Legal Practice Notes

This Practice Note deals with the chapter 9 finance company exemptions under the controlled foreign company ( CFC) rules. Under Chapter 9 of Part 9A of the Taxation ( International and Other Provisions) Act 2010 ( TIOPA 2010), groups may elect into a regime that fully or partly relieves certain non‑trading finance profits of CFCs from the CFC charge. The purpose of the regime is to allow multinational groups to use a finance company located outside the UK to provide intra‑group loans to other non‑ UK companies without suffering a substantial UK tax charge. These finance profit exemptions operate by excluding specified profits of the CFC from the charge, rather than exempting the CFC itself......

When does the chapter 5 non-trade finance gateway need to be considered? This Practice Note examines the chapter 5 gateway within the controlled foreign company ( CFC) rules. As set out in Practice Note: meaning of gateways, a CFC tax charge arises only where profits pass into the CFC charge gateway. A CFC’s assumed total profits ( ATP) will enter that gateway solely if they first satisfy the chapter 3 gateway and/or one of the gateways in chapters 4–8 of Part 9A of the Taxation ( International and Other Provisions) Act 2010 ( TIOPA 2010). Accordingly, chapter 5 is considered only after those prior gateways have been addressed......

ARCHIVED This Practice Note is archived and no longer maintained. It addresses the former CFC rules that applied until the first accounting period of a CFC beginning on or after 1 January 2013. For practice notes on related topics under the rules in force from that date, see: CFC rules—calculating the CFC tax charge— Meaning of assumed taxable total profits and assumed total profits and CFC rules—the corporation tax assumptions. Within the CFC regime, a company’s chargeable profits must be calculated in order to: apply the lower level of taxation test when determining whether a company is a CFC (see: Old CFC rules — lower level of taxation) assess whether a CFC qualifies for the de minimis exception where chargeable profits are below £50,000, and establish the amount of any CFC charge This note explains the assumptions and requirements for computing a company’s chargeable profits. For...

This Practice Note deals with the exempt period exemption from a charge under the controlled foreign company ( CFC) rules. A company may fall within the CFC regime for an accounting period, but a CFC tax charge only arises where: the CFC has chargeable profits that pass the gateways, and none of the exemptions under the CFC rules apply There are two forms of exemption: Entity level exemptions — these remove the CFC from the CFC rules entirely for that accounting period. The relevant exemptions are: the exempt period exemption, which is explained in this Practice Note the excluded territories exemption the low profits exemption the low profit margin exemption the tax...

This Practice Note sets out the low profit margin exemption from a charge under the controlled foreign company ( CFC) rules. Even where a company is a CFC for an accounting period, a CFC tax charge will arise only if both: the CFC has chargeable profits that pass through the gateway; and none of the exemptions from the CFC rules apply. There are two types of exemption: entity level exemptions — these remove the CFC from the CFC rules entirely for that accounting period and are: the low profit margin exemption, which is explained further in this Practice Note the exempt period exemption the excluded territories exemption the low profits exemption the tax...

This Practice Note sets out, for calculation purposes, the corporation tax assumptions that must be applied when determining: the assumed taxable total profits and assumed total profits of the CFC the corresponding UK tax within the tax exemption rules, and the creditable tax of the CFC In turn, these assumptions are integral to the operation of the CFC rules and to the calculation of any resulting CFC charge. The corporation tax assumptions For these purposes, the assumptions are grouped into two broad categories: assumptions concerning the CFC itself, and assumptions about the application of the corporation tax rules to the CFC The assumptions are that: the CFC is: resident in the UK not a close company, and not a member of a group or...

Low profits exemption This Practice Note outlines the low profits exemption from a charge under the controlled foreign company ( CFC) rules. Even where a company is a CFC for an accounting period, a CFC tax charge will only arise if: the CFC has chargeable profits that pass through the gateway, and none of the exemptions from the CFC rules apply There are two types of exemption: entity level exemptions—these remove the CFC from the CFC rules entirely for that accounting period......

This Practice Note sets out the meaning of control for the purposes of the controlled foreign company ( CFC) rules. This point matters because, for a company to be a controlled foreign company (a CFC), it must be ‘controlled’ by persons resident in the UK......

