The main sources of international tax law in the UK are domestic tax legislation (primarily enacted by parliament), secondary legislation and case law arising from UK tax tribunals and courts. Following Brexit and the enactment of the Retained EU Law (Revocation and Reform) Act 2023, the UK is no longer bound by EU tax directives. Administrative co-operation now rests on OECD instruments, the Foreign Account Tax Compliance Act (FATCA) and bilateral treaties.

The UK has an extensive network of treaties and international agreements with over 100 countries. These are designed to prevent double taxation and fiscal evasion and allow for the exchange of information. Double tax treaties are given effect by domestic legislation (TIOPA 2010 and statutory orders). In practice, treaties can therefore modify the application of UK domestic law.

The UK’s treaties are regularly updated, especially in response to OECD Base Erosion and Profit Shifting (BEPS) initiatives. The UK also participates in multilateral instruments (under the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS)) and follows OECD guidelines for transfer pricing and country-by-country reporting.

Domestic tax law is primary, but international treaties (such as double tax treaties) override domestic law where there is a conflict, provided the treaty has been incorporated into UK law by way of ratification of the relevant treaty. A double tax treaty cannot, however, impose a tax charge where one does not exist under UK domestic law.

The UK generally follows the OECD Model Tax Convention in its treaty practice, with some deviations to reflect UK-specific policy or negotiation outcomes with counterparty jurisdictions. A number of these treaties (primarily with jurisdictions that were previously colonies of the UK) were entered into prior to the publication of the OECD model. The UK has also adopted specific provisions from the United Nations Model Double Taxation Convention in certain treaties with developing countries. These provisions tend to provide greater taxing rights to the counterparty jurisdiction as compared to the OECD model.

The UK signed the Multilateral Instrument (MLI) on 7 June 2017 and ratified it on 29 June 2018. It has been in effect in the UK since 1 October 2018. The date the MLI takes effect for any particular treaty with the UK will depend on the date the counterparty jurisdiction in question ratifies its signatory to the MLI.

The UK operates a worldwide basis of taxation for individuals who are resident in the UK.

From 6 April 2025, the UK abolished the non-domicile regime so that individuals who come to the UK from April 2025 will have a maximum of a four-year transitional period (which is reduced accordingly for individuals arriving after 6 April 2025) where they are not subject to foreign income and gains (FIG). Following the expiry of this four-year period, individuals will be fully taxable on worldwide income and gains. There is a temporary repatriation facility for previous remittance-basis users to remit FIG at reduced tax rates (12% in the tax years 2025/2026 and 2026/2027 and 15% in 2027/2028). Previous remittance-basis users can also “rebase” foreign assets to their value on 5 April 2019.

Non-residents are subject to tax only on UK source income (eg, UK rental income and income attributable to a UK permanent establishment) and gains arising directly or indirectly on UK real estate.

There are devolved taxes in Scotland, Wales, and Northern Ireland, with some local variations (eg, Land and Buildings Transaction Tax in Scotland).

The UK uses the Statutory Residence Test, which can treat individuals as automatically non-UK resident or automatically UK resident. For the former, individuals will always be non-UK resident:

• if the individual has been UK tax resident in one of the last three tax years, if they spend fewer than 16 days in the UK; or
• if they spend fewer than 45 days in the UK where they have been UK tax resident in any of the three preceding tax years; or
• the individual works full time overseas for the whole tax year with no significant breaks, spends fewer than 91 days in the UK and fewer than 31 work days in the UK.

If an individual does not satisfy the automatic tests for non-residents, then there are automatic UK residence tests. These are, broadly:

• the day count test – if the individual spends 183 or more days in the UK in the tax year; or
• the UK home test – if the individual has a home in the UK for 91 or more consecutive days (part of which falls in the tax year), uses it for at least 30 days, and either has no overseas home or spends fewer than 30 days in any overseas home; or
• the UK work test – if the individual works sufficient hours in the UK over a 365-day period where all or part of the 365-day period is in the current tax year with no significant breaks from UK work.

If the conditions of neither test are met, then residence is determined by reference to “sufficient ties” to the UK. This factor considers UK connections, such as family, work and accommodation, with fewer ties required the more days an individual spends in the UK.

