposes is distinct from citizenship, nationality, or residence and may differ from another jurisdiction’s concept of domicile. In broad terms, individuals are domiciled in the country that is their permanent or natural home or where they have a ‘settled intention to permanently reside’. An individual cannot be without a domicile, can only have one domicile at a time, and are generally regarded as domiciled in the country where they have their permanent home.

There are three classes of common law domicile that a person can acquire throughout their life:

• Domicile of origin: Generally follows that of their father at the time of their birth, if their parents were married.
• Domicile of dependency: Generally tracks changes to the domicile of their father, whilst a child is still a minor.
• Domicile of choice: Acquired on settling in another country with the intention to remain there permanently or indefinitely.

Deemed domicile

From 6 April 2017, where a non-UK domiciled individual ('non-dom') has been resident in the United Kingdom for 15 or more of the last 20 tax years, they will be deemed domiciled in the United Kingdom for all taxes. This means they will no longer be able to claim the remittance basis from this point onwards. 

Individuals who have previously claimed non-dom status will, therefore, pay tax on their worldwide income and gains, and be subject to UK inheritance tax (IHT) on their worldwide assets, in the same way as UK domiciled individuals. A child who grew up with non-UK domiciled parents in the United Kingdom can be deemed domiciled by adulthood.

It is worth noting that years spent in the United Kingdom as a student and years where an individual was tax resident in the United Kingdom under domestic law, but resident under treaty tie-break provisions elsewhere, also count towards the 15 years for deemed domicile purposes.  

Formerly domiciled residents (FDRs)

Individuals born in the United Kingdom with a UK domicile of origin who have acquired a domicile of choice elsewhere, but who return to the United Kingdom (i.e. FDRs), have a one-year grace period on resuming UK residence before their worldwide assets become subject to IHT, but they will be subject to income and capital gains tax on the arising basis for any tax year they are UK resident.

Any trusts set up by FDRs whilst they were non-UK domiciled are now within the scope of UK IHT. In addition, FDRs will not be able to benefit from the trust protections or asset rebasing as set out below.

Domicile status

His Majesty’s Revenue and Customs (HMRC) are increasingly enquiring into claims by individuals to be non-UK domiciled, especially where the individual has been resident in the United Kingdom for many years, does not retain strong ties to the country of origin, and/or cannot demonstrate the circumstances in which they will leave the United Kingdom. There are several circumstances in which domicile for general law purposes remains important, even once an individual has become deemed domiciled for tax purposes. 

The remittance basis

UK-resident individuals eligible for the remittance basis of taxation include the following:

1. Non-UK domiciled individuals who are under 18 years of age and have no UK sources of income and gains and do not remit any foreign income or gains. The remittance basis applies automatically in this case (i.e. no UK tax return is required).
2. Non-UK domiciled individuals who have unremitted non-UK income and gains on non-UK assets that are less than GBP 2,000 in the UK tax year. The remittance basis applies automatically in this case, and no claim (or tax return) is required.
3. Non-UK domiciled individuals who have been UK resident for less than seven out of the preceding nine tax years. The remittance basis must be claimed (by filing a tax return) in this case, but no remittance basis charge needs to be paid.
4. Non-UK domiciled individuals who have been UK-resident for seven or more of the preceding tax years and pay (if necessary) the annual remittance basis charge (see below). A claim is required in this case in order to benefit from the remittance basis.

If this claim is made (categories 3 and 4 above), the individual will give up any entitlement to the tax-free personal allowance (see the Deductions section) and capital gains tax (CGT) annual exemption (see the Other taxes section).

Remittance basis charge (RBC)

An individual who wishes to claim the remittance basis of taxation but has been resident in the United Kingdom in seven or more of the previous nine years and is over 18 years of age will have to pay an additional tax charge of GBP 30,000 each tax year to enable them to use the remittance basis of taxation (i.e. RBC).

The RBC is GBP 60,000 for those non-domiciled individuals who have been resident in the United Kingdom for 12 or more of the previous 14 years.

Eligible individuals in categories 1 and 2 above will be taxed on the remittance basis but will not lose their allowances and will not have to pay the RBC.

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. 

Remittances

A tax charge will arise if foreign income and gains are remitted to the United Kingdom. This tax charge is in addition to any RBC paid by the taxpayer for using the remittance basis.

The tax payable in relation to remittances will depend on what the individual has or is deemed to have remitted to the United Kingdom. 

It is recommended that care is taken prior to an individual becoming UK tax resident to structure their financial arrangements and bank accounts in such a way as to facilitate easy identification of funds that are to be brought to the United Kingdom. 

There are complex statutory ordering rules for determining how a transfer from a 'mixed' fund (i.e. an account comprising of a mixture of capital/foreign income/gains and/or from different tax years) is treated.

Example remittances

Examples of actions that may constitute a remittance are as follows (please note this list is not exhaustive):

• Transferring cash or bank balances to the United Kingdom.
• Withdrawing cash from a non-UK bank account in the United Kingdom.
• Using non-UK funds to settle a UK credit card debt.
• Using non-UK funds to settle liabilities incurred in the United Kingdom.
• Using non-UK funds to pay interest on, or repay, a loan made in the United Kingdom.
• Using non-UK funds to repay or service a loan made overseas but brought to the United Kingdom.
• Using non-UK funds to settle a non-UK credit card debt for UK expenditure.
• Bringing to the United Kingdom assets that have been purchased overseas with unremitted and untaxed income or gains.
• Generally, using non-UK funds to pay for a service provided in the United Kingdom.

• Using non-UK funds to provide collateral for a loan made overseas but brought to the United Kingdom.

As mentioned at the beginning of this section, the UK government has announced plans to abolish the current tax regime for non-UK domiciled individuals. The above sections set out the rules as currently in place in the United Kingdom, but it must be noted that these are unlikely to remain in force beyond the current 2024/25 tax year. For more information on the expected changes, please see the Significant developments section.

Alternative minimum tax

There is no alternative minimum tax in the United Kingdom.

Taxation of children

Children under 18 are taxable in their own right unless their income derives from gifts from a parent, where the amount is in excess of GBP 100 it is taxed on the parent.

Local income taxes

There are no local taxes on income in the United Kingdom.