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Public employees and officials, including directors, are taxed as such on all income derived from their employment. This includes salaries, bonuses, commissions, allowances for stay abroad, housing aid and other similar benefits. There are also specific rules for taxing benefits not delivered in cash, such as a home or a company car.
As of April 6, 2017, tax and contribution benefits for employers from wage sacrifice agreements (and their cash alternatives) were eliminated. Consequently, the sacrificed wage is taxed in a similar way to ordinary income. Some exemptions are maintained, such as those associated with registered pension plans, day care vouchers (already closed to new beneficiaries), bicycle services for commuting to work and vehicles with ultra-low emissions.
As of April 6, 2025, the tax regime for people not domiciled in the United Kingdom was abolished. However, it will continue to be available to eligible employees, and will apply for the first four years of tax residence in the United Kingdom, provided that they take advantage of the new income and earnings regime from abroad. This relief applies to income generated from work performed outside the United Kingdom and will be subject to an annual limit of 300,000 GBP or 30% of qualified labor income, whichever is the lower of both (total maximum of 1.2 million GBP over the four years). This limit does not apply to those who arrived in the UK in 2023/24 or 2024/25.
Before that date, non-domiciled employees who applied for the tax base for remittances were eligible for relief for working hours abroad for three fiscal years, provided that they met certain conditions.
The Simplified Mixed Fund Rules (SMF) made it easier to identify remittances for those applying for Overseas Workday Relief. To benefit, income had to be deposited in a specific foreign account, subject to several conditions, such as having a low initial balance and being properly notified to HMRC. Only one active account was allowed at a time and should be used exclusively for work income and your interests.
These rules simplified the tax treatment of remittances, treating them as if they were carried out in a single transaction at the end of the year. However, as of April 6, 2025, these rules ceased to apply and these accounts lost their fiscal validity.
The value of shares given to a director or employee, or acquired through a stock options plan as compensation for their services, is, in principle, subject to taxation for the employee or director. In practice, the tax treatment and the time at which the tax obligation is generated will depend on whether the shares are received through a plan with tax advantages or not, as well as on the existence of special characteristics, such as restrictions, repurchase rights or conversion rights that may affect the value of the shares.
A natural person who carries out a commercial activity on their own account, without using a company, is considered autonomous. The members of a collective partnership also have this condition.
Currently, many taxpayers who carry out a business activity calculate their benefits using the cash method (income and payments), which has become the default method. However, certain activities are excluded, such as those carried out by UK limited liability companies or joint ventures with corporate partners.
With the cash method, the cost of some fixed assets can be fully deducted at the time of payment. When switching between this method and the accrual method (or vice versa), transient adjustments are applied to avoid duplication.
In both methods, only expenses incurred exclusively for business purposes and that are not costs related to entertainment, acquisition of assets or investments are deductible. In the case of the accrual method, the accounting accounts must be adjusted, adding the depreciation and deducting the capital deductions accepted by HMRC.
There is a business deduction of GBP 1,000 per year for certain individuals (not available to members). If the income does not exceed this amount, it is not taxed or required to declare. If they are exceeded, you can choose to apply the full deduction instead of declaring actual expenses, resulting in tax-adjusted income.
The option of using the traditional accrual method is also maintained, useful, for example, for those who need to justify income to financial institutions.
There are also simplified rules for deducting expenses on vehicles, use of housing for commercial purposes and combined use of premises such as housing and workplace. These deductions are optional.
Dividends are taxed at rates of 8.75% for the basic rate, 33.75% for the higher rate and 39.35% for the additional rate.
An annual deduction of 500 GBP applies, so dividends within this limit are exempt from tax.
Income distributed by a property investment fund in the UK is considered income from UK real estate activities for tax purposes.
How rental income is taxed depends on where the property is located and the taxpayer's residence status. If a person resides in the United Kingdom, they must declare income derived from properties located both in the country and abroad, unless they are a newcomer and take advantage of the Foreign Income and Gains regime.
The profits or losses of a real estate rental business (both in the UK and abroad) are usually calculated using the cash method, recognizing income and expenses at the time they are received or paid. In some cases, for example, if the activity is carried out through an LLP or a company with a corporate partner, the accrual method is applied.
Since April 2017, mortgage interest relief has been limited to the basic rate (20%). In addition, since April 2016, the old fixed deduction for wear and tear of 10% was replaced by a deduction based on the real cost of replacing furniture.
There is also a relief known as “room rent”, applicable when a part of the main house is rented. The first 7,500 GBP per year are exempt from tax (or 3,750 GBP if the home is shared with another landlord). If income exceeds that limit, you can choose to tax actual benefits or excess without deducting expenses.
In addition, there is a general reduction for rental income of up to GBP 1,000. This applies automatically if the income does not exceed that amount, and in this case no declaration is required. If income is higher, this deduction may apply instead of actual expenses. This deduction is not compatible with that of renting rooms.
Royalties and other income from intellectual property rights are taxed in income tax. The total amount received during the tax year is taxed, after deducting the expenses incurred totally and exclusively to generate such revenues.
Taxes on investment income in the United Kingdom (except profits from real estate businesses in the United Kingdom) received by a person not resident in the United Kingdom are usually reduced or eliminated by a tax convention. Even when no tax relief applies, a non-resident's UK tax liability on certain “excluded income” cannot exceed the tax (if any) withheld or deducted at source, nor the tax considered to be deducted at source. “Excluded income” includes dividends from UK companies, interest income and certain social security benefits.
In the UK, few incomes are completely exempt from tax. However, some examples:
The total annual subscription limit for the 2025/26 financial year is 20,000 GBP, unchanged since 2017/18.
There are four types of individual savings accounts:
Different types of accounts can be combined, as long as the total annual limit is not exceeded. The junior one has a limit of 9,000 GBP for 2025/26, also unchanged since 2020/21.
Both interest and dividends and capital gains generated in an ISA are exempt from tax in the United Kingdom.
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