UK tax residents are subject to worldwide taxation on income and gains, subject to any treaty relief or domestic law exemptions.

See 2.1 General Principle of Territorial Taxation for further details on the transitional FIG and temporary repatriation provisions applicable following the abolition of the “non-dom” regime.

Non-residents are taxed on UK-source income, including employment income for duties performed in the UK, rental income from UK property, and certain capital gains (especially on UK property). The UK applies withholding tax on annual UK-source interest at a rate of 20% (increasing to 22% from 6 April 2027) but this is subject to treaty relief as well as other exemptions for non-residents. There is also withholding tax at a rate of 20% for UK royalties, which is again subject to treaty relief. The UK has a wide-ranging network of treaties, many of which provide full relief for withholding tax, but clearance must be received from His Majesty’s Revenue and Customs (HMRC) to make interest payments at the treaty rate.

A company is UK tax resident if it is incorporated in the UK or if its central management and control is exercised in the UK. 

The UK’s definition of “permanent establishment” is broadly aligned with the OECD Model, focusing on a fixed place of business or a dependent agent. Treaty definitions generally follow the OECD Model, with some variations depending on the specific treaty. HMRC is in the consultation process for the purposes of more closely aligning the UK’s rules on permanent establishment with the latest international consensus on the definition of a permanent establishment and the attribution of profits to a permanent establishment.

Rental income from UK property is taxable in the UK for both residents and non-residents. Since April 2020, non-resident companies receiving UK property income are subject to UK corporation tax.

Business profits of UK resident companies are taxed on worldwide income at the corporation tax rate (25% standard, with a small profits rate of 19% up to GBP250,000). Non-resident companies are taxed on profits attributable to a UK permanent establishment.

Dividends received by UK-resident companies are subject to UK corporation tax. However, there are broad exemptions which generally operate to fully exempt dividends received by UK-resident companies.

There is no withholding tax on dividends.

Interest and royalties are subject to 20% withholding tax (although the withholding tax rate on interest is set to increase to 22% from 6 April 2027), but this can be reduced or eliminated under double tax treaties.

There are also statutory exemptions to withholding tax on interest including:

• the quoted Eurobond exemption, which provides a full exemption from UK withholding tax on interest on quoted Eurobonds;
• payments to UK companies, although the interest is generally still subject to UK corporation tax on receipt;
• payments to UK banks and building societies, although the interest is generally still subject to UK corporation tax on receipt; and
• the Qualifying Private Placement exemption, which provides a full exemption from UK withholding tax. 

Rental income is subject to taxation at up to 47% for individuals, while businesses are subject to UK corporation tax at 25%. Rental income is subject to UK withholding tax at 20% (set to increase to 22% as of 6 April 2027). However, most landlords benefit from gross payment through the non-resident landlord scheme, so there is rarely any withholding tax in practice.

UK tax-resident companies are subject to UK corporation tax on worldwide chargeable gains, subject to any exemptions or reliefs (such as the UK participation exemption) at a rate of up to 25%. Non-UK tax-resident companies are subject to UK corporation tax at a rate of up to 25% on profits attributable to a UK permanent establishment.

UK tax resident individuals are subject to progressive rates of UK capital gains tax up to 24% and subject to a GBP3,000 annual tax-free allowance. Reliefs, which can reduce the rate to 18%, subject to a lifetime maximum of GBP1 million, and deferrals are available in certain circumstances. There is also an exemption for the disposal of a principle private residence.

UK non-residents are subject to non-resident capital gains tax on direct or indirect disposals of UK land. Non-resident individuals are subject to UK capital gains tax on non-resident gains; non-resident companies are subject to UK corporation tax on non-resident gains.

Employment income is taxed on a worldwide basis for residents. Non-residents are taxed on UK duties. There are special rules for short-term assignments and overseas workday relief for new arrivals. Remote working is subject to the same principles, with tax based on where duties are performed.

The UK has special rules for digital services tax, apprenticeship levy, diverted profits tax (subject to a higher rate of UK corporation tax) and annual tax on enveloped dwellings (ATED) for residential property held by companies.

Although the UK has approved the OECD’s Consolidated Report on Amount B (published on 24 February 2025), it has not formally adopted Amount B.

The UK government’s preference is to implement Pillar One and remove the UK’s Digital Services Tax (DST). However, it has delayed the expected implementation timeline to October 2027.

