Legal Practice Notes

FORTHCOMING CHANGES: At Budget 2025, the government signalled measures to be legislated via Finance Bill 2026: Cutting the main pool writing-down allowance on plant and machinery from 18% to 14%, effective 1 April 2026 for corporation tax and 6 April 2026 for income tax. This affects both companies and unincorporated businesses with main rate pools, including spend not eligible for—or incurred before—first-year allowances such as the super-deduction and full expensing. Introducing a new 40% first-year allowance for qualifying main rate expenditure incurred from 1 January 2026, with fewer restrictions than other FYAs. It is expected to be most valuable where costs do not qualify for the £1m annual investment allowance or existing FYAs (e.g. full expensing). Open to all businesses, it covers assets used for leasing (excluding overseas leasing) but excludes cars and second-hand assets. Extending by one year the 100% green...

Income tax applies to any person on specified types of income, with amounts attributed to particular tax years to determine the rate due and liability payable. The legislative basis for income tax Most of the detailed rules on income tax are contained in: Income Tax ( Earnings and Pensions) Act 2003 Income Tax ( Trading and Other Income) Act 2005 Income Tax Act 2007 Yet these provisions only supply the framework for charging income tax. The power to levy it is granted by parliament each and every year. Each Finance Act includes a clause expressly confirming that income tax is charged for the relevant tax year. A 'tax year' runs from 6 April to the following 5 April and is typically referred to and described using both calendar years; for example, the '2018–19 tax year' covers 6 April 2018 to 5 April 2019. Who is chargeable to income...

The main types of income are: employment income pension income social security income trading income property income savings and investment income miscellaneous income Traditionally, applying income tax required first identifying the income’s source and then confirming that it fell within one of the Schedules specified in the Income and Corporation Taxes Act 1988 ( ICTA 1988). The Act initially arranged the categories of income liable to income tax into six historic Schedules: A, B, C, D, E and F. In 1996, the Tax Law Rewrite Project was launched to recast primary direct tax legislation. Following its completion, the Schedules were abolished for both income tax and corporation tax, with the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003), the Income Tax ( Trading and other Income) Act 2005 ( ITTOIA 2005) and the Income Tax Act 2007 ( ITA...

ARCHIVED : This Practice Note is archived and is no longer maintained. The Finance Act 2016 introduced significant changes to how individuals are taxed on distributions. This note outlines the rules that applied to distributions made before 6 April 2016 by UK‑resident companies to individuals who are UK resident and domiciled during that period. For details on the tax treatment of distributions made before 6 April 2016 by non‑ UK resident companies, see the Practice Note: How are individuals taxed on distributions received from non‑ UK resident companies prior to 6 April 2016? [ Archived] and, for further information on the tax treatment of distributions made on or after 6 April 2016, see the Practice Note: How are individuals taxed on distributions received from companies?......

ARCHIVED : This Practice Note is archived and is no longer maintained. Finance Act 2016 introduced significant alterations to how individuals are taxed on distributions. It outlines the rules relevant to distributions made before 6 April 2016 by non- UK resident companies to individuals who are UK resident and domiciled. For details of the tax position for distributions made before 6 April 2016 by UK resident companies, see Practice Note: How are individuals taxed on distributions received from UK resident companies prior to 6 April 2016? [ Archived], and for information on the tax treatment of distributions made on or after 6 April 2016, see Practice Note: How are individuals taxed on distributions received from companies?......

General principles The trustees are, for tax purposes, regarded collectively as a single person, distinct from the individuals who serve as trustees from time to time. An interest in possession ( IIP) means a beneficiary has an immediate right to the trust income as it arises. That income belongs to the beneficiary, and the trustees lack authority to retain it, save to meet proper expenses. Where trust income does not fall within the definition of accumulated or discretionary income in section 480 of the Income Tax Act 2007 ( ITA 2007), it is treated as the income of ‘other persons’ and taxed at the basic and dividend rates. Ultimately, the income is assessed on the beneficiary at their personal rates, irrespective of when, and even whether, it is actually paid to them. Nevertheless, the trustees are liable to income tax on income arising from trust...

The main charge on earnings and the residual benefits charge When an employee or director acquires, holds, or disposes of shares or other securities by reason of their employment, one or more income tax charges on employment income may apply. These key charges relate to: earnings—the Weight v Salmon charge residual benefits employment-related securities notional payments giving rise to income tax: payable by the employer through pay as you earn ( PAYE), and not repaid by the employee to the employer within 90 days after the close of the relevant tax year (referred to in this note as notional payments not made good) The charges on earnings and on residual benefits are outlined below. They are especially pertinent where an...

