Accountants for US and UK GILTI and Subpart F Explained |
By US-UK Tax Advisors cross-border tax team · Last updated JUL 14, 2026
Accountants for US and UK: GILTI and Subpart F Explained Accountants for the US and UK on GILTI and Subpart F accountants for US and UK who work with...
Key Takeaways
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Accountants for US and UK: GILTI and Subpart F Explained
Accountants for the US and UK on GILTI and Subpart F
accountants for US and UK who work with Americans owning UK companies encounter two areas of US international tax law that cause more confusion than almost any other topic: Global Intangible Low-Taxed Income and Subpart F income. Both regimes require certain income earned by a foreign corporation — including a UK limited company — to be included in the US shareholder's taxable income in the current year, without waiting for the company to pay a dividend. Furthermore, most US citizens who own UK limited companies and operate them as genuine trading businesses are either entirely unaware of GILTI and Subpart F, or assume the UK corporation tax rate is high enough to make these regimes irrelevant. Additionally, since the 2022 increase in the UK corporation tax rate to 25%, the interaction between the GILTI high-tax exclusion and UK corporation tax has changed significantly — and accountants for US and UK must assess each UK company's position under the current rules before assuming the high-tax exclusion applies. Consequently, this guide explains both regimes, how they interact with UK corporation tax, and what Form 5471 requires for UK company owners.
What Is a Controlled Foreign Corporation
The CFC Definition
A controlled foreign corporation is any foreign corporation in which US shareholders own more than 50% of the total combined voting power or total value on any day during the corporation's tax year. Furthermore, a US shareholder for CFC purposes is a US person who owns 10% or more of the total combined voting power or value of the foreign corporation. Additionally, a US citizen who owns 100% of a UK limited company clearly meets both the CFC and US shareholder definitions — making the UK company a CFC and the owner a US shareholder subject to all CFC regime obligations. Consequently, virtually every US citizen who owns a UK limited company — regardless of how modest the company's activities or income — has a CFC and is subject to the Subpart F and GILTI inclusion rules, the Form 5471 filing obligation, and the annual reporting requirements. The IRS CFC guidance is at https://www.irs.gov/businesses/corporations/controlled-foreign-corporation.
Form 5471: The Annual CFC Information Return
Every US shareholder of a CFC must file Form 5471 — the Information Return of US Persons with Respect to Certain Foreign Corporations — annually, attached to their Form 1040. Furthermore, Form 5471 requires a complete set of financial information about the UK company for each tax year — income statement, balance sheet, earnings and profits calculation, related-party transactions, and Subpart F and GILTI calculations. Additionally, the penalty for failure to file Form 5471 is $10,000 per form per year — with the statute of limitations on the underlying income tax return remaining permanently open until the form is filed. Consequently, accountants for US and UK must include Form 5471 in the annual filing package for every US citizen who owns 10% or more of a UK limited company — treating it as a mandatory annual deliverable from the first year of ownership. The IRS Form 5471 guidance is at https://www.irs.gov/forms-pubs/about-form-5471.
Subpart F Income: What Triggers Current Inclusion
What Subpart F Catches
Subpart F income — defined under IRC Sections 951 to 965 — requires certain categories of passive or moveable income earned by a CFC to be included in the US shareholder's taxable income in the year the CFC earns it, regardless of whether the company distributes a dividend. Furthermore, the main categories of Subpart F income include Foreign Personal Holding Company Income — which covers dividends, interest, rents, royalties, and gains from property — and Foreign Base Company Sales Income and Services Income, which covers income from sales or services where the CFC acts as an intermediary between related parties in different countries. Additionally, for most US citizens operating a UK trading company that sells services to unrelated UK clients, the primary Subpart F concern is Foreign Personal Holding Company Income — particularly interest earned on company cash balances and any investment income held within the company. Consequently, a UK trading company whose income consists entirely of unrelated-party trading profits is generally not subject to Subpart F — but accountants for US and UK must review the income categories in the company accounts each year to confirm no passive income triggers a Subpart F inclusion. The IRS Subpart F guidance is at https://www.irs.gov/businesses/corporations/subpart-f-income.
The High-Tax Exception for Subpart F
Subpart F income is excluded from current inclusion where the income was subject to a foreign effective tax rate in excess of 90% of the maximum US corporate tax rate — which is 90% of 21%, or 18.9%. Furthermore, where UK corporation tax at 25% applies to the same Subpart F income, the 25% UK rate exceeds the 18.9% threshold — meaning the high-tax exception applies and the Subpart F income is not currently includible in the US shareholder's income. Additionally, the election to apply the high-tax exception must be made at the CFC level by the US shareholder, and the effective tax rate must be calculated for each separate item of Subpart F income rather than for the company's income as a whole. Consequently, accountants for US and UK must confirm the effective tax rate on each category of potential Subpart F income for each UK company before concluding that the high-tax exception applies — since an item taxed at an effective rate below 18.9% remains includible.
