Legal Practice Notes

FORTHCOMING CHANGES: At the 2025 Budget on 26 November 2025, the government confirmed plans for minor corrective changes to the residence-based tax regime introduced by the Finance Act 2025......

This Practice Note examines the transactions in securities ( Ti S) rules aimed at countering avoidance of both income tax and corporation tax. The Ti S regime can apply to various arrangements, notably where a company returns capital to its shareholders. Where a corporate liquidation is contemplated, advisers should also review the ‘phoenix targeted anti-avoidance rule’ outlined in Practice Note: Key tax consequences of an insolvent liquidation— Distributions (which in the main applies to solvent liquidations). For guidance on the clearance process, counteraction notices and appeals, see Practice Note: —clearances and administration. For the suggested format of a clearance request under the Ti S provisions, refer to Precedent: Clearance letter— TCGA 1992, ss 138 and 139(5), ITA 2007, s 701 and CTA 2010, s 748. Function and evolution of the transactions in securities legislation The Ti S measures were enacted in 1960 to tackle...

This Practice Note covers the: clearance procedure, and administrative rules (enquiries, counteraction notices and appeals) relating to the anti-avoidance regime for transactions in securities ( Ti S). There are separate Ti S rules depending on whether the potential avoidance concerns income tax or corporation tax. The procedure a taxpayer must follow to obtain a clearance is the same under both regimes, but the process HMRC must follow to counteract a tax advantage differs. For guidance on the practicalities of drafting and submitting a clearance, see Precedent: Clearance letter— TCGA 1992, ss 138 and 139(5), ITA 2007, s 701 and CTA 2010, s 748. For an explanation of the circumstances in which the Ti S rules apply, see Practice Note: Transactions in...

The UK’s rules on hybrid and other mismatches The UK’s rules on hybrid and other mismatches (described in this Practice Note as the hybrid rules) have been in effect since 1 January 2017 and are intended to neutralise tax mismatches arising from how a hybrid instrument or a hybrid entity is treated for tax purposes. Although the hybrid rules generally apply to cross-border dealings spanning two or more jurisdictions, they can also extend to arrangements that are entirely domestic within the UK. In particular, the hybrid rules address: deduction/non-inclusion mismatches ( D/ NI mismatches), ie where a payment under a hybrid mismatch arrangement is deductible in the payer jurisdiction for tax purposes but not included in the taxable income of the payee or a related party investor double deduction cases ( DD cases), ie where a payment under a hybrid mismatch arrangement gives rise to more than one tax...

Temporary non-residence—statutory anti-avoidance rule The statutory test for non-residence contains a general anti-avoidance provision intended to remove tax advantages that could otherwise be secured if an individual is non- UK resident only for a short spell. This rule is set out in paragraphs 109–144 of Schedule 45 to the Finance Act 2013 ( FA 2013). As the statutory test applies separately to each tax year, it is feasible for someone to be non- UK resident for one, or a small number, of tax years even though they are UK resident both beforehand and afterwards. The rule aims to stop individuals engineering a brief period of non- UK residence and, in that window, realising sizeable income or gains that would not be taxed in the UK because of their residence status. It therefore targets sources where the emigrating individual can control the timing of receipts, and income and gains that...

Tax elected fund ( TEF) A ‘tax elected fund’ ( TEF) is an authorised investment fund ( AIF) that has obtained TEF status by applying successfully to HMRC. Mirroring the PAIF framework (available to certain AIFs that hold property), a dedicated set of tax rules for TEFs aims to shift the incidence of taxation from the fund vehicle to the investor in practice. Consequently, TEF investors are taxed as if they had owned the underlying assets outright themselves. Apart from particular provisions found in the TEF rules, TEFs otherwise remain subject to the tax treatment that generally applies to AIFs in general terms. Brought in during 2009, the TEF regime sought to enhance the tax efficiency of funds investing in a mixed portfolio of assets—this is achieved as the TEF structure allows different categories of income to be streamed to investors in effect. The TEF...

This Practice Note is about: the anti-avoidance rule in section 137 of the Taxation of Chargeable Gains Act 1992 ( TCGA 1992), which: prevents a shareholder from obtaining relief under TCGA 1992, s 135, that is, where the shareholder exchanges shares or loan notes in company A for shares or loan notes issued by company B. For more detail on the relief available under TCGA 1992, s 135, see Practice Note: Share for share exchanges and qualifying corporate bonds ( QCBs); and prevents a shareholder from obtaining relief under TCGA 1992, s 136, that is, where, as part of a scheme of reconstruction, the shareholder’s shares in company A are retained, cancelled or extinguished and company B issues shares or loan notes to the...

