The GILTI high-tax exclusion lets a US shareholder leave a UK company's income out of the GILTI calculation, now called net CFC tested income (NCTI), when UK tax on that income exceeds 18.9%. That threshold is 90% of the 21% US corporate rate. The election is annual, binds every controlled foreign corporation in the group, and the effective rate is measured using US tax rules, not UK accounts.
For an American who owns a UK limited company, this one election can be the difference between paying US tax on profits the company never distributed and paying nothing until dividends are actually taken. It is also easy to assume you qualify because the UK main rate is 25%, when the effective rate under US principles is lower. This guide explains how the test works, how the 2026 NCTI changes affect it, and where UK companies fail it.
What the GILTI high-tax exclusion is
Global intangible low-taxed income (GILTI) is the US anti-deferral regime in Internal Revenue Code section 951A. It taxes US shareholders each year on the active profits of a controlled foreign corporation (CFC), whether or not the profits are paid out. A UK Ltd owned more than 50% by US persons is usually a CFC. Our guide to controlled foreign corporation rules covers the ownership tests.
How the GILTI high-tax exclusion removes income
Treasury Regulation section 1.951A-2(c)(7), finalised in T.D. 9902 in July 2020, created the exclusion. If the election applies, the CFC's high-taxed income is excluded from "tested income". Therefore, it never enters the GILTI or NCTI calculation on Form 8992, and nothing is included in your US income for that year. The income stays inside the company until it is distributed.
Why individual owners need it most
A US corporation receives a section 250 deduction and an indirect foreign tax credit for UK corporation tax. An individual does not, unless they make a section 962 election. Without either, an individual pays US tax on GILTI or NCTI at ordinary rates of up to 37%, with no credit for the UK corporation tax the company already paid. The high-tax exclusion avoids that outcome altogether.
The 18.9% test and how it is measured
The test is applied to each "tested unit", which is generally each CFC, plus certain branches and interests in transparent entities that the CFC holds. A tested unit qualifies if its effective foreign tax rate exceeds 90% of the maximum US corporate rate in section 11. With the corporate rate at 21%, the threshold is 18.9%.
The effective rate calculation
The effective rate is foreign income tax attributable to the tested unit's income divided by that income, calculated under US tax principles and grossed up for the tax. In other words, you rebuild the company's profit using US rules, including US depreciation, rather than using the UK corporation tax computation. Consequently, any item that reduces UK taxable profit more than US taxable income lowers the effective rate.
UK corporation tax rates against the threshold
According to GOV.UK corporation tax rates and allowances, the UK rates for the financial years starting 1 April 2025 and 1 April 2026 are as follows.
| UK taxable profits | UK rate (FY2025 and FY2026) | Headline position against 18.9% |
|---|---|---|
| £50,000 or less | 19% small profits rate | Only 0.1 points above the threshold, so fragile |
| £50,001 to £250,000 | 25% less marginal relief (average rate between 19% and 25%) | Usually above, unless timing differences intervene |
| Over £250,000 | 25% main rate | Comfortably above, unless reliefs reduce UK tax |
The limits are reduced where a company has associated companies, so a group of small UK companies can face higher rates than one company alone.
Where UK companies fail the test
In our experience, the headline rate is rarely the problem. The problem is the gap between UK taxable profit and income calculated under US principles. Three items cause most failures.
Capital allowances versus US depreciation
The UK Annual Investment Allowance gives 100% relief on up to £1 million of qualifying plant and machinery each year. For US purposes, property used predominantly outside the United States generally falls under the alternative depreciation system in section 168(g), with slower straight-line deductions. As a result, in a year of heavy investment, UK tax falls sharply while US-measured income does not.
An illustrative example
Consider an illustrative UK consultancy with £30,000 of profit before capital allowances. It buys £20,000 of equipment and claims the Annual Investment Allowance, so UK taxable profit is £10,000 and UK tax at 19% is £1,900. Under US rules, depreciation might be only around £4,000, so US-measured income is roughly £26,000. The effective rate is therefore about 7.3%, well below 18.9%, and the exclusion is not available that year.
Research relief, losses and timing
Similarly, UK research and development relief, brought-forward losses and group relief all reduce UK tax without reducing US-measured income in the same year. Equally, timing differences can reverse in later years, so a company can pass in one year and fail the next. Because of this, the test has to be run every year.
