GILTI for Small UK Company Owners: What It Is, What's Changing and How to Reduce It

GILTI for a UK company owner is a US tax on the profit of a UK Ltd that a US citizen controls, charged on the owner's own return every year whether or not the company pays a dividend. From 2026 it is officially called net CFC tested income. For most small UK companies the charge can be cut to nil, but only with the right elections in place. This guide explains how the charge arises, what changed in the 2025 tax act and the levers an owner can pull.

Most UK company owners never hear the word GILTI from their UK accountant, and there is no reason they should: it is a purely American rule. The US citizen shareholder meets it on their own Form 1040, usually the first year a US preparer looks properly at the company. By then the year is closed and the cheapest fixes have passed.

What is GILTI and why does it reach a UK company?

GILTI is a US tax on a US shareholder's share of the ordinary trading profit of a controlled foreign corporation. It applies to a UK company because the IRS treats a UK Ltd as a foreign corporation, and one owned mostly by a US citizen is "controlled".

The Instructions for Form 5471 (revised December 2025) set out the two tests. A US shareholder is a US person who owns at least 10% of the vote or value of a foreign corporation. A controlled foreign corporation, or CFC, is a foreign corporation whose US shareholders together own more than 50% of the vote or value on any day of its tax year. A US citizen who owns all of a UK Ltd, or owns it with a US spouse, has a CFC from the day it is incorporated.

Before 2018, a CFC's trading profit was generally taxed in the US only when it was paid out as a dividend. GILTI, enacted in 2017 as section 951A, changed that. It was aimed at multinationals parking profit in low-tax countries, but the statute makes no exception for a one-person consultancy in Manchester. The rule reaches the profit of a UK company even though the UK has already taxed it at 19% to 25%.

Passive income such as interest and most rent is caught by a different, older regime, subpart F. GILTI picks up most of what is left, which for a trading or services company is nearly everything. Our guide to holding UK property through a company as a US citizen covers the subpart F side for rental companies.

What changed for GILTI UK company owners in 2026?

The 2025 tax act, Public Law 119-21, kept the charge but renamed it and changed four parts of the arithmetic for taxable years beginning after December 31, 2025. Section 70323 of the Act replaced "global intangible low-taxed income" in section 951A with "net CFC tested income", often shortened to NCTI.

Feature	GILTI (to 2025)	Net CFC tested income (from 2026)	Effect on a small UK company owner
Deemed return on tangible assets	10% of qualified business asset investment excluded	Repealed	More profit caught, mainly where the company owns equipment or property
Section 250 deduction for corporations	50%	40%	A higher US rate under a section 962 election
Deemed-paid foreign tax credit (section 960(d))	80% of the foreign tax	90% of the foreign tax	More of the UK Corporation Tax counts under a section 962 election
Expenses allocated against the foreign income	Interest and other expenses could be apportioned to it	No interest or research expense; other deductions only if directly allocable	Less leakage of the foreign tax credit for corporate and section 962 filers

The deduction change is in section 70321 of the Act, the credit change in section 70312 and the expense rule in section 70311. Section 70312 also denies a credit for 10% of the foreign tax on later distributions of previously taxed net CFC tested income, for amounts included after June 28, 2025. The IRS page for Form 8992 still carried the GILTI title when we checked it on October 26, 2026, so both names will be seen on IRS forms for a while.

For a small owner-managed company, the repeal of the tangible asset return matters least: a consultancy or software business rarely owns much equipment. The deduction and credit changes matter more, because they set the cost of the main planning tool, the section 962 election.

How is GILTI calculated for a UK company owner?

GILTI is calculated by restating the UK company's profit under US tax rules, in dollars, and including the owner's share on their US return. The calculation runs on Form 5471 Schedule I-1 for each company and then on Form 8992 for the shareholder.