The UK’s implementation of the global minimum tax rules took effect through enactment of the Finance (No 2) Act 2023 on 11 July 2023, which applies to accounting periods starting on or after 31 December 2023.

The UK’s implementation of the global minimum tax has broadly followed the OECD model.

The UK has, however, developed its own separate body of tax law (Multinational Top-up Tax (MTT)) to implement the (Global Anti-Base Erosion) GloBE rules, focusing on achieving the same results as the OECD rules without being a direct word-for-word copy.

The main difference between the OECD and UK model rules lies in the UK’s MTT, which operates by way of an Income Inclusion Rule and a domestic top-up tax (DTT). The DTT extends the scope of Pillar Two rules to UK operations. The UK’s MTT qualifies, nonetheless, as a Qualified Domestic Minimum Tax for the purposes of the OECD model.

The UK introduced a DST from April 2020, applying a 2% tax on UK revenues of certain digital businesses with significant UK user participation above a certain threshold for both global and UK revenue. DST remains until Pillar One Amount A takes effect, at which point, the UK intends to transition away from DST. 

Tax fraud is regarded as the deliberate deception of HMRC.

Tax evasion is a narrower offence of deliberately not paying the right amount of tax.

Tax avoidance is a concept that has evolved through case law and is now generally considered to be the use of legal means to reduce a tax liability. A hallmark of avoidance is the reliance on an artificial interpretation of the legislation which does not reflect parliament’s intention and which does not adopt a realistic view of the facts in question.

For VAT purposes, avoidance adopts an abuse-of-rights principle based on EU case law principles. Under this principle, a transaction is abusive if it aims to achieve an advantage from the VAT rules that is contrary to the purpose of those rules. This principle has been retained post-Brexit in the Taxation (Cross-border Trade) Act 2018.

The UK has a robust system of anti-avoidance and anti-evasion legislation. These fall into one of three broad categories:

• disclosure rules designed to inform HMRC about tax arrangements in real time;
• powers to enable HMRC to investigate and recover unpaid tax; and
• sanctioning of advisers who promote these arrangements.

The Disclosure of Tax Avoidance Rules and Disclosure of Avoidance Schemes – VAT and other Indirect Taxes, provide an early-warning system for HMRC of emerging avoidance schemes. Taxpayers are obliged to inform HMRC about transactions which bear certain “hallmarks”. These include wishing to keep aspects of the arrangements confidential from HMRC, or promoters of the arrangements charging a premium fee attributable to the tax advantage obtained.

The Mandatory Disclosure Rules require promoters and advisers to inform HMRC of arrangements involving opaque offshore structures or if a structure circumvents reporting under the Common Reporting Standard. These rules replaced the DAC 6 cross-border disclosure rules.

HMRC is empowered to serve notices to seek information from taxpayers and third parties. These include:

• a taxpayer notice requiring information or documentation relevant to the taxpayer’s tax position;
• a third-party notice requiring information or documentation relevant to a taxpayer’s tax position;
• a financial institution notice requiring banks and other financial institutions to provide information or documentation relevant to a taxpayer’s tax position;
• an “identity unknown notice” requiring a third party to provide information or documentation relevant to a taxpayer whose identity is not known to HMRC; and
• an “identity not fully known notice” requiring a third party to provide the name, address and date of birth of a taxpayer.

The UK’s General Anti-Abuse Rule (GAAR) seeks to identify “abusive” tax arrangements. The GAAR applies to any arrangement which cannot reasonably be regarded as a reasonable course of action in relation to the tax provisions – the so-called “double reasonableness” test. The GAAR empowers HMRC to make just and reasonable adjustments so as to enable it to recover any lost revenue.

HM Treasury announced a new whistle-blowing rewards scheme in the Budget 2025. This will replace the existing scheme for reporting tax non-compliance to HMRC. The new scheme will focus on serious non-compliance by large corporate and wealthy individuals and, where the information provided leads to the collection of at least GBP1.5 million in tax, individuals could receive between 15% and 30% of the tax collected (excluding interest and penalties). This brings the UK in line with many international schemes such as those operated in the US and Canada.

