For tax years beginning after 31 December 2025, the regime known as GILTI has a new name and a wider base. It is now net CFC tested income. The allowance that used to remove a notional return on a company's tangible assets has been repealed, and the corporate deduction and foreign tax credit rules around it were revised. For a US founder of a UK company the annual inclusion remains.
This post is for US citizens and green card holders who own a UK limited company, alone or with others. It goes further than our guide to US-UK tax for founders, fund managers and executives on this one regime: what was renamed, what was removed, how individuals are placed, and what to look at before the first return under the new rules. We quote no rates, because they differ by year and by type of taxpayer.
What is net CFC tested income?
Net CFC tested income is the amount a US shareholder of a controlled foreign corporation must include in income each year under section 951A. It is the shareholder's share of the tested income of all their CFCs, less their share of any tested losses. It is the inclusion that used to be called GILTI, under a new name.
Tested income is, broadly, the company's gross income less the deductions that belong to it, after leaving out certain categories, of which income already taxed under Subpart F is the main one. What is left for an ordinary UK trading company is most of its profit. The figure is measured under US tax principles, not taken from the UK accounts, and it is the shareholder who is taxed on it, in the year the company earns it.
The old name misled people for years. Global intangible low-taxed income sounded like a rule for technology groups holding patents in low-tax countries. In practice it reached the trading profit of a one-person consultancy in a country, like the UK, whose company tax is not low. The 2025 legislation removed the term from the Code. The IRS page for Form 8992 (opens the official IRS page in a new tab) still carried the old title when we checked it for this post, and a revised form for the new rules had not been published.
What changed for tax years beginning after 31 December 2025?
Three things matter to a founder. The inclusion was renamed. The deduction for a deemed return on tangible assets was removed, so the inclusion is now the whole of net tested income. And the corporate deduction and the foreign tax credit rules that apply to the inclusion were amended.
Under the old rules, a shareholder reduced the inclusion by a fixed return on the company's depreciable tangible property. A company with a factory or a fleet of vehicles could shelter part of its profit. A service company with laptops and a lease got almost nothing from it. Guidance published in the Internal Revenue Bulletin (opens the official IRS page in a new tab) describes the amended law as removing the deemed tangible income return from the calculation. For most UK companies owned by US founders, which hold few tangible assets, that part of the change makes little difference.
The corporate deduction against the inclusion, claimed on Form 8993 (opens the official IRS page in a new tab), was reset, and the foreign tax credit limitation rules for the inclusion were revised in the same legislation. Regulations putting those changes into effect were still in proposed form when this post was written. We give no percentages for that reason, and because an individual does not receive the corporate deduction or the credit by default in any case.
- Renamed: GILTI becomes net CFC tested income
- Removed: the allowance for a deemed return on tangible assets
- Revised: the corporate deduction claimed on Form 8993
- Revised: the foreign tax credit rules for the inclusion
- Revised: the pro rata share rules, which matter when shares change hands
Does it still apply to a small UK company?
Yes. The regime has no minimum size and no exemption for active trading income. A UK limited company in which US shareholders together own more than half is a controlled foreign corporation, and a US person who owns a tenth or more of it is a US shareholder who computes the inclusion each year, whether or not the company pays anything out.
Take a US citizen in Bristol who is the sole shareholder and director of a UK limited company providing design services. The company pays her a salary, pays UK corporation tax on what remains, and keeps the balance for next year. Her salary is a deduction in arriving at tested income. The retained profit is not. That profit, measured under US tax principles and converted to dollars, is her net CFC tested income for the year, reported through Form 5471 and Form 8992, although she has received none of it.
The reporting comes first, and it does not depend on the tax. Our post on Form 5471 for a one-person UK limited company covers the schedules, and the Form 5471 instructions (opens the official IRS page in a new tab) set out the categories of filer and the ownership tests, which count shares held indirectly and through certain family members and entities. Whether US tax results from the inclusion depends on the profit left in the company and on the options discussed below.
How is an individual shareholder taxed on it?
By default, at ordinary US rates on the whole inclusion, with no deduction and no credit for the UK corporation tax the company paid. The deduction and the credit for the company's tax belong to US corporate shareholders. An individual has to elect into that treatment, or use another route, to avoid US tax on profit already taxed in the UK.
That default is why the regime weighs on founders more than its name suggests. UK corporation tax is charged at a main rate of 25%, with a small profits rate of 19%, as the GOV.UK page on corporation tax rates (opens the official GOV.UK page in a new tab) sets out. The company has paid that. Without an election, the founder is then taxed in the United States on the same profit, and the UK tax is not hers to credit, because the company paid it and she did not.
Income taxed under the regime becomes previously taxed, and can generally be distributed later without a second US income tax charge. That makes record keeping part of the computation. A dividend paid in a later year has to be traced to the years in which the profit was included, and the UK tax on that dividend, charged on the founder personally, raises a separate credit question on Form 1116. Our post on salary or dividends for a US founder deals with that choice.
What options are there to review?
Three are usually considered: a section 962 election, the high-tax exception, and a change in how the company is classified for US purposes. They are options to review, not recommendations. Each has costs, each interacts with the others, and the 2025 changes altered the arithmetic of the first two.
A section 962 election lets an individual be taxed on the inclusion as if a US corporation, which brings in the corporate deduction and a credit for the company's UK tax. The price is a further US charge when the profits are eventually distributed. The high-tax exception is an election to leave out income that has borne foreign tax above a threshold set by reference to the US corporate rate. Whether UK profits clear it depends on the effective rate computed under US rules, which is not the same as the headline UK rate.
The third route changes the question. A UK limited company can in many cases elect to be treated for US purposes as something other than a corporation, so that there is no foreign corporation and no inclusion, and the owner is taxed on the profit directly with a credit for UK tax. That swaps one set of problems for another, including the timing of the election and how the owner's earnings are then taxed, and it is covered in the guide. Our international tax service models the alternatives on the company's real figures.
- Section 962 election: corporate-style treatment, with a later charge on distributions
- High-tax exception: depends on the effective rate under US rules
- Entity classification: removes the corporation, with consequences of its own
- Salary level: profit paid out as salary is not tested income
What should a founder do before the first return under the new rules?
Model the first affected year before it is filed, and where possible before it ends. An election that suited the old rules may not suit the new ones, and elections are made with the return for the year. The work needs the company's results restated under US principles, which takes longer than most founders expect.
For a company whose US tax year is the calendar year, the first year under the amended rules is 2026, reported on returns filed in 2027. The forms will change, and final regulations on several points were outstanding when this post was written. Returns for 2025 and earlier years are still prepared under the old rules and the old name, so a founder catching up on past years is working with both.
The practical list is short. Confirm who the US shareholders are and what each owns. Bring the company's management accounts up to the year end. Decide the salary before the year closes, since that is the one choice that cannot be made afterwards. Then compare the default with the options on real numbers. We do this as part of business tax return preparation and tax planning. For how this regime sits beside Subpart F, the PFIC rules and equity pay, return to the guide to US-UK tax for founders, fund managers and executives.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
