Helpsheets ... continued 48 from homepage

A look at the VAT position on the purchase of commercial property.

To recover the VAT on costs associated with their commercial properties, the owners of most commercial property rental businesses have opted to tax their portfolios of property and would therefore normally charge VAT on the sale of a commercial property.

Transfer of a going concern provisions - However, the transfer of a business as a going concern (TOGC) is treated as ‘neither a supply of goods nor a supply of services’ for VAT purposes and if the sale meets certain conditions, the supply is outside the scope of VAT and therefore no VAT is chargeable. The TOGC provisions can apply to the sale of an opted commercial building, provided certain conditions are fulfilled.

The basic conditions for a TOGC are:

 • an entire business or a part of the business capable of separate operation is transferred as a going concern;

 • the purchaser uses the assets in the same kind of business; and

 • the purchaser registers for VAT if not already registered or is registerable as a result of the transfer.

Conditions for a property business - Additional conditions are required to qualify as a TOGC for a property rental business:

 • The property should be tenanted.

 • The purchaser is registered for VAT and notifies HMRC of its option to tax (using form VAT 1614A) on or before the date of the transfer.

 • The purchaser notifies the vendor that the purchaser’s option will not be disapplied under the anti-avoidance provisions in Special Provisions Order (SI 1995/1268), art 5(2A).

What counts as tenanted? - Here are some examples from HMRC of when the sale of a property can be treated as a TOGC. If a business:

 • owns the freehold of a property which it lets to a tenant and sells the freehold with the benefit of the existing lease. This is a TOGC, even if the property is only partly tenanted. Similarly, if the business owns the lease of a property and it assigns the lease with the benefit of the sub-lease, this is a TOGC;

 • sells a building during an initial rent-free period;

 • granted a lease but the tenants are not yet in occupation;

 • owns a property and has found a tenant but not actually entered into a lease agreement when it transfers the property to a third party (with the benefit of the prospective tenancy but before a lease has been signed); or

 • is a property developer selling a site as a package (to a single buyer) which is a mixture of let and unlet, finished or unfinished properties, the whole site can be regarded as a TOGC.

Examples of where there is not a TOGC are where a business:

 • is a property developer and has built a building and it allows someone to occupy temporarily (without any right to occupy after any proposed sale) or it is ‘actively marketing’ it in search of a tenant;

 • sells a property where the lease that has been granted is surrendered immediately before the sale – even if tenants under a sublease remain in occupation; or

 • sells a property to the existing tenant who leases the whole premises.

This can be a very useful concession, as not only is there a cashflow saving on financing the VAT costs until the input tax on the property can be reclaimed, but there is an absolute saving on stamp duty land tax (SDLT, in England and Northern Ireland) as SDLT is charged on top of the VAT, so if the VAT is avoided there is less SDLT to pay.

Practical tip - If a business is buying an opted commercial property, it can avoid paying VAT if it can obtain TOGC status for it by registering for VAT, opting to tax and having a tenant in place at the time of the transfer.

The tax implications for a business if invoices are not paid.

Bad debts pose a significant challenge for every business. Swoop Funding’s 2025 UK business debt report (April 2025) revealed that the average debt per company stands at £365,375 – funds that could otherwise maintain healthy cashflow and financial stability for the business. Therefore, staying on top of nonpayments is essential.

However, every business will eventually encounter debts that cannot be collected. Writing off bad debts comes with specific tax implications that vary based on whether the debts are trading or non-trading, and whether the business operates as a company, sole trader, or partnership.

When can a claim be made?

Bad debt deductions are relevant only for businesses using the accruals method of accounting, as income from credit sales is recognised when the sale occurs (or invoice issued), not when payment is received. Companies and self-employed businesses with a turnover exceeding £150,000 a year are obliged to prepare their accounts using the ‘accruals’ basis. Therefore, if a debt becomes uncollectible, a deduction is needed to adjust for the invoice that was previously included in the accounts.

HMRC allows for the write-off of bad debts; but, as ever, conditions apply. Relief can be claimed on debts that are irrecoverable or considered to be so. This covers situations where the debtor cannot be traced, has been declared bankrupt or the company has been liquidated (HMRC will accept court documents as evidence of non-recovery, unless the liquidator indicates that some payments will be made). Relief is also possible in cases where the creditor believes that payment is unlikely.

Make an effort

Once potential bad debts are identified, HMRC expects the creditor to have made reasonable and proportionate efforts to recover the amounts owed, including records supporting the decision.

For relatively small debts, a few automated reminder letters may suffice. If no payment is received, the creditor can apply bad debt relief by deducting from profit – HMRC will likely accept a claim. Debts of more significant amounts (e.g., £10,000 or more) will require the claimant to take additional steps, such as employing a debt collector. Be aware that many debt collectors will not take on debts of less than £600.

