Your company kept the profit. America taxed you on it anyway

Figures relate to tax year 2025-26 (UK) · 2025 (US)

The standard British advice to a small company owner is simple. Take a modest salary, take some dividends, leave the rest in the company.

Retained profit sits there taxed only at corporation tax rates until you need it. For your British business partner that works beautifully.

For an American owner it does not work at all. GILTI reaches into the company and taxes retained profit on your personal return in the year it arises.

Key takeaways

• GILTI taxes an American who controls a UK company on its yearly profits.
• The charge applies whether or not anything is distributed.
• A high tax exception removes GILTI where foreign tax is high enough.
• Rising UK corporation tax has put that GILTI exception within reach of more companies.
• An election lets individuals access corporate rates and credits.
• The company still needs an annual information return either way.
• Deferring profit inside the company saves no American tax once GILTI applies.

What is GILTI?

GILTI is a charge on the profits of a foreign company controlled by Americans, applied to the shareholder personally each year. Congress wrote GILTI to stop big groups parking profit in low tax countries. Yet GILTI catches a one person consultancy in Leeds with exactly the same machinery.

The name describes intangible income, which is misleading.

In practice it reaches nearly all active trading profit.

Does it apply to your company?

GILTI applies where Americans together own more than half the company and you personally hold at least ten per cent. A sole British company owned by one American meets both tests immediately. Equally, two American partners with half each fall inside GILTI just as firmly.

Ownership through a spouse or family member can count towards the test.

Our guide to the Form 5471 filing categories covers who has to report.

A worked example

Take an illustrative example. An American runs a consultancy through a British company in 2025 and it makes £120,000 of profit.

She pays herself £50,000 and leaves £70,000 in the business for a quiet year ahead. British corporation tax applies to the profit in the usual way.

GILTI then treats the retained amount as if she had received it. It lands on her personal return for that year.

No money moved. The cash is still in the company account, and she may have to find the tax from elsewhere.

The British and American views compared

Why did this get easier recently?

Because British corporation tax went up. The main rate rose to 25 per cent for profits above £250,000, with a small profits rate of 19 per cent below £50,000 and marginal relief between. According to GOV.UK guidance on corporation tax rates, those bands have applied since April 2023.

Because British tax is higher, the GILTI exception is now reachable for far more companies.

Ten years ago at 19 per cent flat, far fewer qualified.

What is the high tax exception?

An election that removes income from GILTI entirely where it already bore foreign tax above a set threshold. The threshold sits at ninety per cent of the top American corporate rate, which works out at 18.9 per cent. A British company paying 25 per cent clears it comfortably.

You claim it on your American return. GILTI never applies it for you.

But it binds every company you own, not just the handy one.

Does the small profits rate break it?

It can, and this detail catches smaller companies out of the GILTI exception. A company paying 19 per cent on profits under £50,000 sits only just above the 18.9 per cent threshold. Any reduction in the effective rate can push it below.

The test looks at the effective rate rather than the headline one.

Capital allowances and reliefs lower the effective rate without changing the headline.

What is a section 962 election?

An election that treats you as a company for GILTI, not as a person. It unlocks the corporate rate and a credit for the foreign tax the company paid, neither of which an individual normally gets. The trade off comes later.

Later, when the profit finally reaches you as cash, a second charge can arise.

So it converts an immediate problem into a deferred one.

Which route suits a small company?

Take the high tax exception where the effective rate clears the threshold, because it removes the income from GILTI rather than merely taxing it differently. The election route suits companies whose effective rate falls short. Running both calculations is the only reliable way to choose.

In our practice most British trading companies now clear the threshold.

Property companies and investment companies frequently do not.

Does a salary avoid the problem?

Largely, because salary reduces company profit, and you pay tax on it regardless. Paying out everything leaves nothing for the charge to bite on. British employer national insurance makes that expensive, which is why the hybrid approach exists.

Our guide to director fees across both systems covers the payroll side.

The right split is rarely the one a British accountant would choose alone.

What about dividends instead?

Dividends do not reduce company profit, so they do nothing about GILTI at all. They simply add a personal charge on top in both systems. Where GILTI already taxed that profit on you, relief exists. The mechanics are fiddly.

Our guide to UK dividends on a US return covers the rates.

In practice the previously taxed income rules stop GILTI hitting the same profit twice.

Is there a de minimis?

No threshold removes GILTI for a small company, which surprises owners of modest businesses. So a company making £30,000 meets the same rules as one making millions. Only the exceptions and elections provide relief.

There is a deduction for a notional return on tangible assets.

A service business with no plant gets almost nothing from it.

What about a company with losses?

A loss making year produces no GILTI, which is the obvious part. However, losses do not carry forward against future GILTI years as they do for corporation tax. A loss in 2024 gives no shelter to profit in 2025.

That asymmetry hurts businesses with uneven results.

Consultancies with one strong year in three feel it most.

Does the company still file forms?

Every year, regardless of the outcome. An information return on the company accompanies your personal return whether or not any charge arises. A separate calculation schedule reports the income itself.

Penalties for missing the company return start at $10,000 per year.

That penalty applies even where the tax comes to nothing.

What if you own it with a British spouse?

Ownership below the control threshold can take the company outside GILTI entirely. Where a non-American spouse genuinely owns most of the business, the American stake may fall short of the test. Attribution rules complicate this considerably.

Typically the rules hand a spouse's shares straight back to you.