1. Restate the accounts. The UK statutory accounts are converted to US tax principles: US depreciation instead of UK capital allowances, US rules for accruals, and the US dollar as the reporting currency.
2. Find tested income. Gross income, less income already caught by subpart F, high-taxed income excluded by election and a few other items, less allocable deductions including the UK Corporation Tax itself.
3. Net across companies. An owner with two UK companies nets tested income in one against a tested loss in the other.
4. Include the owner's share. The net figure is included in the owner's gross income for the year in which the company's tax year ends.
5. Tax it. Without an election, an individual pays ordinary income tax on the inclusion at up to 37% with no credit for the company's UK tax, because the deemed-paid credit under section 960 is available only to corporations.

The last step is where small owners are hurt. A company that paid 19% UK Corporation Tax can produce an inclusion that is taxed again in full on the owner's US return, before the owner has received anything. That is the problem every lever below is designed to solve.

The GILTI high-tax exclusion: often the simplest answer

The high-tax exclusion is an election that removes from GILTI any income the foreign country already taxed at a high enough rate. For many profitable UK companies it is the cleanest fix, because the UK rate sits just above the line.

Treasury Regulation 1.951A-2(c)(7) excludes an item of income where it "was subject to an effective rate of foreign tax" greater than 90% of the maximum rate in section 11. The 2025 Form 1120 instructions confirm that rate is 21%, so the threshold is 18.9%. The GOV.UK Corporation Tax rates table shows the small profits rate of 19% for profits under £50,000 and the main rate of 25% for profits over £250,000 in the financial year 2026, with Marginal Relief between the two.

Three practical points decide whether a UK company really qualifies:

• The rate is measured on US numbers. The effective rate is the UK tax divided by the income computed under US tax principles plus that tax. If US depreciation is slower than UK capital allowances, US income is higher than UK taxable profit and the effective rate falls. A company paying the 19% small profits rate has almost no margin above 18.9%, so a year with a large capital allowances claim, such as full expensing, can fail.
• The election is made by the controlling US shareholders. It is made with a timely filed original return, or on an amended return filed within 24 months of the unextended due date, and binds every US shareholder of the company. Where companies are members of the same CFC group as the regulation defines it, the election applies to all of them.
• Excluded income takes its tax with it. The UK tax on excluded income cannot be credited, and excluded income is no longer available to absorb a tested loss in another company. An owner with one high-taxed company and one loss-making company should test the result both ways.

The section 962 election: taxed as if you were a US corporation

A section 962 election lets an individual US shareholder be taxed on the inclusion at the corporate rate and claim the corporate deemed-paid credit for the company's UK tax. It is the main alternative where the high-tax exclusion fails or is not wanted.

Under Treasury Regulation 1.962-1, an electing individual is allowed the section 250 deduction a domestic corporation would get. From 2026 that deduction is 40%, so the US rate on the inclusion is 60% of 21%, or 12.6%, before credits. The Form 1118 instructions require an individual who makes the election to attach Form 1118 to claim the foreign tax credit, which from 2026 is 90% of the UK tax attributable to the income.

Illustrative example: a US citizen living in Bristol owns 100% of a UK consultancy whose calendar-year profit for 2026, restated under US rules, is £40,000 before tax. The company pays Corporation Tax at the 19% small profits rate, £7,600, leaving tested income of £32,400. With no election, the owner includes about £32,400 (converted to dollars) in income and pays US tax at their marginal rate with no credit for the £7,600. With a section 962 election, the inclusion is grossed up to £40,000, the 40% deduction leaves £24,000 taxed at 21%, or £5,040, and the credit of 90% of £7,600, £6,840, covers it. If the high-tax exclusion applies instead, nothing is included at all. Figures are shown in pounds for simplicity, ignore expense allocation and the foreign tax credit limitation, and are illustrative only.

The cost of a section 962 election comes later. When the company eventually pays the profit out, the dividend is taxable in the US to the extent it exceeds the US tax already paid under the election, although the UK dividend itself can then carry a foreign tax credit. The election is made year by year, so an owner can choose it in years when profit stays in the company.

Other levers: salary, dividends, entity choice and timing

The elections are not the only way to reduce GILTI for a UK company owner. Four other decisions change the inclusion, and three of them are made during the year, not at filing time.