Bad debt relief is granted in the period when the business determines that a debt is irrecoverable, preferably in the same period the invoice was issued. This way, tax will not be payable on unpaid invoices. If the debt is not identified until the following period, it may take a full year before relief is granted.

VAT implications

If the supplier is VAT-registered, bad debt relief (BDR) can be claimed if the goods have been supplied or services provided but payment has not been made.

To claim BDR, the following conditions must be met for each individual invoice:

 • The VAT on the supply must have already been accounted for and paid to HMRC.

 • The debt must be written off in the supplier’s regular VAT accounts and transferred to a separate bad debt account.

 • The value of the supply must not exceed the usual selling price.

 • The debt should not have been paid, sold, or factored through a valid legal assignment.

 • The debt must remain unpaid for at least six months after the later of the payment due date or the supply date. If an invoice does not specify a payment date, the invoice date is used.

What happens if the debt is paid? If the debt is eventually paid after relief has been claimed, the payment will be classified as income for the year it is received.

If VAT was previously reclaimed, the supplier business will need to repay this VAT.

Practical tip

HMRC rarely accepts ‘general provisions’ for debts. Therefore, it is essential to maintain records of which debts have been reviewed, when they were reviewed, why the debt is believed to be uncollectible, and what actions have been taken to recover. A written debt chase and recovery policy is essential

Significant points

Personal tax allowances and rates on general income frozen for a further three years to April 2031

Also frozen: NICs employer threshold and upper earnings limit, and IHT nil band, to April 2031; Plan 2 Student Loan repayment threshold to April 2030

No immediate changes to reliefs on pension schemes, but salary sacrifices above £2,000 to be subject to National Insurance from April 2029

Increases in income tax rates on dividend income from April 2026, and on rental and savings income from April 2027

Only minor changes to Inheritance Tax rules announced last year

ISA investment limits and rules remain the same, but from April 2027 new £12,000 limit for cash within the £20,000

Corporation tax rates unchanged, but Writing Down Allowances reduced from April 2026; new FYA from 1 January 2026

Council tax surcharge on properties worth over £2 million to apply from April 2028

Personal Income Tax

Tax rates and allowances – 2026/27

In 2023, the previous Chancellor announced that the main personal allowance and the 40% threshold will remain at their 2022/23 levels until the end of 2027/28. In a major tax raising measure, Chancellor Reeves has extended this freeze to the end of 2030/31, in spite of stating explicitly in last year’s Budget that the normal increases in the thresholds would resume in April 2028.

This has been widely criticised as a ‘stealth tax’, in that it increases the amount collected without explicitly increasing rates or reducing allowances. For example, a person with a salary of £50,270 will pay £7,540 in income tax in 2025/26; if their income increases by 10% to £55,297 in any of the years to 2030/31, all of the increase will be taxed at 40%, and they will pay £9,551. The forecasts accompanying the Budget show expected revenue of over £12 billion from this in 2030/31, the largest tax-raising measure in the table.

The income level above which the personal allowance is tapered away also remains £100,000; it will be reduced to zero when income is £125,140, which is also the threshold for paying 45% tax. In the tapering band, the loss of tax-free allowance creates an effective marginal rate of 60%. Once again, annual increases in income will bring more people into these higher rates.

Dividend income - The dividend allowance exempts some dividend income from tax, although that income still counts towards the higher rate thresholds. For 2026/27, the allowance is unchanged at £500. As HMRC does not routinely receive information about dividends received by taxpayers, this low limit is likely to require people to file tax returns to declare even small tax liabilities on dividends.

In 2026/27, the basic and higher rates on dividend income over £500 will rise by 2% to 10.75% and 35.75%; the additional rate will remain 39.35%.

The higher rate also applies to tax payable by close companies (broadly, those under the control of five or fewer shareholders) on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period. This therefore also increases to 35.75% from 6 April 2026.

Dividends arising in an ISA or a qualifying VCT are not taxed and do not count towards the allowance.

Savings income and property income - The savings allowance remains £1,000 for basic rate taxpayers, £500 for 40% taxpayers and nil for 45% taxpayers. People with savings income above these limits may have to declare it in order to pay tax.

The savings rate band remains at £5,000. Non-savings income is treated as the ‘first slice’ of income, using the tax-free allowance and the savings rate band; if any of the £5,000 band is not used by this ‘slice’, any savings income falling within that band is taxed at 0%.

The Chancellor announced an increase in the tax rates applicable to income from property and savings to apply from April 2027. The basic, higher and additional rates on rental and savings income will all rise by 2% in 2027/28 to 22%, 42% and 47%.