This Practice Note outlines the principal practical applications of unauthorised unit trusts ( UUTs) and highlights recurring tax considerations in those settings. Unit trusts chiefly operate as investment fund vehicles. As set out in Practice Note: Taxation of unauthorised unit trusts, a UUT is a unit trust that has not been approved by the Financial Conduct Authority under the Financial Services and Markets Act 2000 ( FSMA 2000). UUTs are most frequently deployed as property fund vehicles, though they can also serve as trading funds and as ‘pension fund pooling schemes’. This Practice Note covers: the use of UUTs as property fund vehicles UUTs contrasted with other non- or lightly regulated property fund vehicles the use of UUTs as trading funds, and a short overview of UUTs as pension fund pooling schemes For the tax position of UUTs and their...

This Practice Note explains the UK tax position for investors in a standard UK private equity fund in relation to their share of the fund’s profits. Summary of tax treatment A key reason limited partnerships are the preferred vehicle for private equity funds is their tax transparency. English and Scottish limited partnerships are transparent for income tax, capital gains tax ( CGT) and corporation tax. This look-through approach allows investors, as limited partners, to pool capital without creating an additional layer of tax. Accordingly, income and capital gains (and, where relevant, losses) arising within the fund are treated as accruing to the partners as though they held the underlying investments themselves. This is significant because, as with any collective investment vehicle, the objective is for an investor’s post-tax return to mirror, as closely as possible, the after-tax outcome they would have achieved by investing directly in the...

Stop Press Section 49 and Schedule 7 of the Finance Act 2026 update the UK’s domestic rules on UK permanent establishments of non‑ UK companies, applying for accounting periods (for corporation tax) and tax years (for income tax) that begin on or after 1 January 2026. The provisions refine what counts as a UK permanent establishment and the framework for attributing profits to such an establishment so that, in both respects, they more closely reflect the OECD Model Tax Convention. They also revise how the investment manager exemption applies. For further detail, see News Analysis: Budget 2025— Tax analysis — International. A company that is not UK‑resident but trades in the UK through a permanent establishment ( PE) will be within the charge to corporation tax on the profits referable to its UK activities. This Practice Note explains the method by which the PE’s...

Restrictive covenants or undertakings These are promises employees make during employment or on leaving, limiting their behaviour or activities. Following historic debate over whether payments for such covenants or undertakings fell within general earnings under the relevant income tax legislation, a dedicated charging provision ensures that any sums connected with current, future, or past employments or offices are treated as taxable earnings... Tax treatment Section 225 of the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003) brings into charge payments made to an individual for agreeing to restrictive covenants......

For UK tax, an overseas vehicle can be treated as either transparent or opaque. This Practice Note sets out how that characterisation affects the taxation of the entity itself and of its members. The classification directly shapes how tax applies to both the entity and its members. UK legislation gives limited guidance on whether an overseas entity should be viewed as transparent or opaque. For the relevant case law and HMRC’s position on classification, see Practice Note: Entity classification case law and HMRC’s interpretation, and Classifying overseas entities for UK tax purposes—checklist. Taxation of overseas entities and their members Transparent overseas entities Where an overseas entity is treated as transparent, UK‑resident members (for example, shareholders, beneficiaries and partners) are charged to tax as the entity’s profits or gains arise. Consequently, from a direct tax standpoint, transparent entities generally operate as tax‑neutral conduits for members: the entity is not...

This Practice Note offers a concise overview of the principal UK taxes that can affect individuals who are not UK resident, namely: income tax capital gains tax ( CGT) inheritance tax ( IHT) value added tax ( VAT) national insurance contributions ( NICs) the annual tax on enveloped dwellings ( ATED) stamp duty land tax ( SDLT) As a general rule, UK tax law operates within territorial boundaries, meaning either the item taxed must arise from a UK source, or the person charged is resident in the UK. Unlike many countries, the UK tax year does not follow the calendar year; it runs from 6 April to 5 April. Non-residence for tax purposes An individual is treated as non-resident for UK tax purposes if they meet the non-resident conditions of the statutory residence test for periods after 5 April 2013 (see Practice Note: Residence after 5 April 2013). For the position before 6 April 2013, see...

Stop Press: Section 49 and Schedule 7 of the Finance Act 2026 amend the UK’s domestic legislation concerning UK permanent establishments of non- UK companies, taking effect for accounting periods (in respect of corporation tax) or tax years (for income tax) that begin on or after 1 January 2026, respectively. In each case, the measures adjust both the definition of a UK permanent establishment and the rules for attributing profits to a UK permanent establishment, so as to bring them nearer into line with the OECD Model Tax Convention, from that date and thereafter in UK law. Section 46 and Schedule 5 of the Finance Act 2026 provide for the abolition of the DPT regime and its replacement by the ‘unassessed transfer pricing profits’ ( UTPP) rules, effective for accounting periods commencing on or after 1 January 2026. HMRC has inserted a new chapter within the HMRC...