The Promoters of Tax Avoidance Scheme rules empower HMRC to sanction advisers who engage in promoting tax avoidance arrangements. These include enabling HMRC to issue “stop notices”, prohibiting the promotion of an arrangement; “conduct notices”, non-compliance with which can lead to the issuing of “monitoring notices”, which may result in advisers being named and shamed by HMRC; and applying to court for the winding-up of a business promoting avoidance schemes.

A taxpayer who has used an avoidance scheme which has, broadly, been defeated by HMRC may be served with a “follower notice” or “accelerated payment notice” requiring it to amend its return or drop its appeal in accordance with the defeated scheme. If the taxpayer fails to do so, it may be issued with a penalty.

HMRC may also issue a penalty under the Enabler Penalties regime on advisers who enable taxpayers to enter into abusive tax arrangements that are subsequently defeated. A defeat arises when the tax advantage in question is counteracted, whether by an adjustment to a tax return or an HMRC assessment, and it cannot be further appealed. The definition of “abusive” largely follows the definition in the GAAR.

The Serial Tax Avoiders Regime imposes penalties on taxpayers who repeatedly use schemes which have been defeated by HMRC under specific regimes. These are the GAAR, “follower notices” or the disclosure of tax avoidance schemes/disclosure of avoidance schemes for VAT and other indirect taxes (DOTAS/DASVOIT).

The UK does not maintain a list of non-cooperative or high-risk jurisdictions for tax purposes.

See 5.2 Anti-Avoidance Mechanisms.

HMRC is empowered under the Police and Criminal Evidence Act 1984 to:

• Undertake searches under warrants issued by a magistrate if there are reasonable grounds to believe an indictable tax offence has been committed and there is material of substantial value or admissible in trial in relation to that offence. HMRC may also seize and retain anything for which a search has been authorised.

• Apply to a judge to issue a production order to a third party if there are reasonable grounds to suspect an offence involving serious tax fraud, or an order for documents that are in the power or possession of any person and may be required as evidence for the purposes of any proceedings concerning an offence.

• Arrest, without a warrant, anyone:
1. who is about to commit a tax offence;
2. who is in the act of committing a tax offence;
3. whom the HMRC officer has reasonable grounds to suspect might be about to commit a tax offence; and
4. whom the officer has reasonable grounds to suspect is in the process of committing a tax offence.
• Search and enter premises to make an arrest.

Also see 5.2 Anti-Avoidance Mechanisms.

The UK has a wide range of domestic legislation which imposes penalties on cross-border tax avoidance, such as the transfer pricing legislation in the Taxation (International and Other Provisions) Act 2010, the Taxation (Cross-border) Trade Act 2018, as well as more general provisions such as the GAAR. There is also an extensive framework governing the reporting of cross-border transactions. This includes the UK’s Mandatory Disclosure Rules (which replace DAC6) as well as international law incorporated into UK law, such as the CRS and reporting provisions within double tax treaties. HMRC is responsible for imposing and enforcing sanctions in connection with cross-border transactions and for reporting any non-compliance. 

There is a broad array of penalties for tax fraud and evasion in the UK, ranging from fines (which can be unlimited) to a prison sentence of up to life in the most serious cases. The Criminal Finances Act 2017 also makes businesses (wherever located, in respect of facilitating UK tax evasion, and companies with a UK connection, in respect of the facilitation of non-UK tax evasion) criminally liable for failure to prevent their employees or any person associated with them from facilitating tax evasion. While the offence is one of strict liability, there is a defence where the business has reasonable prevention measures in place.

HMRC will initially carry out an information-gathering exercise in instances of tax fraud, and has various statutory tools to assist with information gathering, such as production orders which compel various third parties (eg, banks) to provide information and documents. HMRC will then prepare a file for the Crown Prosecution Service (CPS, for domestic tax evasion) or the Serious Fraud Office/National Crime Agency (for foreign tax offences) which summarises all of its allegations and provides all the evidence gathered. There are statutory provisions within the Economic Crime and Corporate Transparency Act 2023 which provide for co-operation in the information sharing and investigation of tax fraud between HMRC and the CPS. The final decision to bring a prosecution rests with the CPS or, where applicable, the Serious Fraud Office.