From April 2027, there will be new rules about the order in which certain tax reliefs are deducted from income, so that they must be set first against income which is taxable at the lower rates before they can be set against savings, rental and dividend income.

The Budget document points out that 90% of people do not pay tax on savings income; however, for those whose income from these sources exceed their tax-free allowances, it will be necessary to calculate and settle the liability each year.

These tax increases make tax-free Individual Savings Accounts even more attractive, as any income or gains arising within an ISA are tax-free.

Winter fuel payment - Earlier this year, the government relented and restored the Winter Fuel Payment to pensioners. However, it will be clawed back through the tax system from anyone with income of over £35,000. This can be avoided by disclaiming the payment in advance. The threshold of £35,000 will remain fixed for the duration of this Parliament.

Thresholds and rates

There has been a great deal of debate about the effect on employment and business of the increases in employer NICs that took effect on 6 April 2025 following the Chancellor’s first Budget in October 2024. In the present Budget, no changes were announced – the £5,000 threshold for secondary contributions will remain fixed until April 2031 (in the 2024 Budget, the Chancellor said this figure would rise with inflation after April 2028). The Upper Earnings Limit for employee contributions is linked to the 40% income tax threshold, and is therefore also fixed to the same date.

The Lower Earnings Limit and Small Profits Threshold will be increased for 2026/27 in line with inflation at 3.8%.

Class 2 NICs

It has been possible to ‘buy in’ to the State pension by paying voluntary Class 2 NICs in certain circumstances. The Budget included measures to restrict the availability of this route to a State pension for people resident outside the UK with effect from 6 April 2026. There will be a wider review of voluntary NICs in the new year

Savings and Pensions

Individual Savings Accounts (ISA)

The investment limits for ISA have not changed since 2017/18: they are £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund. These will now remain fixed until 5 April 2031.

From 6 April 2027, no more than £12,000 of the £20,000 will be eligible for investment in a cash ISA, apart from ISAs for those aged 65 and over. The Chancellor presented this as an encouragement to invest in stocks and shares, which have performed substantially better than cash deposits over the years since ISAs were introduced.

Pension contributions

Among the rumours circulating in advance of the Budget was the possibility of restrictions on tax-free pension lump sums or the amounts that can be invested with tax relief. In the event, the Chancellor made no immediate changes to the reliefs available.

The maximum amount that can be withdrawn as a tax-free lump sum remains £268,275 unless the person is entitled to ‘protection’ in relation to the original introduction of the Lifetime Allowance or any of the subsequent reductions of the limit.

The only change relating to pension funds was another measure that was widely predicted: a restriction on ‘salary sacrifice’ arrangements. From April 2029, full tax relief on such an arrangement will be restricted to a contribution of £2,000. On amounts in excess of that, employer and employee NICs will be due as if cash salary has been paid (although the contribution will still be free of income tax).

Venture capital schemes

Generous tax reliefs are available for those who invest in Enterprise Investment Scheme (EIS) companies or Venture Capital Trusts (VCTs), which are quoted investment trusts that invest in EIS-type companies. These schemes have a lot of detailed conditions attached to them, some of which are being changed to make the schemes available to larger companies.

The gross assets requirement that a company must not exceed for the EIS and VCT will increase to £30 million (from £15 million) immediately before the issue of the shares or securities, and to £35 million (from £16 million) immediately after the issue.

The annual investment limit that caps how much companies can raise will increase to £10 million (from £5 million) and, for knowledge-intensive companies, to £20 million (from £10 million).

The company’s lifetime investment limit will increase to £24 million (from £12 million) and, for knowledge-intensive companies, to £40 million (from £20 million).

These increases apply only to qualifying companies that are not registered in Northern Ireland trading in goods or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. These companies will remain eligible only for the current scheme limits.

The Income Tax relief that can be claimed by an individual investing in a VCT will reduce to 20% from the current rate of 30%.

These changes take effect from 6 April 2026.

Capital Gains Tax

Rates and annual exempt amount

In her first Budget, the Chancellor increased the rates of CGT and reduced a number of reliefs. The current Budget document included the forecast that the annual yield from the tax will more than double from £13.7 billion at the start of this Parliament to £30 billion in 2030/31.

The CGT annual exempt amount remains £3,000 for individuals and estates and £1,500 for most trusts. Individuals will continue to pay 18% on gains that fall within their basic rate income tax band, and 24% on gains above that.

Disposals to Employee Ownership Trusts

A CGT relief has exempted gains on eligible disposals of shares to Employee Ownership Trusts. The government will reduce the CGT relief available from 100%

of the gain to 50%. This will take immediate effect from 26 November 2025. Business Asset Disposal Relief (see below) will not be available on the remaining chargeable 50%.