In general terms, a life tenant has the right to the income generated by an interest in possession ( IIP) trust, and that income is charged to tax at the life tenant’s marginal rates. This applies whether the trustees collect the income and remit it to the life tenant, or where the income is ‘mandated’ so the life tenant is paid it straight from the source. While the ultimate income tax outcome is identical, the steps for reporting the income and settling any tax vary, depending on the route by which the income is received. The source of the beneficiary's income For a life tenant of an IIP trust, the income arises from the trust assets themselves, not from the enforceable right against the trustees to run the trust correctly. Consequently, for income tax, the life tenant’s income sources mirror the trust’s...

Income tax liabilities are most often prepared by an individual’s tax adviser (typically with a software package) or by HMRC after a tax return is submitted, rather than by a tax lawyer, although lawyers handling trust administration will commonly compute a trust’s income tax too. It is, however, valuable to understand how the liability is determined so you can advise a client on the effect a particular course of action or decision may have on their tax position, for example the possibility of claiming loss relief. There are seven stages to calculating a person’s income tax liability for a tax year: step 1—calculate total income step 2—deduct tax reliefs step 3—deduct allowances step 4—calculate the tax at applicable rates step 5—add the tax amounts together step 6—deduct tax reducers step 7—add additional tax...

The Offshore bonds and other foreign policies Practice Note sets out what constitutes an offshore bond and a foreign policy, and outlines the potential tax liabilities. It also focuses on several niche topics: cluster policies (also called segmented policies), personal portfolio bonds ( PPBs), the treatment of certain legacy policies, and how the foreign policy regime dovetails with the remittance basis and temporary non-residence provisions... Cluster (or segmented) policies In place of one insurance contract, certain providers supply a bundle of policies to a holder—commonly called a ‘cluster’ or ‘umbrella’ of smaller segments. Each policy, or segment, stands as a separate insurance contract. At inception every segment is the same. They may carry an identical base number with a suffix; for example, XP234567/1–100, where 1–100 denote the discrete segments. A single policy document may cover the whole cluster. UK insurers generally can offer...

This Practice Note explains the specific income tax and capital gains tax ( CGT) treatment of trusts for disabled persons. For guidance on making a vulnerable person election for income tax and CGT, see Practice Note: Taxation of trusts for disabled persons—vulnerable person election. Reform Following HMRC’s 2013 consultation, the definition of a disabled person was widened. The qualifying tests now include individuals receiving Personal Independence Payments for care or mobility at either rate, and those who get the higher rate of the Disability Living Allowance mobility component. An earlier inconsistency that granted a CGT-free uplift on the death of the disabled person for interest in possession trusts, but not for discretionary trusts, has been resolved so that both structures now obtain the uplift. Rules have been aligned across the tax system. For trusts created after 8 April 2013, trustees may distribute only the lower of 3% of the...

STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime Finance Act 2025 ( FA 2025), which received Royal Assent on 20 March 2025, legislates to remove the remittance basis of taxation and to introduce a residence-based system from 6 April 2025. FA 2025 also moves away from domicile as the primary determinant of inheritance tax liability. Other updates include revisions to the rules for establishing excluded property status, the ending of protected settlements status for offshore trusts, and alterations to overseas workday relief. For further detail on these reforms, see Practice Notes: The abolition of the remittance basis of taxation from 2025–26 and A new residence-based regime for IHT from 2025–26. See also: Finance Bill Tracking Service: Key dates ( Finance Bill 2025) and Finance Act 2025. ARCHIVED: This archived Practice Note records the law as it stood up to 6 April 2025, and...

This Practice Note offers practical, hands-on guidance on the UK’s import control regime. Accordingly, it sets out usable advice on the relevant and applicable legislation, and clearly identifies the categories of goods that need an import licence. Introduction Import controls are restrictions a state may place on goods entering its territory at the border from abroad. They may exist for many reasons, including ensuring goods are safe, meet certain quality thresholds and comply with specified standards. In the UK, the Imports, Export and Customs Powers ( Defence) Act 1939 empowers the Secretary of State, by order, to forbid or manage the importation of particular goods. As the Act was enacted in wartime, it barred all imports that were not explicitly beneficial to the war effort. Much later, the Import of Goods ( Control) Order 1954 was issued. That Order preserved the Act’s broad ban on...

Background to the UK transposition of the Mortgage Credit Directive The Mortgage Credit Directive 2014/17/ EU ( MCD) came into force in the UK on 21 March 2016 and covers both first and second charge mortgages. HM Treasury gave effect to the MCD by passing legislation, including the Mortgage Credit Directive Order 2015, SI 2015/910 (the MCD Order), and by amending the Financial Services and Markets Act 2000 ( Regulated Activities) Order 2001 ( RAO), SI 2001/544. At the same time, the Financial Conduct Authority ( FCA) implemented the MCD through rules and guidance in the Mortgages and Home Finance Conduct of Business sourcebook ( MCOB). Table setting out UK transposition of the Mortgage Credit Directive Based on HM Treasury’s March 2015 publication, the table below is intended to indicate where the provisions transposing MCD requirements are located within the MCD Order, the RAO and MCOB, and to...