Take advice before restructuring, because the rules anticipate the obvious move.

Does an LLP work better?

Sometimes, because a partnership is transparent, so profit flows through directly and GILTI never arises. That removes the deferral question but creates self employment charges and a different reporting form. Neither structure is universally better.

Our guide to UK LLPs and Form 8865 covers the alternative.

The choice depends on how much profit you genuinely need to retain.

What about selling the company later?

Profits already assessed under GILTI increase your base cost, so the same money is never taxed twice. Keeping an accurate record of previously taxed amounts is therefore valuable. Nobody else maintains that record for you.

Our guide to selling a UK business as a US person covers the disposal.

A missing record means paying tax twice on the same profit.

Does it affect the state you left?

Several states ignore the federal GILTI treatment and compute their own figure. A few tax the income with no credit for foreign tax at all. Anybody still tied to a state should check before assuming the federal answer settles it.

Our guide to state tax for expats covers breaking residence.

Most long term expatriates have no state filing at all.

Can you just close the company?

Operating as a sole trader removes GILTI altogether, at the cost of limited liability and some British planning flexibility. For a one person consultancy with no retained profit, the simplicity often wins. The decision is commercial as much as fiscal.

Our guide to company strike off and US tax covers closing properly.

Striking off has its own American consequences, so plan it rather than drifting into it.

Does GILTI apply to a dormant company?

Not while it earns nothing, because there is no profit for the charge to reach. However, the information return on the company still falls due every year it exists. So a dormant company costs you paperwork rather than tax.

Striking it off removes both, provided you handle the closure properly.

Many owners keep a dormant shell for years without realising it still files.

What about a property company?

Rental companies often fall short of the high tax threshold. Capital allowances and interest limits push the real rate down. So the GILTI exception is harder to reach than for a trading firm.

Our guide to UK rental income and US tax covers the underlying income.

A section 962 election is often the better route for property structures.

Does the charge interact with the exclusion?

Barely. The foreign earned income exclusion covers salary, not company profit. Your own wages can be excluded while GILTI still taxes the retained profit behind them. In other words, the two reliefs sit on different income.

Our guide to the foreign earned income exclusion covers the salary side.

That separation surprises owners who assume one relief covers everything.

When in the year should you decide?

Before the company year end. The salary and dividend split is the main lever, and payroll cannot be redone later. Once the accounts close, the profit figure is fixed and so is the GILTI exposure.

Therefore the useful conversation happens two months before the year end, not after it.

Most owners come to us in the spring, by which point the options have narrowed.

What if you have never reported it?

You are far from alone, since British accountants rarely raise GILTI and the regime is recent. The route back depends on whether income went unreported as well as the forms. Acting before the IRS writes keeps the cheapest options available.

Our guide to delinquent information returns covers one route.

Crucially, an unfiled company return keeps that whole tax year open indefinitely.

Does the company need US accounts?

Effectively yes. The sums run on American accounting rules, not British ones. Depreciation, provisions and revenue timing all differ between the two. As a result somebody has to restate the figures each year.

That restatement is the real cost of owning a company as an American.

Budget for it alongside the British accounts rather than as an afterthought.

Does your accountant need to know?

Certainly. The British year end calls and the American ones have to be taken together, not one after the other. An accountant who sets the salary blind to the American side will help one and harm the other.

Introduce the two advisers rather than relaying messages between them.

In our experience a single joint call before the year end saves more than it costs.

What about a second shareholder who is not American?

Their share of the profit sits outside the American system. That can make a real partnership structure attractive. The test adds up American ownership, so a small American stake may fall below the line.

Equally, the attribution rules reach further than most owners expect.

Document who contributed what capital, because that evidence supports the split later.

Is a holding company worth it?

Rarely for a small business, because adding a layer adds a second set of filings without removing the charge. The rules look through the structure to the people behind it. So a holding company tends to double the work.

Larger groups use them for commercial reasons that still hold good.

For a one person firm, keep the structure as flat as you can.

What records should you keep?

Keep the statutory accounts, the corporation tax computation showing the effective rate, a running schedule of previously taxed income, and a note of every election made. Those four things carry the position across years and across advisers.

The effective rate calculation is the one nobody keeps and everybody later needs.

Keep everything for as long as you own the company, plus six years.

How to handle it

1. Confirm whether Americans control more than half the company.
2. Work out the company's effective rate of British tax.
3. Compare that rate against the 18.9 per cent threshold.
4. Elect the high tax exception where the rate clears it.
5. Otherwise model a section 962 election against the default.
6. Set the salary and dividend split with the result in mind.
7. File the company information return every year regardless.
8. Maintain a schedule of previously taxed income permanently.

Mistakes and penalties we see with GILTI

First, retaining profit on British advice. It saves British tax and creates an American charge.

Second, assuming a small company is too small for GILTI. No threshold exists.

Third, missing the company information return, which carries $10,000 a year even where no GILTI is due.

Finally, losing the previously taxed income schedule, which means paying twice on the same profit at sale.

How US UK Tax Accountants helps

We calculate the effective rate first, because that single number decides which GILTI route you can take. In most cases a British trading company now clears the threshold and GILTI disappears.

Then we set the salary and dividend split around the American position rather than the British one alone. Our business tax service covers the company filings.

If your accountant has advised leaving profit in the company, get in touch before the year end.

Last reviewed 18 October 2026. This article is general information and not personal tax advice. Company structures turn on their own facts, so take advice on yours.