Incorporation relief

When a sole trader or partnership transfers a business to a company in exchange for shares, any capital gains arising on the disposal of chargeable assets may be deferred by ‘incorporation relief’. Under the existing legislation, this operates automatically where the conditions are satisfied. From 6 April 2026, it will be necessary to make a claim for the relief to apply.

Business Asset Disposal Relief (BADR) and carried interest

As announced last year, the tax rate on gains that qualify for BADR will rise in 2026/27 from 14% to 18%. The relief remains available on qualifying gains with a lifetime limit of £1 million.

Investors’ Relief can give a reduced CGT rate to qualifying investors in qualifying companies for which they do not work. The lifetime limit is also £1 million and the rate of tax will rise in line with BADR.

In 2025/26, the rate of CGT on carried interest was a flat rate of 32% for individuals, estates and trusts. From 2026/27, carried interest will be brought within income tax and subject to its own specific rules.

Cryptoassets

Gains realised on cryptoassets such as Bitcoin are likely to be chargeable to CGT. In order to make sure that chargeable gains are being reported, the government will require UK-based Cryptoasset Service Providers to report on their UK tax resident customers under the Cryptoasset Reporting Framework. Information for first reports to HMRC will be collected from 1 January 2026 and reported to HMRC in 2027.

Inheritance Tax (IHT)

Rates - The IHT nil rate band has been fixed at £325,000 since 6 April 2009. The Chancellor has extended the freeze on this figure until the end of 2030/31. Holding the threshold at the same amount for 22 years will bring far more people into the scope of the tax. The Budget document states that IHT raised £8.3 billion a year at the start of this Parliament; this is expected to rise to £14.5 billion in 2030/31.

The £175,000 ‘residential nil rate band enhancement’ on death transfers (also frozen, together with the £2 million value of estate above which it is tapered) can reduce the impact where it applies. A married couple may be able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for another

5 years increases the importance of proper IHT planning.

Agricultural and business property

The government has confirmed that the well-publicised restrictions on 100% agricultural and business reliefs will come in, as previously announced, from 6 April 2026. 100% relief will be restricted to £1 million of the total of qualifying agricultural and business property, with 50% relief on any higher value.

It was newly announced that the £1 million 100% allowance will be transferable between spouses, if it is not used on the first death, and this figure also will be frozen until April 2031.

Also from 6 April 2026, qualifying shares quoted on the AIM and similar ‘unlisted’ markets will qualify for 50% relief rather than the current 100% relief.

These changes could potentially create significant IHT liabilities for family farming and trading businesses in the future, including where business assets are held in trust. All businesses should consider their IHT position, including reviewing wills and considering whether some lifetime gifts of qualifying property may be worthwhile.

Unused pension funds and death benefits

The government has confirmed that, from 6 April 2027, most unused pension funds and death benefits will come within the deceased’s estate for IHT purposes, whether written into trust or not.

Making Tax Digital for Income Tax (MTD IT)

The requirement to file tax returns using MTD IT will come into effect from

6 April 2026. Those initially affected by the rules will be those with annual income from a sole trader business or property, or both together, of £50,000. This will drop to £30,000 from 6 April 2027, and it is intended to expand the rollout to those with incomes over £20,000 by the end of the Parliament. Anyone who will be affected by these rules should make sure they are ready to comply with them in good time: understanding the requirements and making sure that it is possible to comply with them is not something that should be done at the last minute.

However, the Budget included the good news that late submission penalties will not apply for quarterly updates during the 2026/27 tax year for taxpayers required to join MTD IT. The new penalty regime for late submission and late payment will apply to all self-assessment taxpayers not already due to join the new system from 6 April 2027. The government will also increase the penalties due for late payment of self-assessment income tax and VAT from 1 April 2027.

State pension

The State pension will rise by 4.8% from April 2026 in line with average earnings,

in accordance with the ‘Triple Lock’. The government is taking steps to deal with the possibility that the State pension on its own, which is paid without deduction of tax, may exceed the personal tax allowance in 2027/28. The government plans to consult on ways to avoid requiring pensioners with no other sources of income having to report to HMRC and pay tax.

Fuel duty

The Chancellor decided to maintain the freeze in fuel duty and to retain the 5p cut beyond 22 March 2026, when it was supposed to come to an end. It will now be reversed in stages between 1 September 2026 and 1 March 2027. Inflationary increases in the duty are planned to resume in April 2027.

