Found iPhone 5 with no sim, is it safe to sell or use?

It has no sim and when I turned it on, its the initial setup, like choosing country and stuff, i'm from the UK.

Should be, and if it completely wiped then you can't return it to anyone

Will need to check if the phone is locked to a specific network… Else there might not be a way of tracing it…

No, someone will likely report it as lost and then it will be blocked via the IME number and will stop working, don't sell it on to someone else whose money you will take in exchange for a phone that in all likeliness will probably stop working in the next week or two, that is just a nasty thing to do, hand it in to the police station, someone may have just bought it and be really upset at losing it.

No. You have few things to consider:-

1.It's not yours. By failing to hand it in you are committing theft: what would you want someone to do if they found your phone? There might even be a reward for it's return.

2. You can't be absolutely certain that there's no tracking software installed. You certainly won't be happy if it's been reported stolen and police find you in possession of it. Is the benefit of a few hundred £/$/€ worth the risk of a criminal conviction and the constant worry that every time you turn the phone on you might get into trouble.

3. Maybe you'll just sell it. If the sale gets traced back to you then you face a criminal charge of handling stolen property.

Do the right thing and hand it in to police. In most civilised countries the property becomes yours legally if the owner doesn't come forward to claim it after a set period (six months in the UK).