Andorra vs UK for British Entrepreneurs: What the New Tax Treaty Changes in 2026

The relationship between the UK and Andorra just changed forever. On December 22, 2025, the Convention between Andorra and the United Kingdom for the Elimination of Double Taxation on Income and Capital officially entered into force — the first-ever tax treaty between Andorra and the UK, and one of the most significant developments for British entrepreneurs considering a move to the Principality.

For years, the absence of a double taxation agreement between the two countries was a serious obstacle. British business owners interested in Andorra’s favorable tax environment had no formal mechanism to avoid being taxed twice on the same income. That era is over.

In this article, we analyze what the new treaty means in practice, compare both countries’ tax systems side by side, and explain why 2026 could be the best year for British professionals to consider Andorra as a base.

Why This Treaty Matters

Before this agreement, the UK and Andorra had no framework for coordinating how cross-border income was taxed. A British entrepreneur who relocated to Andorra could, in theory, face tax claims from both HMRC and Andorran tax authorities on the same income — especially on dividends, interest, and business profits.

The new treaty eliminates this risk by establishing clear rules on which country has the right to tax each category of income. It also includes provisions for the exchange of tax information, which is an important signal: Andorra is no longer a jurisdiction operating in opacity. It is now fully aligned with international transparency standards, including the OECD’s Common Reporting Standard (CRS).

This is Andorra’s 11th double taxation convention, joining existing agreements with countries like France, Spain, Portugal, Luxembourg, and the UAE.

When Does the Treaty Apply?

The effective dates differ by tax type and country:

In Andorra:

• Withholding taxes and other taxes: from January 1, 2026

In the UK:

• Withholding taxes: from February 1, 2026
• Corporation tax: from April 1, 2026
• Income tax and capital gains tax: from April 6, 2026

For British entrepreneurs planning a move, the key date is April 6, 2026 — the start of the UK’s 2026/27 tax year. From that point, the treaty’s full protections are available on both sides.

Key Treaty Provisions

The treaty follows the OECD model and covers the main categories of cross-border income:

Interest is taxed exclusively in the country where the beneficial owner resides. This means that if you’re tax resident in Andorra and receive interest from UK bank accounts or bonds, only Andorra can tax that income — and Andorra’s rate on interest is just 10%, with the first €3,000 from savings accounts fully exempt.

Dividends are covered by standard treaty provisions. Andorra already taxes dividends from local companies at 0% for both residents and non-residents. For dividends received from UK companies, the treaty ensures that both countries cannot fully tax the same payment, using the tax credit method to eliminate double taxation.

Business profits are generally only taxable in the country where the enterprise is resident, unless it operates through a permanent establishment in the other country.

Employment income is normally taxable in the country where the work is performed, with specific exceptions for short-term assignments.

Elimination of double taxation works through the tax credit method in both directions. If Andorran tax is paid on UK-source income, the UK will grant a credit for the Andorran tax already paid, and vice versa.

The treaty also includes a tie-breaker rule for individuals who could be considered tax resident in both countries. Residence is determined based on: permanent home, center of vital interests, habitual abode, and nationality — applied in that order.

UK vs Andorra: Tax Comparison for 2026

The tax gap between the UK and Andorra has never been wider. The UK has been progressively increasing its tax burden, while Andorra maintains one of Europe’s most competitive systems.

Personal Income Tax

UK (2026/27):

• Personal allowance: £12,570 (frozen until 2031)
• Basic rate: 20% (up to £37,700 above the allowance)
• Higher rate: 40% (£37,701 to £125,140)
• Additional rate: 45% (above £125,140)

Andorra:

• 0% on the first €24,000
• 5% from €24,001 to €40,000
• 10% above €40,000

An entrepreneur earning €100,000 would have an effective rate of approximately 7.6% in Andorra, compared to around 27% in the UK on equivalent income.

Corporate Tax

UK:

• 19% on profits up to £50,000
• 25% on profits above £250,000
• Marginal relief between £50,000 and £250,000

Andorra:

• Flat 10% rate on all business profits
• 2% for investment management companies
• 0% for qualifying holding companies

Capital Gains Tax

UK (from April 2026):

• 18% for basic rate taxpayers
• 24% for higher and additional rate taxpayers
• Business Asset Disposal Relief rate rises to 18% (from 14%)
• Annual exemption: just £3,000

Andorra:

• 0% if you own 25% or less of the company
• 10% if you own more than 25%
• 0% regardless of holding if held for more than 10 years

British investors holding cryptocurrency will also find Andorra compelling: the maximum 10% rate applies to crypto gains, compared to the UK’s 24% CGT rate on digital assets. See our complete guide to cryptocurrency taxes in Andorra for the full breakdown.

Dividend Tax

UK (from April 2026):

• 10.75% basic rate (up from 8.75%)
• 35.75% higher rate (up from 33.75%)
• 39.35% additional rate
• Dividend allowance: just £500

Andorra:

• 0% on dividends from Andorran companies
• Foreign dividends included in IRPF at standard rates (maximum 10%)

Wealth and Inheritance Tax

UK:

• 40% inheritance tax on estates above £325,000
• Business and agricultural property reliefs capped from April 2026 (£1 million cap on 100% relief)

Andorra:

• No wealth tax
• No inheritance tax

VAT

UK: 20% standard rate

Andorra (IGI): 4.5% standard rate

The UK’s Shifting Tax Landscape Makes Andorra More Attractive

Several UK tax developments in 2025-2026 are pushing British entrepreneurs to consider alternatives more seriously:

The end of the non-dom regime. From April 2025, the UK abolished the remittance basis for non-domiciled individuals. The new “Foreign Income and Gains” (FIG) regime offers just four years of relief for eligible new residents — far less generous than the old system. For internationally mobile entrepreneurs who previously relied on non-dom status, this represents a significant tax increase. The consequences were immediate: 16,500 millionaires left the UK in 2025 — the largest single-country exodus ever recorded.