How and when to make the election
The election is made by the "controlling domestic shareholders", generally the US shareholders who together own more than 50% of the CFC. It binds every US shareholder of that CFC, including minority owners.
Annual election and consistency rule
The election is made year by year. Importantly, it applies to every CFC in the same controlled group, so you cannot elect for one profitable UK company and leave a low-taxed Irish subsidiary out. In addition, the controlling shareholders must notify the other US shareholders of the election.
Timing and amended returns
You make the election by attaching a statement to a timely filed original return, including extensions. The regulations also allow it on an amended return filed within 24 months of the unextended due date of the original return. Therefore, owners who missed it can sometimes go back and claim it. The income is reported on Form 5471, covered in our guide to Form 5471 filing requirements, and the IRS Form 8992 page sets out the inclusion calculation.
What changed from GILTI to NCTI in 2026
The One Big Beautiful Bill Act renamed GILTI as net CFC tested income for tax years beginning after 31 December 2025. It also changed the calculation in ways that matter to UK company owners.
| Feature | GILTI (to 2025) | NCTI (2026 onward) |
|---|---|---|
| Return on tangible assets (QBAI) | 10% of QBAI excluded | Removed |
| Section 250 deduction (corporations and section 962 electors) | 50% | 40% |
| Deemed-paid foreign tax credit | 80% of foreign tax | 90% of foreign tax |
| High-tax exclusion threshold | Above 18.9% | Above 18.9% (90% of 21%) |
Why the exclusion still matters after 2026
Removing QBAI means more of a UK company's profit is exposed to NCTI. Meanwhile, the threshold is unchanged. For individuals without a section 962 election, the exclusion therefore remains the main way to avoid an annual NCTI inclusion. For section 962 electors, the 90% credit already covers much of the tax, so the comparison should be modelled both ways.
What happens when profits are later paid out
The exclusion defers US tax; it does not remove it. When the UK company later pays a dividend, the dividend is taxable to a US individual. Dividends from a UK company generally count as qualified dividends because of the US-UK treaty, taxed at 0%, 15% or 20% for 2025. UK dividend tax paid by a UK resident shareholder can then be credited on Form 1116. Our guide to salary versus dividends compares extraction routes.
Frequently Asked Questions
What is the GILTI high-tax exclusion threshold for 2026?
The GILTI high-tax exclusion threshold for 2026 is an effective foreign tax rate above 18.9%. That is 90% of the 21% US corporate rate in Internal Revenue Code section 11. The threshold applies to net CFC tested income (NCTI), the renamed GILTI regime, for tax years beginning after 31 December 2025.
Does a UK company paying 25% corporation tax automatically qualify for the high-tax exclusion?
No, a UK company paying the 25% main rate does not qualify automatically. The effective rate is measured on income calculated under US tax principles, so UK capital allowances, research relief and losses can push the effective rate below 18.9%. The test must be run for each tested unit every year.
Can a UK small company at the 19% rate use the GILTI high-tax exclusion?
A UK company paying the 19% small profits rate can qualify for the GILTI high-tax exclusion, but only just, because 19% is 0.1 points above the 18.9% threshold. Almost any difference between UK taxable profit and US-measured income, such as the Annual Investment Allowance, can make it fail. Owners should calculate the rate rather than assume it.
Who makes the high-tax exclusion election?
The controlling domestic shareholders make the high-tax exclusion election. These are generally the US shareholders who together own more than 50% of the controlled foreign corporation. The election binds every US shareholder and applies to every CFC in the same controlled group.
Can I make the GILTI high-tax exclusion election on an amended return?
Yes, Treasury Regulation section 1.951A-2(c)(7) allows the election on an amended return filed within 24 months of the unextended due date of the original return. All US shareholders affected must file amended returns for the same year. Otherwise, the election is made with a timely filed original return, including extensions.
Do UAE companies qualify for the GILTI high-tax exclusion?
UAE companies rarely qualify for the GILTI high-tax exclusion. The UAE corporate tax rate is 9% on taxable income above AED 375,000, and qualifying free zone income can be taxed at 0%, both well below the 18.9% threshold. US owners of UAE companies usually rely on a section 962 election or structuring instead.
Check the election before you file
The high-tax exclusion is one of the most valuable elections available to an American who owns a UK company, and one of the most often missed. It is also one of the easiest to claim wrongly. If you own a UK or UAE company, book a consultation with Tranzesta. We will run the effective rate test under US principles and model the exclusion against a section 962 election before your return is filed.
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