Electric Vehicle Excise Duty

The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, with effect from April 2028. Drivers will pay for their mileage on a per-mile basis alongside their existing Vehicle Excise Duty. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars, and plug-in hybrid cars will pay a reduced rate equivalent to half of the electric car rate. The government will carry out a consultation to gather views on how this will be implemented.

National Living Wage (NLW)

From 1 April 2026, the NLW which applies to those aged 21 or over will rise from £12.21 per hour to £12.71. There are also increases to the rates that apply to workers aged 18 to 20 (£10.85) and under 18s and apprentices (£8.00).

Universal Credit

As expected, the Chancellor removed the ‘two-child benefit cap’ with effect from

April 2026, increasing the entitlement to Universal Credit for claimants with more than two children. This measure will cost between £2.3 billion and £3.2 billion a year over the forecast period. By contrast, the freezing of income tax bands and allowances

is expected to raise £12.4 billion in the year 2030/31 alone.

Student loans

The repayment threshold for Plan 2 student loans will be frozen at £29,385 for three years from April 2027. This means that graduates are likely to be liable for higher repayments as their income increases above that level, in the same way that freezing income tax thresholds and allowances increases income tax. It will not increase the outstanding loan itself, but it will require faster repayment of it.

Directors of limited companies are generally not personally liable for unpaid corporation tax as limited liability usually protects them. A company is a separate legal entity and limited liability is one of its core features.

However, in some circumstances, HMRC may pursue directors personally. The risk increases where non-payment of corporation tax is due to deliberate behaviour, negligence or fraud. If directors pay themselves rather than settling their company tax bills then HMRC may view this as evidence of misconduct. Similarly, if the business pays connected creditors such as family or friends but does not pay its corporation tax then the directors could face personal claims. HMRC is more likely to pursue directors for payment under a liquidation where HMRC is a preferential creditor.

Fraudulent and wrongful trading - Under insolvency law, directors can be personally liable if they engage in fraudulent trading or wrongful trading.

Fraudulent trading occurs where a business operates with intent to defraud creditors or for any fraudulent purpose. If proven, the court can order directors to contribute to the company’s assets personally.

Wrongful trading has a lower threshold applying if directors continued to trade at a time when they knew, or ought reasonably to have known, that there was no reasonable chance of avoiding insolvent liquidation.

If corporation tax increases during the period where fraudulent or wrongful trading is proved, a liquidator may seek a court order requiring directors to contribute personally. Although this action would be brought by a liquidator rather than HMRC directly, unpaid corporation tax often forms a substantial part of any claim.

Unlawful dividends - Shareholders are generally protected by limited liability. However, if dividends are paid unlawfully, shareholders and directors who knew or had reasonable grounds to believe that the distribution was unlawful may be required to repay.

Under the Companies Act 2006, dividends may only be paid out of distributable profits. These are defined as accumulated realised profits less accumulated realised losses. Consequently, a dividend may be paid in a loss-making year provided sufficient retained profits are brought forward. Alternatively, if there is a profit for the year but past accumulated losses exceed total realised profits then a dividend cannot be paid.

In addition to the substantive requirement for distributable reserves, proper corporate procedures must be followed. If a director authorises a dividend when there are insufficient reserves, and knew or had reasonable grounds to believe the payment to be unlawful, then the dividend may be repayable. This can happen even if the director was unaware at the time that the accounts did not support the payment.

A liquidator may seek recovery from shareholders should it be found that a dividend was paid but corporation tax was unpaid and the payment contributed to the company’s insolvency. In owner-managed companies, where directors and shareholders are often the same individuals, the exposure can be significant.

Capital distributions following asset disposals - Further risk may arise where capital distributions are made to directors following asset sales. A capital distribution is defined as a distribution in money or money’s worth that is not treated as income in the hands of the shareholder, either because it falls outside the income tax definition of a distribution or because it is paid to another corporate shareholder.

Where a company disposes of assets and realises chargeable gains, corporation tax may arise on those gains. If the company then makes a capital distribution to a shareholder and fails to pay the associated corporation tax within six months of the due date, HMRC has statutory powers to pursue that shareholder. An assessment may be raised on the recipient within two years of the corporation tax due date.

Practical point - Trading whilst insolvent, paying connected parties, paying unlawful dividends or making distributions without paying the corporation tax due can all lead to personal claims on the directors. Directors should prioritise paying corporation tax, pay dividends only from distributable reserves and check that the company is solvent before paying dividends.

Grandparents might consider using tax reliefs to help future generations.

A little under a year ago, Rachel Reeves, the Chancellor of the Exchequer, announced plans to remove the inheritance tax (IHT) relief on unused pension funds when a taxpayer died after the age of 75. Reeves said that the aim was to “restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pension reforms”.

