On 21 May 2026, the UK government announced that UK-resident companies will be required to exclude profits and losses attributable to foreign permanent establishments (PEs) from their corporation tax computation, effectively making the existing ‘foreign branch exemption election’ mandatory. Under the current rules, a company is subject to UK corporation tax on the profits of its overseas permanent establishments (with credit given for overseas tax suffered), and any tax losses attributable to overseas permanent establishments are deductible against its taxable profits, unless the company has made an (irrevocable) election to apply the exemption to all of its permanent establishments.

For most companies, the new requirement will apply for corporation tax accounting periods beginning on or after 1 January 2027. UK-resident companies with overseas permanent establishments that carry on activities in connection with the exploration or exploitation of oil and gas will apply the new rules with effect specifically from 1 September 2026.

Existing transitional rules will be amended in relation to relieving current-regime tax losses and other attributes against UK profits that arise after the effective date. An anti-avoidance rule will be introduced to prevent arrangements intended to artificially accelerate the utilisation of tax losses or other attributes, or otherwise minimise the impact of the changes.

Draft legislation for these changes is expected to be published "over the summer".