FORTHCOMING CHANGE relating to the tax treatment of carried interest: After a call for evidence on the tax treatment of carried interest run over summer 2024, the Autumn Budget 2024 confirmed the government’s plan to introduce an updated carried interest tax regime from 6 April 2026, positioned within the income tax system with bespoke provisions to reflect the distinctive nature of this remuneration. A consultation then examined potential new eligibility conditions for entry to the regime, with the government’s response issued in June 2025. Draft legislation for the regime was released on 21 July 2025 for inclusion in Finance Bill 2026. The rules will apply to carried interest arising on or after 6 April 2026. These measures were affirmed at the 26 November 2025 Budget, which also noted amendments to the draft to incorporate stakeholder feedback. Pending commencement of the new...

ARCHIVED: This Practice Note is archived and not maintained. Brexit: at 11 pm ( GMT) on 31 December 2020, the transition/implementation period following the UK’s withdrawal from the EU came to an end. At that point (referred to in UK law as ‘ IP completion day’), key transitional arrangements ceased and significant changes began across the UK’s legal regime. Carbon budgets The Climate Change Act 2008 established a legally binding aim for the UK to cut greenhouse gas ( GHG) emissions by 80% against 1990 levels by 2050. To support progress towards the 2050 objective, carbon budgets are set for five-year periods. See Practice Note: Climate change—emissions targets, carbon budgets and net zero. Percentage reduction below the 1990 base year: 1st carbon budget (2008–12): 23% 2nd carbon budget (2013–17): 29% 3rd carbon budget (2018–22): 35% by 2020 4th carbon budget...

What is the UK CBAM? The UK CBAM is a forthcoming charge, scheduled by the UK government for implementation on 1 January 2027, applied to the carbon both released and embedded in imports into the UK of specified ‘products’ (set out by a list of commodity codes) whose production is highly carbon‑emission intensive. In this context, ‘products’ are goods, articles or substances manufactured or refined for sale. Products can be raw materials, energy (such as electricity or heat), component parts, or finished goods. Certain products brought into the UK from countries with a lower, or no, ‘carbon price’ will be required to pay the charge. The liability imposed by the UK CBAM will depend on the greenhouse gas ( GHG) emissions intensity embodied in the imported products and the gap between the carbon price applied in the country of origin (if any) and the carbon price that...

FORTHCOMING CHANGE relating to call for evidence on tax support for entrepreneurs: At Budget 2025, the government issued a call for evidence (deadline: 28 February 2026) examining how existing tax incentive programmes function and exploring ways to bolster support for entrepreneurs. It reviews the impact of current reliefs and potential avenues for additional assistance to entrepreneurs within the tax system. The exercise concentrates in part on the venture capital schemes and on enterprise management incentives. It also considers investors’ relief and, in particular, invites views on how the tax framework can facilitate reinvestment by successful entrepreneurs, including the purpose and effectiveness of business asset disposal relief. Business asset disposal relief ( BADR), previously known as entrepreneurs’ relief for tax years before 2020–21, is a capital gains tax ( CGT) relief intended to encourage people to found and grow their own...

Conversion of a company's securities A company's securities conversion is to be regarded as a tax-neutral reorganisation. It is viewed as entailing neither a disposal of the existing securities nor an acquisition of those held following the conversion. For the taxation of chargeable gains, the security holder's interest in the company before and after the conversion is treated as the same asset. Accordingly, no new asset is treated as acquired, and no old asset as disposed of for tax purposes. Such a conversion concerns a single company and does not involve issuing additional shares or securities in respect of an existing holding, nor the alteration of rights attached to a class of shares. It applies to securities only and does not generally extend to shares. A securities conversion leaves the company's overall ownership unchanged. This reflects the position under a basic...

The rules dealing with depreciatory transactions and dividend stripping are anti-avoidance provisions. These provisions counter attempts to extract value artificially from a company by either: transferring assets between group members otherwise than at market value; or paying dividends from profits realised in periods before the relevant shares were acquired, which depress the value of that company’s shares or securities. Without such rules, value could be moved from one asset to another to overstate allowable losses on the eventual disposal of shares (or securities) in the company whose asset base has been stripped. Most depreciatory dealings arise between companies grouped for chargeable gains purposes, as a relationship of control is typically required—and exercised—to ensure that a non-arm's length transaction proceeds. The rules are also extended to apply in the same way to certain dividend stripping distributions by a company to a corporate...