On 21 July 2025, the government published the draft legislation to put this into effect and, subject to parliamentary approval, IHT will become chargeable on these funds from 6 April 2026.

Once upon a time…

Historically, pension funds – contributions to which attracted income tax relief along with valuable tax relief on the funds themselves – were to provide an income in retirement. Granting IHT relief on the funds meant that – for those who could afford it – there were tax advantages to using other savings and assets to fund retirement and then passing the pension funds to the next generation. Since 2015, some savers may have added extra contributions to their pension funds with a view to passing on wealth in this way.

That option – which may have been attractive to those thinking of skipping a generation and bequeathing the pension fund to, say, their grandchildren – will now disappear. This, combined with the forthcoming reductions in IHT relief for agricultural and business property, may have prompted individuals to consider other taxefficient options for their descendants.

Individual savings accounts

Although a junior Individual Savings Account (ISA) can only be opened by a parent or guardian, anyone can contribute to it up to the maximum annual limit of £9,000. NFU Mutual has reported a 115% rise in new junior ISAs opened in the first quarter of 2025 compared to the same period in 2024. Additional contributions to existing junior ISAs have nearly doubled and the amounts being invested have also increased.

As with standard ISAs, junior ISAs can hold either cash or stocks and shares. The money or assets in the junior ISA cannot be accessed until the beneficiary reaches the age of 18, but this may add to its attraction as a useful means of accumulating wealth for the next generation. As always, the donor must survive for seven years after the gift for this not to be taken into account in calculating IHT.

Stick with pensions? Rather than a grandparent seeking to bequeath their own pension, remember that a pension plan can be opened for a child as soon as they are born. Unless they have earned income, the net annual contributions will be limited to £2,880. This can be paid into the pension and is treated as net of 20% income tax, so the government will add a further £720, so £3,600 is in the pension fund.

The restrictions on withdrawal are strict, and generally the beneficiary will not be able to access the pension funds until they reach the normal minimum pension age (55 now, but increasing to 57 from 2028) but this may be seen as an advantage, providing means for a long-term investment and a secure retirement. Financial advice should be taken because the existence of a pension plan could potentially have tax implications on future pension savings in adulthood.

Tax-free gifts

The above payments to a junior ISA or pension may be treated as potentially exempt transfers for IHT purposes. However, those making gifts should remember the annual exemption of £3,000 and small gift exemption of £250. There are also exemptions for weddings.

If regular annual payments are being made, the ‘normal gifts out of income’ exemption may be relevant, although this is subject to conditions.

Practical tip

Advantageous tax treatment is only one aspect of saving and investment. The information above should be reinforced by professional financial advice to ensure that the transfers of money match the requirements of the donee as well as the donor.

The distinction between legal and beneficial ownership of land and buildings (e.g., rental property) is important when it comes to identifying which individual is liable to tax on rental income, or capital gains tax (CGT) on any chargeable gain from a property disposal.

This is because CGT on property gains, and income tax on rental income, is determined by beneficial ownership, rather than legal ownership (NB this article considers the law in England, Wales and Northern Ireland). Whilst the same person will normally be the legal and beneficial owner of the property, this will not necessarily be the case.

HM Revenue and Customs (HMRC) will generally assume that the legal and beneficial owners are identical, unless there is evidence to the contrary. HMRC’s guidance (in its Capital Gains Manual at CG70230) lists various indicators that a person has beneficial ownership of land. In some cases, a ‘constructive trust’ may arise. Broadly, the parties may have an understanding (or a ‘common intention’) about beneficial ownership that differs from the legal ownership. HMRC’s Trusts, Settlements and Estates Manual (at TSEM9710) lists certain key questions to consider in establishing whether a common intention constructive trust exists.

Family and friends

Establishing beneficial ownership, and particularly whether a constructive trust exists, can be challenging (e.g., there is no legal requirement for a constructive trust to be in writing), but is not insurmountable.

For example, in Akhtar v Revenue and Customs [2025] UKFTT 395 (TC), the taxpayer was a director and shareholder of a taxi company. HMRC issued discovery assessments to the taxpayer. HMRC considered that the source of some funds used by the taxpayer to purchase several properties was the taxi business he ran, which reflected undeclared income. HMRC did not believe the taxpayer’s story that unexplained bank deposits came from friends and relatives. HMRC also asserted that the properties were beneficially owned by the taxpayer alone, not (as the taxpayer alleged) by himself and his wife. The First-tier Tribunal (FTT) had to consider (among other things) the source of the funds for the purchase of the properties, and who the beneficial owners of the properties were. This would determine who was responsible for CGT on the sale of those properties, and who was responsible for income tax on the rental income derived from them.