Pay a salary

A salary is deductible for the company, so it reduces tested income pound for pound. For the owner it is earned income on Form 1040, which can qualify for the foreign earned income exclusion or the foreign tax credit for UK Income Tax. Our comparison of the FEIE and the foreign tax credit for Americans in the UK explains which suits salary. The UK cost is Income Tax plus employer and employee National Insurance, which can cost more than Corporation Tax on the same profit, so the right level of salary is a two-country calculation.

Pay dividends from previously taxed profit

Profit already included as GILTI without a section 962 election is previously taxed for the US, and a later dividend paid out of it is generally not taxed again in the US. The UK still taxes the dividend at the dividend rates, and for amounts included after June 28, 2025 the US denies a credit for 10% of the foreign tax on the distribution. Tracking those balances company by company on Form 5471 is part of the annual work.

Change the US classification of the company

A UK private limited company can elect on Form 8832 to be disregarded for US tax if it has one owner. The owner is then taxed directly on the profit and claims the UK Corporation Tax as a credit on their own return, and GILTI no longer applies. The election has its own costs, including the loss of deferral on retained profit and a deemed liquidation if made for an existing company, and our guide to UK LLPs and US tax covers the transparent alternative.

Plan around the company's year end

GILTI is measured on the company's tax year, and the inclusion falls into the owner's US tax year in which that company year ends. Capital spending, bonuses and dividends decided before the year end shape both the UK tax and the effective rate used in the high-tax test. A review a month before the company's year end costs far less than an amended return.

Which approach suits which UK company owner?

The right answer depends on profit level, how much is paid out and how the company's US numbers compare with its UK numbers. This table sets out the usual starting point, which a full model then tests.

Situation	Usual starting point	Main thing to check
Profits over £250,000, taxed at the 25% main rate	High-tax exclusion	US-principles income versus UK taxable profit
Profits under £50,000, taxed at the 19% small profits rate	Section 962 election, or a salary that absorbs most of the profit	Whether the effective rate stays above 18.9% in a high-allowance year
Profit paid out as dividends every year	Inclusion without election, then previously taxed dividends	US tax on the inclusion against the UK dividend tax
Profit retained to grow the business	High-tax exclusion or section 962 election	The US tax due when profit is finally paid out
Newly formed single-owner company	Consider a check-the-box election on Form 8832	Form 8832 lets an election take effect no more than 75 days before or 12 months after filing

What owners of UK companies get wrong about GILTI

• "No dividend, no US tax." GILTI taxes retained profit. Leaving money in the company does not defer the US charge unless an election takes the income out.
• "The foreign earned income exclusion covers it." The exclusion applies to the owner's wages and self-employment income. A GILTI inclusion is not earned income, so the exclusion does not shelter it.
• "UK Corporation Tax is credited automatically." The corporate credit is not available to an individual without a section 962 election.
• "Form 5471 is just a disclosure." The Form 5471 instructions set a $10,000 penalty for each annual accounting period of each foreign corporation for failure to file, plus $10,000 for each 30-day period the failure continues more than 90 days after an IRS notice, up to a further $50,000. The form is also where the GILTI numbers are built.
• "A UK accountant can do it." The UK accounts are the input, not the answer. The restatement to US principles, the dollar translation and the elections sit outside UK practice.

Getting GILTI right for a UK company

US/UK Cross Border Tax — US CPAs and UK tax advisers working as one team, from London, Manchester, New York and San Francisco — prepares the UK accounts and Company Tax Return alongside the Form 5471, Form 8992 and the owner's Form 1040, so the elections are chosen on one set of figures. Our GILTI advice for UK company owners starts with a model of the high-tax exclusion, a section 962 election and a salary mix before the company's year end. Founders setting up a new company can read our guide to founder tax for a US UK startup, and owners with filings already behind can see how our business tax returns service brings Form 5471 up to date. See also our page for founders with US and UK tax obligations, or contact us to book a review.