FORTHCOMING CHANGES At Budget 2025, the government announced measures to be legislated in Finance Bill 2026: A reduction in the writing‑down allowance rate for main pool plant and machinery from 18% to 14%, effective from 1 April 2026 for corporation tax and 6 April 2026 for income tax—affecting companies and unincorporated businesses with main rate expenditure that does not qualify for, or predates, first‑year allowances such as the super‑deduction and full expensing. A new 40% first‑year allowance for qualifying main rate expenditure incurred from 1 January 2026, with fewer restrictions than other FYAs—primarily assisting spend not otherwise covered by the £1m annual investment allowance or existing FYAs (including full expensing). It applies to all businesses and includes assets used for leasing (excluding overseas leasing), while expenditure on cars and second‑hand assets is excluded. An extension of the 100% green...

FORTHCOMING CHANGES: At Budget 2025, the government outlined measures to be enacted via Finance Bill 2026: A reduction in the writing-down allowance rate for main pool plant and machinery from 18% to 14%, taking effect on 1 April 2026 for corporation tax and 6 April 2026 for income tax—affecting both companies and unincorporated businesses with main rate pools, including spend that does not qualify for, or predates, FYAs such as the super-deduction and full expensing. A new 40% first-year allowance for qualifying main rate expenditure incurred from 1 January 2026, with fewer limitations than other FYAs—principally advantageous where the £1m AIA or existing FYAs (such as full expensing) are not available. It will apply to all businesses and include assets used for leasing (excluding overseas leasing); cars and second-hand assets are excluded. An extension of the 100% green...

Sukuk al ijara Sukuk (singular: ‘sakk’) are a Shari’a-compliant financing mechanism, known as Islamic certificates or bonds. For details, see Practice Note: Sukuk—investment bond arrangements and their UK direct tax treatment— What are sukuk? Where the qualifying criteria are satisfied, sukuk can access the UK tax regime that applies to alternative finance investment bond ( AFIB) structures. For guidance on those provisions, see Practice Note: Sukuk—investment bond arrangements and their UK direct tax treatment. Sukuk al ijara represents a specific category of sukuk. In a sukuk al ijara, the bond asset owned by the bond-issuer (the statutory term for the sukuk issuer) on trust for the sukuk investors (the certificate holders) is frequently real property. The issuer secures an interest in that property through a sale and leaseback—the sale and leaseback being the ijara. For reading, see Practice Notes: Sukuk al ijara—tax reliefs for sale and...

Anti-avoidance rules apply to both plant and machinery allowances and to structures and buildings allowances ( SBAs), designed to stop individuals or entities securing a tax benefit through arrangements driven by tax motives. For SBAs, the regime works by making adjustments that are just and reasonable; refer to Practice Note: Structures and buildings allowances. By contrast, the plant and machinery anti-avoidance code, contained in Chapters 16A and 17, Part 2 of the Capital Allowances Act 2001 ( CAA 2001), is wider in scope, and the balance of this Practice Note considers key elements within those provisions. Capital allowances for plant and machinery are subject to both general and targeted anti-avoidance measures. The general rules ensure that assets cannot be transferred, for instance between connected parties or in any scenario where the sole or primary purpose is not commercial, in a manner that...

Updated in December 2025 Introduction The UK has long been a preferred destination for global companies setting up their first foothold in Europe. It sustains robust trading relationships with most nations worldwide—situated within Europe, yet well placed between US and Asian time zones. While geographically European, the UK is no longer part of the European Union, and organisations planning UK operations should recognise the growing legal and regulatory divergence from EU Member States. The UK contains three distinct jurisdictions: England and Wales, Scotland, and Northern Ireland. In many respects, the same or closely aligned laws apply across these jurisdictions. Nevertheless, there are notable distinctions, particularly regarding local government regulation, property transfers, and judicial frameworks. This guide concentrates on the jurisdiction of England and Wales. Further local guidance will be required if you intend to operate in Scotland or Northern Ireland. There are multiple options for...

The Budget The Budget is a Parliamentary occasion where the Chancellor of the Exchequer delivers key statements on the national economy. It sets out the government’s tax intentions for the next year, and at times for later periods. Most measures due in the following tax year will already have been announced and consulted on in advance. Fresh announcements may arrive on Budget day—some, mainly anti-avoidance steps, take effect immediately. Others are scheduled to commence from a future date. The Budget also precedes the presentation of the Finance Bill to Parliament. In most years there is a single Finance Bill, though in some—such as those featuring a general election—there have been two or even three, as outlined below. Income tax and corporation tax are annual charges, so they can only be levied for a year (a tax year for income tax, or a financial year for...