If GILTI/NCTI is the problem that catches US owners of UK companies off guard, the Section 962 election is one of the most important solutions. It addresses the single most painful quirk of the regime — that an individual normally can't use their company's UK tax to offset the US charge on retained profits — and it can turn a nasty double-tax outcome into something far more manageable. This guide explains how it works and when it's the right move.
The short answer
A Section 962 election lets a US individual be taxed on their GILTI/NCTI (and Subpart F) inclusions at corporate rates, and — crucially — credit the company's UK Corporation Tax against that US charge. Without it, an individual generally can't use those foreign taxes against GILTI/NCTI, which causes double taxation on retained UK company profits. With it, the inclusion is often dramatically cheaper, sometimes eliminated. The trade-off is annual complexity and the possibility of additional US tax when the earnings are later distributed.
Key takeaways
- A Section 962 election makes a US individual's GILTI/NCTI taxed at corporate rates.
- It unlocks the corporate-level deduction and lets the company's UK tax be credited.
- Without it, individuals generally can't credit foreign tax against GILTI/NCTI — causing double taxation.
- It's an annual election, so you can use it only in the years it helps.
- Future distributions of the taxed earnings can face additional US tax — so it's partly a timing tool.
Executive summary
The Section 962 election exists to fix a structural unfairness: GILTI/NCTI taxes a US individual on a foreign company's retained profit, but the individual — unlike a US corporation — normally can't use the company's foreign taxes or the corporate-level deduction to soften the blow. Section 962 lets the individual elect to be taxed as if they were a corporation on that inclusion. The result: the inclusion is taxed at corporate rates, the related deduction applies, and the company's UK Corporation Tax becomes creditable. For a UK company paying real UK tax and retaining profit, this often reduces the US charge to little or nothing. The complications are that it's an annual, tracking-heavy election, and that later distributions of those earnings can attract further US tax — so the benefit is sometimes a deferral rather than a permanent saving.
The problem it solves
Recall the core GILTI/NCTI trap (covered in full in GILTI/NCTI rules for Americans with UK companies): the US taxes a US individual currently on their CFC's retained profit, but an individual generally can't credit the company's UK Corporation Tax against that US tax. So even though the UK already taxed the profit, the US taxes it again in the owner's hands — genuine double taxation.
A US corporation in the same position can use those foreign taxes and a deduction to reduce the charge. Section 962 lets an individual borrow that corporate treatment for the inclusion. That's the whole idea.
How the election works
When you make a Section 962 election:
- your GILTI/NCTI (and Subpart F) inclusion is taxed at corporate rates rather than your individual rate;
- you can claim the corporate-level deduction associated with the regime;
- you can credit the company's foreign taxes (the UK Corporation Tax it paid) against the US charge.
For a UK company paying substantive UK Corporation Tax, those foreign taxes are often enough to offset most or all of the US GILTI/NCTI tax — which is exactly the relief an individual otherwise lacks. This is why, for retained-profit UK companies, the Section 962 election is frequently the centrepiece of the US tax plan.
The catch: later distributions
The election isn't always a permanent win. When the company later distributes the earnings that were taxed under a Section 962 election, those distributions can face additional US tax at that point (beyond the amount already taxed). In effect, part of the benefit can be a timing shift — you've reduced the current charge, but some tax may resurface on distribution. Whether the election is a true saving or mainly a deferral depends on your distribution plans, which is why it's modelled, not assumed.
Section 962 vs check-the-box — choosing the right election
These are the two main elections for a US-owned UK company, and they're not interchangeable — they solve different problems:
| Section 962 | Check-the-box (disregarded) | |
|---|---|---|
| Keeps corporate treatment? | Yes | No |
| Removes GILTI/NCTI? | No — makes it cheaper | Yes — removes CFC status |
| Self-employment tax risk? | No | Possible (Schedule C) |
| Deemed liquidation? | No | Yes |
| Best for | Retaining profit, real UK tax paid | Single owner, extracts most profit |
| Lock-in | Annual choice | 60-month lock |
In short: Section 962 is the tool when you want to keep the company as a corporation but make the GILTI/NCTI inclusion affordable. Check-the-box is the tool when you'd rather the company not be a corporation for US tax at all. The right one depends on whether you retain or extract profit, your UK tax paid, and your tolerance for the deemed liquidation — a genuine side-by-side modelling exercise.
When a Section 962 election tends to win
- Your UK company pays meaningful UK Corporation Tax (so there's foreign tax to credit).
- You retain profit in the company, creating a GILTI/NCTI inclusion to manage.
- You want to keep corporate treatment (liability, extraction flexibility) rather than disregard the entity.
- You're prepared for the annual tracking and to evaluate distributions carefully.
Common mistakes we see
- Not making the election and overpaying US tax on retained profit that the UK already taxed.
- Assuming it's permanent and forgetting the distribution-stage tax.
- Confusing it with check-the-box — they're different tools for different goals.
- Making it once and forgetting it — it's an annual decision that should be re-evaluated.
- Trying to handle the tracking without specialist help — the basis and credit accounting is genuinely intricate.
Related reading
- GILTI/NCTI rules for Americans with UK companies — the regime this election is designed to manage.
- Check-the-box election for a UK limited company — the alternative election, compared above.
- How UK corporation tax and US tax interact — the double-taxation picture this fits into.
This article is general information, not personalised advice. A Section 962 election is a powerful but intricate tool whose value depends on your UK tax paid, retention and distribution plans, and it must be re-evaluated each year. Book a free consultation and we'll model whether a Section 962 election — or an alternative — leaves you better off on your UK company's profits.