The FTT concluded that the contributions to the purchase of certain properties (A, B, C, and D) were (as the taxpayer asserted) made by the husband of the taxpayer’s sister (MA), and the contribution to the purchase of another property (E) was (also as the taxpayer asserted) made by a friend (DK). Furthermore, beneficial ownership of B was vested in MA from the date that property was purchased until it was subsequently conveyed to the taxpayer. The FTT also held that beneficial ownership of E was vested in DK from the date the property was purchased until it was subsequently conveyed to the taxpayer. In addition, from the dates on which the beneficial ownership of B and E were conveyed to him by their beneficial owners, and from the date of acquisition of another property (F), those properties were held by the taxpayer on trust for himself and his wife, in equal shares.

Practical tip

The legal principles on the existence of constructive trusts are beyond the scope of a tax article. The FTT in Akhtar provided a helpful outline in the Appendix to its decision (tinyurl.com/TNA-FTT-Akhtar). However, expert professional advice is recommended.

Company cars

The basis for taxing company cars and fuel provided for private use is set out in the Table. Annual increases in the rates for use of the car have already been set up to 2029/30 ‘to provide long-term certainty for taxpayers and industry’. The rates are intended to provide a strong incentive to use electric vehicles, while rates for hybrids will be increased to align more closely with the rates for internal combustion engine vehicles.

The figures used to calculate the following benefits all increase for 2026/27 by 3.8% in line with inflation:

l        the benefit of free use of business fuel for private journeys;

l        the taxable amount for the availability of a van for more than incidental private use;

l        the taxable amount for an employee’s private use of fuel in a company van.

Expenses and benefits

From 6 April 2026, employees will no longer be able to claim a tax deduction for expenses of working from home, if these are not reimbursed by their employer. Employers will still be able to reimburse such costs where they are eligible without deducting income tax or NICs.

Also from 6 April 2026, the income tax and NICs exemption for employer-provided benefits will be extended to cover reimbursements for eye tests, home working equipment, and flu vaccinations.

Enterprise Management Incentive (EMI) Scheme

Under this scheme, employees and directors can be granted options over shares in the company for which they work. No Income Tax or NICs arise if options are exercised within ten years of being granted. Other conditions apply.

For eligible companies, the following maximum limits will apply to EMI contracts granted on or after 6 April 2026:

l        the total value of company options that can be unexercised at any time will be increased from £3 million to £6 million;

l        gross assets will be increased from £30 million to £120 million;

l        the number of employees will be increased from 250 to 500 employees.

The maximum value of unexercised options an individual employee can hold remains £250,000.

The limit on the exercise period will be increased from 10 years to 15 years. Existing contracts can be amended without losing the tax advantages the schemes offer.

Image rights payments

From 2027/28, all image rights payments related to an employment will be treated as taxable employment income and subject to income tax, employer NICs and employee NICs. This will affect sports people who set up image rights companies to accumulate payments for the rights and follows a recent case involving the former England football captain Bryan Robson, which HMRC lost.

Business rates

From 1 April 2026, business rates bills in England ‘will be updated to reflect changes in property values since the last revaluation in 2023’. The small business multiplier is being reduced to 43.2p and the standard multiplier to 48p.

The government will also introduce permanently lower multipliers for retail, hospitality and leisure (RHL) properties with rateable values under £500,000, set 5p below the national rates, making the small business RHL multiplier 38.2p and the standard RHL multiplier 43p. This will benefit over 750,000 RHL properties.

A new high-value multiplier will apply to properties above £500,000, such as the big warehouses of online retailers. This higher rate is being set at 2.8p above the national standard multiplier, making the high-value multiplier 50.8p in 2026/27.

Umbrella companies

An umbrella company employs workers on behalf of agencies and the businesses that the workers do the work for (the end client). From 6 April 2026, recruitment agencies and end clients will be jointly and severally liable for any payroll taxes on payments

to workers supplied through umbrella companies, where a non-compliant umbrella company fails to remit them to HMRC on their behalf.

If the labour supply chain has:

• more than one agency, the rules apply to the agency that has the direct contract with the end client to supply the worker;
• no agency, the rules apply to the end client.

Corporation Tax

Rate of tax

The rates of corporation tax have not changed, and last year’s Budget appeared to rule out changes for the life of the Parliament.

Late filing

From 1 April 2026, the penalties for late filing of corporation tax returns will be doubled. They will become £200 for any lateness (£1,000 for the third successive offence); a further £200 (or £1,000) if the return is still not filed after 3 months; and tax-geared penalties of 10% of the amount unpaid if they are still not filed after 6 and again after 12 months.

Capital allowances for plant and machinery

The 2025 Budget introduces several changes to capital allowances that will affect the timing of tax relief for businesses over the next two years.