The UK is party to a wide range of measures aimed at facilitating co-operation in tax matters with other jurisdictions. These include exchange of information provisions in double tax treaties, tax information and exchange agreements with many jurisdictions (in line with the OECD Model Convention), the CRS and FATCA.

The UK has extensive agreements and provisions which address the exchange of information with other jurisdictions. These include automatic exchange of pre-defined data, through the CRS and FATCA regimes. Double tax treaties, tax information exchange agreements and the OECD Multilateral Convention also provide for spontaneous exchange of information. In addition, UK double tax treaties and the CRS provide for the sharing of information on request.

See 7.1 Legal Framework for Administrative Co-Operation and 7.2 Exchange of Information Clauses in Tax Agreements for the framework for collaboration as set out in bilateral treaties and the OECD Multilateral Convention. The UK also participates in the OECD’s International Compliance Assurance Programme (ICAP) and has done so since its inception in 2018. The ICAP provides a framework for multinational enterprises and tax authorities to exchange information and perspectives on country-by-country reports.

The UK also participates in both joint and simultaneous tax audits, exchanging information with a view to establishing a consistent set of facts in the former, while the latter involves a more extensive and co-ordinated effort with the goal of reaching agreement on both the facts and tax treatment of cross-border transactions.

The UK has a mutual agreement procedure (MAP) programme which is given statutory effect in the Taxation (International and Other Provisions) Act 2010. The vast majority of the UK’s double tax treaties contain a MAP article.

Where the MAP is invoked under a double tax treaty, the case must be presented before the expiration of a period of six years following the end of the chargeable period to which the case relates; or such longer period as may be specified in the treaty. Many UK tax treaties follow Article 25 of the Model Convention such that a person must present their case “[with]in 3 years of the first notification of the action which results or is likely to result in double taxation”. Accordingly, the tax treaty may extend the statutory six-year time limit.

The UK provides for MAPs under its treaties, with legal bases in domestic law and treaties. Deadlines and the availability of arbitration depend on the specific treaty.

See 7.1 Legal Framework for Administrative Co-Operation and 7.2 Exchange of Information Clauses in Tax Agreements for further details on MAP.

Mandatory binding arbitration is available but only where specifically provided for in the relevant double tax treaty (or where the relevant arbitration provisions of the MLI have been incorporated into the double tax treaty). Mandatory binding arbitration can typically be considered where the MAP has not resolved the dispute within a two- (or three-) year period. While HMRC is generally in favour of mandatory binding arbitration, the specific double tax treaty (or list of reservations of the MLI) should be considered in all cases.

Part 5 of the Taxation (International and Other Provisions) Act 2010 provides the legislative basis for tax payors to enter into advance pricing agreements (APAs) with HMRC. There is also extensive HMRC guidance and a statement of practice which sets out the legal framework within which an APA may be entered into. APAs can be either unilateral or multilateral, with the former entered into between HMRC and the tax payor and providing certainty only in relation to the transfer pricing treatment in the UK.

As per 9.1 Advance Pricing Agreements, the UK provides APAs on a unilateral and multilateral basis.

Large Business Compliance Manager Programme

The UK also provides a Large Business Compliance Manager programme for businesses with an annual turnover of more than GBP200 million, or which operate in a complex sector or which have complex tax affairs. This involves a more hands-on approach, with regular interaction with large businesses to allocate them a “risk” rating and to work collaboratively with the tax payor to ensure it remains in compliance with its tax obligations.

Advance Thin-Cap Pricing Agreements

Similar to APAs, advance thin-cap pricing agreements provide certainty in the context of intercompany financings in areas such as debt levels, interest rates and availability of interest deductions. Unlike APAs, however, these agreements are always unilateral and agreed only with HMRC.

Non-Statutory Clearance Applications

Taxpayers may also make applications to HMRC for non-statutory clearances in respect of certain transactions. Such applications are typically made in areas where tax law is unclear and they require full disclosure of the transaction and surrounding facts to HMRC. Applications can be made both by individual tax payors and by businesses.

Profit Diversion Compliance Facility

HMRC launched the Profit Diversion Compliance Facility in 2019. This is a voluntary scheme introduced by HMRC to encourage businesses to voluntarily review and adjust their transfer pricing position. It is mainly designed to encourage engagement with HMRC where there are concerns around profit diversion, particularly to lower-tax jurisdictions.