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HMRC internal manual

International Manual

HM Revenue & Customs
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Non-residents trading in the UK: through UK investment managers, brokers or Lloyd’s agents: the 20% rule: qualifying period of no more than 5 years: example

Years 1 2 3 4 5
Taxable income of non-resident 100 200 200 250 250
Entitlement of manager to above 32 58 40 35 5
Expressed as percentage of each year 32% 29% 20% 14% 2%
Average cumulative percentage over qualifying period 32% 30% 26% 22% 17%

It may be assumed that the test is satisfied for year 1 because (a) in this example it was the manager’s intention to have a beneficial entitlement to an average of 20% or less in aggregate over a five year period and (b) that intention was fulfilled. Had the 20% beneficial entitlement been achieved before the five years were complete, then that shorter period would have been the qualifying period. A second qualifying period of up to five years could include years 2, 3, 4, 5 and 6 and so on.