GILTI: The Main Concern for UK Company Owners
What GILTI Is
Global Intangible Low-Taxed Income is a separate regime introduced by the Tax Cuts and Jobs Act of 2017 that requires US shareholders of CFCs to include a portion of the CFC's net income in their US taxable income annually — even where the income is active trading income that is not Subpart F income. Furthermore, GILTI is calculated as the CFC's net tested income minus a 10% deemed return on the CFC's tangible property assets — meaning that for a UK service company with minimal tangible property, substantially all of the company's net income may be GILTI. Additionally, the GILTI inclusion for an individual US shareholder — unlike for a US corporation — does not benefit from the 50% GILTI deduction available to C corporations, meaning individuals pay US income tax at their full marginal rate on the GILTI inclusion. Consequently, a US citizen who owns a profitable UK service company with minimal tangible assets may have the entire after-UK-tax profit of the company included in their US income annually under GILTI — before any dividend is declared. The IRS GILTI guidance is at https://www.irs.gov/businesses/corporations/gilti-high-tax-exclusion.
The GILTI High-Tax Exclusion
The GILTI high-tax exclusion — formally the GILTI High-Tax Exception under the final regulations — allows a US shareholder to elect to exclude GILTI from their US income where the CFC's tested income was subject to a foreign effective tax rate greater than 90% of the US corporate rate, which is 18.9%. Furthermore, since the UK corporation tax rate increased to 25% in April 2023, most UK trading companies with profits above the small profits rate threshold pay UK corporation tax at the full 25% rate — which exceeds the 18.9% GILTI high-tax exclusion threshold. Additionally, where the high-tax exclusion applies, the GILTI inclusion for the US shareholder is reduced to zero — meaning the UK company's trading profits are not currently included in the US shareholder's US income, and US tax arises only when dividends are actually distributed. Consequently, the 2023 UK corporation tax rate increase to 25% has made the GILTI high-tax exclusion available to most profitable UK trading companies — a significant improvement from the prior position when the UK rate was 19%. The IRS GILTI high-tax exclusion guidance is at https://www.irs.gov/businesses/corporations/gilti-high-tax-exclusion.
When the High-Tax Exclusion Does Not Apply
The GILTI high-tax exclusion does not apply automatically — it must be elected by the US shareholder on Form 5471 for each CFC and each year. Furthermore, where the UK company has profits taxable at the small profits rate of 19% — for companies with profits below £50,000 — rather than the full 25% rate, the effective tax rate falls below the 18.9% threshold and the high-tax exclusion is not available. Additionally, where the UK company has losses, reliefs, or deductions that reduce the effective UK tax rate below 18.9% for a particular year, the exclusion cannot be claimed for that year. Consequently, accountants for US and UK must calculate the effective UK tax rate on tested income for each UK company each year — comparing it against the 18.9% threshold — rather than assuming the exclusion applies automatically because the headline UK rate is 25%.
Foreign Tax Credits and GILTI
Why GILTI FTCs Are Limited for Individuals
Where the GILTI high-tax exclusion does not fully eliminate the GILTI inclusion — for example, where some tested income was taxed at a rate below the threshold — a foreign tax credit is available against the US tax on the remaining GILTI inclusion. Furthermore, the foreign tax credit for GILTI is limited to 80% of the foreign taxes paid on the tested income — meaning a UK corporation tax rate of 25% produces a GILTI foreign tax credit of 20%, not 25%. Additionally, individual US shareholders cannot claim the 50% GILTI deduction available to US C corporations — making the GILTI effective rate for individuals higher than for corporate shareholders. Consequently, accountants for US and UK who advise individual US citizens with UK companies must analyze the GILTI position at the individual level — not at the corporate level — since the individual computation produces a different result from the corporate computation.
Case Study: US Citizen Owning a UK Consulting Company
Our team advises a US citizen who owns 100% of a UK management consulting company. Furthermore, the company generates approximately £180,000 of annual trading profit — all from unrelated UK corporate clients. Additionally, the company holds approximately £35,000 of cash invested in a UK money market account, earning approximately £1,200 of interest per year. UK corporation tax at 25% applies to the full trading profit and interest income.
The accountants for US and UK analysis for each year are as follows. First, the trading profit of £180,000 is tested income for GILTI purposes — the company has minimal tangible assets, so substantially all net tested income is GILTI. Furthermore, the effective UK tax rate on the tested income is 25% — which exceeds the 18.9% threshold — so the GILTI high-tax exclusion election is made on Form 5471, reducing the GILTI inclusion to zero. Additionally, the £1,200 of interest income is Foreign Personal Holding Company Income for Subpart F purposes — but the effective UK tax rate on the interest at 25% also exceeds the 18.9% Subpart F high-tax exception threshold, so the interest is also excluded from current inclusion. Consequently, the US shareholder has no current-year US income inclusion from the UK company under either GILTI or Subpart F — the UK trading profits accumulate in the company free of US annual inclusion, with US tax arising only when dividends are eventually declared. The annual Form 5471 is filed with the high-tax exclusion election and the Subpart F high-tax exception elected.