Originally produced in partnership with Navraj Singh Ghaleigh, Senior Lecturer in Climate Law, University of Edinburgh ARCHIVED: This Practice Note has been archived and is not maintained. By traded volume, the EU Emissions Trading System ( EU ETS) is the largest emissions trading scheme globally. It operates on a cap-and-trade model: a fixed ceiling is imposed on the total greenhouse gas ( GHG) emissions from all participating sectors covered by the scheme, and that overall limit is translated into tradable allowances. For more information, see Practice Notes: Emissions trading—overview EU ETS Directive 2003/87/ EC—snapshot EU Emissions trading system—outline EU ETS Phase III UK implementation—legal framework, key obligations and administration [ Archived] EU ETS Phase III UK implementation—allocation of allowances and auctioning [ Archived] EU ETS Phase III UK implementation—compliance, enforcement and appeals [ Archived] When is a greenhouse gas permit required under Phase III EU ETS? [...

The Creative Worker route The Creative Worker route allows individuals in the creative sector to take up temporary work or performances in the UK. To use this pathway, an applicant must hold sponsorship from a Home Office-approved sponsor specific to this route, with the list of approved sponsors available on GOV. UK. Applications for permission to enter (including under the ‘ Creative Worker concession’), electronic travel authorisation where applicable, entry clearance, and permission to stay may only be submitted after the sponsor has assigned the migrant a Certificate of Sponsorship ( Co S); both sponsor and worker should factor these requirements in from the very start. For more guidance, see Practice Note: Sponsoring a Creative Worker. Under the pre‑ Brexit Points- Based System, up to 1 December 2020, creative workers and sportspersons coming for short-term stays fell within Tier 5 ( Creative and...

ARCHIVED: This Practice Note has been archived and is not maintained. This analysis reviews the key amendments to the Immigration Rules (the Rules) contained in HC 590 that are relevant to business advisers. The Statement of Changes was published on 14 March 2024, accompanied by an Explanatory Memorandum ( EM). Subscribers can swiftly navigate to particular headings in this Practice Note using the Table of Contents bar on the left. For help on interpreting a Statement of Changes in Immigration Rules, see Practice Note: Sources of immigration law and their legal status. The Statement chiefly delivers: the principal Skilled Worker reforms; the initial uplift to the minimum income requirement for family visa applications, announced in the Home Secretary’s five-point plan for Legal Migration in December 2023; an update to the Standard Occupation Classification ( SOC) code system to SOC...

This review examines the principal modifications to the Immigration Rules (the Rules) contained in HC 2631, outlining their scope and effect and context within the wider framework for practitioners and applicants alike. Published on 9 September 2019 with an Explanatory Memorandum, it addresses: The changes fall into distinct areas, summarised below of these measures. amendments to the EU Settlement Scheme (the Scheme), including: expanding arrangements for relatives of EEA nationals who have since naturalised as British, as well as for those of Irish nationals, respectively revisions concerning the measures for relatives of UK citizens returning from an EEA Member State or Switzerland on their return allowing applicants to seek administrative review where their Scheme status was cancelled at the border, or where they were...

This note reviews the principal amendments to the Immigration Rules (the Rules) introduced by HC 1849. HC 1849 was issued on 20 December 2018 together with an Explanatory Memorandum. The amendments concern applications under the EU Settlement Scheme (the Scheme) and include: changes to the eligibility criteria for administrative review changes to the evidential requirements for family members changes to the suitability criteria Readers can navigate swiftly to specific sections via the Table of Contents panel on the left side of the screen. Implementation Unless stated otherwise, the amendments apply to applications lodged on or after 21 January 2019, when the Scheme reopens to certain members of the public. Applications submitted between 1 November 2018 and 22 December 2018 (the second phase of the pilot scheme) will be determined in line with the Rules that were in force on 21 December...

Analysis This review examines the key amendments to the Immigration Rules (the Rules) contained in HC 719 of relevance to business advisers. The Statement of Changes was laid on 18 October 2022, accompanied by an Explanatory Memorandum ( EM). The written Ministerial Statement by Tom Pursglove, Minister of State for Immigration, is available. Subscribers can jump directly to the relevant sections of this Practice Note via the Table of Contents pane on the left of the screen. Published several weeks later than the customary Autumn tranche, the Statement introduces few major policy shifts, aside from further enlargement of the Hong Kong ( BNO) route and the creation of a new Appendix Temporary Permission to Stay for Victims of Human Trafficking and Modern Slavery. This likely reflects the marked political turbulence preceding the Home Secretary’s resignation the day after...