This Practice Note was initially prepared by Owen Clutton of Macfarlanes LLP and is now overseen by Lexis®PSL Private Client. Why does the residence of trusts matter? As with the residence of individuals, income tax and capital gains tax operate within territorial boundaries. In broad terms, UK-resident trustees are taxed on worldwide income and gains, whereas non-resident trustees are taxed solely on UK-source income and gains linked to the UK—see Practice Note: UK taxation of offshore trusts—income tax and capital gains tax. In addition, particular anti-avoidance frameworks—such as the transfer of assets abroad code and the charging rules under sections 86 and 87 of the Taxation of Chargeable Gains Act 1992 ( TCGA 1992)—apply only to trusts that are non-resident—see Anti-avoidance (and international private client)—overview and Practice Notes: Taxation of UK resident settlors of offshore trusts from 6 April 2025 and Taxation of UK resident...

Transfers of IP in M& A—taxation issues IP can be moved in corporate transactions either via a share sale in the company that owns the rights, or as part of a transfer of a business’s trade and assets (whether out of a company, or by individual sellers where the business was unincorporated). The tax position will differ based on the nature of both the seller and the buyer. For tax, IP has a defined scope. For guidance on what does or does not qualify as IP for tax, see Practice Notes: What is an intangible fixed asset? and Excluded intangible fixed assets. The UK broadly adopts two approaches to taxing IP deals: the corporate intangibles tax rules: these apply to IP created or acquired by a company on or after 1 April 2002 (unless the asset was acquired before 1 July 2020 from a related party that held the...

Introduction and context This Practice Note provides a summary of the taxation of internationally mobile employees in relation to securities options ( Options) charged to tax within Chapter 5 of Part 7 of the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003). On 30 October 2024, as part of the Autumn Budget 2024 announcements, the Labour government confirmed that it would proceed with the former Conservative government’s plans to abolish the remittance basis of taxation and replace it with a residence‑based regime, scheduled to commence on 6 April 2025. These changes were enacted through Finance Act 2025 ( FA 2025) and have also affected, in particular, the availability and operation of overseas workday relief. This Practice Note reflects the current position under the new tax regime; however, the previous regime is still relevant for Options granted before 6 April 2025, because any...

FORTHCOMING CHANGE relating to abolition of the non-dom regime and introduction of a residence-based regime: In the Autumn Budget 2024, the government signalled it will advance the previous administration’s proposal to scrap the remittance basis of taxation for non‑ UK domiciled individuals and bring in a residence‑based regime, taking effect from 6 April 2025. For details on these changes, see Practice Note: The abolition of the remittance basis of taxation from 2025–26 and News Analyses: Autumn Budget 2024— Private Client analysis— International and Autumn Budget 2024—reforming the taxation of non-doms. This Practice Note considers how UK income tax applies to investors in open‑ended investment companies ( OEICs) and authorised unit trusts ( AUTs). Throughout, these investors are termed ‘individual investors’. Be aware that distinct provisions, not covered here, can apply to investors acting as financial traders. Non‑ UK residents might be taxed on income and gains in their own...

STOP PRESS: Abolition of non-dom regime and remittance basis of taxation from 2025–26 The Finance Act 2025 has scrapped the remittance basis and, from 6 April 2025, substitutes a residence-based system. The reforms bring in a new Foreign Income and Gains ( FIG) regime and revise the rules for overseas workday relief. For detailed guidance on these updates, refer to Practice Note: The abolition of the remittance basis of taxation from 2025–26. The UK operates a comprehensive framework for taxing employment income. This Practice Note explains the core income tax principles for employment income and the way they attach to earnings. Keep in mind that any form of remuneration connected to an individual’s employment can give rise to income tax and National Insurance contributions ( NICs) liabilities (for NICs, potentially affecting both employer and employee), together with possible...

If a company undertakes a share buyback itself, or via an intermediary acting as the company’s agent, the usual tax position for a UK-resident shareholder is that the transaction is regarded, for UK tax purposes at the time of repurchase, as both: a disposal of their shares for chargeable gains purposes, and the receipt of an income distribution Beyond that, the precise treatment differs slightly according to whether the shareholder is an individual or a corporate owner. For further detail on these differences, see Practice Notes: Tax consequences of share buybacks—main rules and Tax consequences of share buybacks—calculating the income capital split. However, special provisions can apply to repurchases by certain unquoted companies. These rules can prevent any of the consideration from being treated as a distribution in the hands of a particular UK-resident shareholder. Under those provisions, the whole sum received by that...