Common Mistakes With GILTI and Subpart F
Not Filing Form 5471
The most consequential error is owning a UK CFC and not filing Form 5471 — regardless of whether GILTI or Subpart F produces any US income inclusion. Furthermore, the $10,000 per year Form 5471 penalty applies even where the high-tax exclusion eliminates any US tax on the company income. Additionally, the statute of limitations on the income tax return does not begin running until Form 5471 is filed. The correct approach requires accountants for US and UK to file Form 5471 for every year of UK company ownership from year one — not only in years where GILTI or Subpart F income is included. IRS Form 5471 guidance is at https://www.irs.gov/forms-pubs/about-form-5471.
Not Electing the High-Tax Exclusion
The GILTI high-tax exclusion and the Subpart F high-tax exception are both elections — they do not apply automatically. Furthermore, where the election is not made on Form 5471 for a year in which the company qualifies, the GILTI inclusion or Subpart F income is included in the US shareholder's income unnecessarily. The correct approach requires accountants for US and UK to make the high-tax exclusion election on Form 5471 for every qualifying year — and to calculate the effective tax rate on tested income annually to confirm the election is available.
Assuming the 25% UK Rate Always Satisfies the Threshold
The GILTI high-tax threshold is 90% of the US corporate rate — 18.9% — applied to the effective tax rate on tested income, not the headline UK rate. Furthermore, where a UK company has reliefs, deductions, or carries forward losses that reduce the effective rate below 18.9%, the high-tax exclusion does not apply for that year. The correct approach requires a specific effective tax rate calculation for each UK company each year — not a blanket assumption that 25% headline rate always satisfies the threshold. HMRC corporation tax guidance is at https://www.gov.uk/guidance/corporation-tax-rates.
How US-UK Tax Can Help
At US-UK Tax, our team of Enrolled Agents, Chartered Tax Advisers, and Certified Public Accountants provides specialist accountants for US and UK services for US citizens who own UK companies. Furthermore, we prepare Form 5471 annually with the complete financial schedules, calculate the effective UK tax rate on tested income for each CFC, make the GILTI high-tax exclusion election where the threshold is met, assess Subpart F income categories in the company accounts, and advise on the timing of dividend distributions to minimize the combined UK and US tax. Additionally, we correct prior-year Form 5471 gaps through the streamlined procedures where the annual filing obligation was not previously met.
Contact our team today. Email hello@us-uktax.com, call 0333-8807974, or visit https://www.us-uktax.com/contact/.
Conclusion
GILTI and Subpart F require annual analysis for every US citizen who owns a UK limited company — but since the UK corporation tax rate increased to 25%, the high-tax exclusion eliminates the GILTI and Subpart F inclusion for most profitable UK trading companies. Furthermore, accountants for US and UK who calculate the effective tax rate annually, make the high-tax exclusion election where applicable, and file Form 5471 correctly ensure that the UK company's trading profits accumulate without unnecessary inclusion of current-year US income. Moreover, the Form 5471 filing obligation applies regardless of whether any GILTI or Subpart F income is included — making it the non-negotiable annual compliance baseline for every US citizen who owns a UK company. Contact US-UK Tax at hello@us-uktax.com or call 0333-8807974 today.
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FAQs
Q: What is GILTI and does it affect my UK company?
A: GILTI requires US shareholders of CFCs to include a portion of the CFC net income in their US income annually. Since the UK corporation tax rate increased to 25% in 2023, most profitable UK trading companies qualify for the GILTI high-tax exclusion — reducing the US inclusion to zero — provided the election is made on Form 5471.
Q: What is Subpart F income?
A: Subpart F income covers certain passive and moveable income earned by a CFC — including dividends, interest, rents, and royalties — that is currently included in the US shareholder's income regardless of distribution. The UK 25% corporation tax rate typically satisfies the Subpart F high-tax exception, excluding most UK company income from current inclusion.
Q: Must I file Form 5471 even if I owe no US tax on the company?
A: Yes. Form 5471 is an information return required for every year of UK company ownership where the shareholder is a US person with 10% or more. The $10,000 penalty applies regardless of whether any US tax is due. Filing is mandatory even where the GILTI high-tax exclusion eliminates the US income inclusion.
Q: Does the 25% UK corporation tax rate eliminate GILTI?
A: In most cases, yes — where the effective tax rate on tested income is at or above 18.9% (90% of the 21% US corporate rate). However, companies with small profits taxed at 19%, or companies with significant reliefs reducing the effective rate below 18.9%, do not qualify for the high-tax exclusion.
Q: Is the GILTI high-tax exclusion automatic?
A: No. It is an annual election made on Form 5471. Where the election is not made in a qualifying year, the GILTI inclusion applies even where the UK effective tax rate exceeds the threshold. Accountants for the US and UK must make the election explicitly on Form 5471 each year the company qualifies.
Q: What happens if I have not filed Form 5471 for prior years?
A: Prior-year Form 5471 gaps can be corrected through the IRS Streamlined Foreign Offshore Procedures — covering three years of amended returns with Form 5471 attached, alongside six years of FBARs, and a 5% miscellaneous penalty on the highest FBAR balance. The streamlined program provides penalty protection against a $ 10,000-per-year penalty for the three covered years.