Frozen thresholds until 2031. Income tax thresholds have been frozen since 2021 and will remain so until at least April 2031. With inflation, this means more income is pushed into higher tax bands every year — a phenomenon known as “fiscal drag.”

Dividend and capital gains tax rises. The April 2026 changes to dividend rates (2% increase at basic and higher bands) and the BADR increase to 18% make it more expensive to extract profits from a company or sell it.

Making Tax Digital. From April 2026, self-employed individuals and landlords with income above £50,000 must submit quarterly digital reports to HMRC, adding administrative burden.

What Andorra Offers British Entrepreneurs

Beyond tax rates, Andorra offers several structural advantages:

A real European base. Andorra sits in the Pyrenees between France and Spain, with excellent connectivity to Barcelona (2.5 hours) and Toulouse (3 hours). It offers high quality of life, safety, and a multilingual business environment.

Simple, predictable tax system. Andorra’s entire tax code occupies a fraction of the UK’s tax legislation. There are three income tax brackets, a single corporate tax rate, and minimal complexity in deductions and exemptions.

No wealth or inheritance tax. This is increasingly rare in Europe and particularly valuable for business owners building long-term wealth.

Growing treaty network. With the UK now on board, Andorra has 11 double taxation conventions, plus 24 Tax Information Exchange Agreements. Negotiations continue with Belgium and Montenegro, and new agreements are planned with countries like Hong Kong and Peru.

0% on local dividends. An entrepreneur who sets up and runs a company in Andorra pays 10% corporate tax on profits and 0% when those profits are distributed as dividends. The combined effective rate on business income extracted as dividends is just 10% — compared to approximately 50% at the highest UK income levels when corporate and dividend taxes are combined.

What to Consider Before Making the Move

Relocating from the UK to Andorra isn’t a decision to take lightly. Here are the key factors to evaluate:

Residency requirements. To become an Andorran tax resident, you need to spend more than 183 days per year in the country. Active residency requires establishing a business or working locally, with a minimum investment of €50,000. Passive residency now requires a minimum investment of €1 million following the Omnibus 2 Law passed in January 2026.

UK exit taxes. The UK may apply exit charges on certain assets and may continue to tax you if you maintain significant ties. Professional advice to cleanly cut UK tax residency is essential.

The Statutory Residence Test. The UK uses a detailed test to determine tax residency. Simply moving to Andorra doesn’t automatically end UK tax obligations — you need to carefully manage day counts and ties.

New passive residency costs. Andorra’s Parliament significantly raised the bar in January 2026: passive residency now requires €1 million in Andorran assets (or €800,000 in real estate), and the AFA deposit is no longer refundable. Active residency remains more accessible at €50,000.

Treaty tie-breaker rule. If you find yourself potentially resident in both countries during a transition year, the treaty’s tie-breaker rules will determine which country taxes you as a resident. Having your permanent home and center of vital interests clearly in Andorra is essential.

Conclusion

The Andorra-UK double taxation treaty removes the last major structural barrier for British entrepreneurs considering Andorra. For the first time, there’s a clear, legally binding framework that prevents double taxation and provides certainty about how cross-border income will be treated.

Combined with the UK’s increasingly hostile tax environment — frozen thresholds, dividend and capital gains tax rises, the end of non-dom status, and expanding compliance requirements — Andorra’s proposition has never been stronger for British business owners.

The numbers speak for themselves: a maximum 10% income tax, 10% corporate tax, 0% on local dividends, no wealth tax, no inheritance tax, and 4.5% VAT. All within a stable, transparent European jurisdiction now fully connected to the UK through a modern tax treaty.

Want to know exactly how much you could save? Use our free tax calculator to compare your personal tax burden in the UK versus Andorra, based on your specific income, business structure, and family situation.

Sources

1. KPMG TaxNewsFlash — “Andorra: Income tax treaty with UK enters into force” (February 2026).
2. UK Government Legislation — The Double Taxation Relief and International Tax Enforcement (Andorra) Order 2025.
3. Carlota Pastora Advocats (Andorra) — “UK–Andorra Tax Treaty: Key Provisions” (May 2025).
4. Andorra Solutions — “Andorra and United Kingdom sign double taxation agreement” (May 2025).
5. Deloitte UK — Tax rates 2026/27 following Autumn Budget 2025.
6. Association of Taxation Technicians (UK) — “2026/27 Tax year updates & housekeeping for individuals”.
7. Morningstar UK — “Your UK Tax Calendar for 2026 and Beyond” (January 2026).
8. Office for Budget Responsibility (UK) — Capital Gains Tax rates and forecasts.
9. GOV.UK — Capital Gains Tax rates and allowances 2025/26.
10. PwC Tax Summaries — United Kingdom: Individual taxes on personal income.
11. Immigrant Invest — “Andorra Investor Residency New Rules: €1M Minimum” and “Andorra Tax Rates in 2026”.
12. AndorraInc — “FULL Guide to All Andorran Taxes (Updated 2026)” and “Andorra Dividend Taxes Explained”.

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Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. Tax situations are individual and the interaction between UK and Andorran tax regulations can be complex. Always consult a qualified tax professional before making residency or relocation decisions.