The 100% First Year Allowance for new zero-emission cars and chargepoints has been extended until 31 March 2027 (5 April 2027 for unincorporated businesses), giving an additional year for businesses to secure full upfront relief on electric vehicles before these assets revert to slower relief through writing-down allowances.

A new 40% First Year Allowance will apply to qualifying main-rate plant and machinery from 1 January 2026, where full expensing or the £1 million Annual Investment Allowance are not available. This relief will be available to all businesses, including unincorporated businesses and those acquiring assets for leasing in the UK. Cars and second-hand assets are excluded.

From April 2026, the main rate writing-down allowance will reduce from 18% to 14%, slowing tax relief where upfront allowances cannot be claimed. The special rate writing-down allowance remains unchanged at 6%.

Full expensing continues unchanged for companies and remains the most beneficial route where available. Businesses with material or recurring capital expenditure should review investment plans ahead of the April 2026 changes to optimise relief.

R&D

The government will pilot a targeted advance assurance service from spring 2026, enabling small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submitting them to HMRC.

Value Added Tax

Registration threshold

The VAT registration and deregistration thresholds last increased to £90,000 and £88,000 with effect from 1 April 2024. The March 2024 Budget stated that they will be again frozen at these new levels, but it did not say for how long. No changes or dates have been announced.

Private hire vehicles

The VAT treatment of private hire vehicles has been thrown into doubt by several court decisions involving Uber and other operators. The Tour Operators Margin Scheme (TOMS) has been held to allow firms to account for VAT only on the difference between the fare and the amount paid to the driver. While the past tax treatment is still the subject of ongoing litigation, the government will put the position beyond doubt going forward: from 2 January 2026, taxi and private vehicle hire services will not be eligible for the TOMS, except where they are provided as part of a package with certain other travel services. This means that a firm will have to account for VAT on the whole of a customer’s fare, where the firm has a contract with the customer as principal responsible for providing the ride.

Gifts to charity

A new VAT relief will be introduced from 1 April 2026 for business donations of goods to charity which are for distribution to those in need or for use in the delivery of their charitable services. Currently a business making such a gift could be liable for output tax on a deemed disposal of the goods.

E-invoicing

From April 2029, it will be a requirement to issue all VAT invoices in a specified electronic format. The government will work on a ‘roadmap’ towards implementation of this measure and will publish this next year.

Low value imports: customs duty

The government intends to remove the customs duty relief on goods imported into the UK valued at £135 or less, making them subject to customs duty from March 2029 at the latest, and is consulting on implementing a new set of customs arrangements for these goods.

Motability

The Motability scheme enables eligible people to buy vehicles that are adapted to enable them to use them, and provides some VAT reliefs. The Budget will impose, with effect from July 2026, 20% VAT on top-up payments that a user can make to have a more expensive vehicle through the scheme.

Property Taxation

‘Mansion tax’

The High Value Council Tax Surcharge (HVCTS) is a new charge on owners of residential property in England worth £2 million or more (in 2026), which will take effect in April 2028.

Homeowners, rather than occupiers, will be liable to the surcharge and will continue to pay their existing Council Tax alongside the surcharge.

The Valuation Office will conduct a targeted valuation exercise to identify properties above £2 million. Revaluations will be conducted every five years.

Properties above the £2 million threshold will be placed into bands based on their property value. Charges will increase in line with CPI inflation each year from 2029/30 onwards.

The surcharge will be £2,500 for properties between £2 million and £2.5 million and rises to £7,500 for properties above £5 million.

For owner-managed businesses, paying school or university fees through the company can appear attractive, especially if the company has surplus cash. However, tax consequences may arise for the individual.

Should the company reimburse the individual, the amount counts as earnings subject to PAYE income tax as well as employee and employer Class 1 NIC. Therefore, reimbursement is generally the least efficient method of funding.

Company’s tax position

Where a company pays for a course undertaken by an employee or director, the expense is only tax deductible if it is incurred ‘wholly and exclusively’ for business purposes. Direct payments to an educational establishment will generally fail this business purpose requirement and are therefore not tax deductible.

Benefit in kind

The most straightforward method is for the company to contract directly with the school or university. The employee will be charged a benefit in kind (BIK) on the payment made, the company pays tax Class 1A NIC, but no employee NIC arises. As Class 1A NIC is corporation tax deductible, this route is typically marginally more efficient than paying additional salary.

For higher rate taxpayers, the corporation tax deduction rarely offsets the combined income tax and NIC exposure for the employee.

The loan alternative

An employer may lend funds to an employee to cover tuition fees. A formal loan agreement should be drawn up, including interest and repayment terms.

Provided the total outstanding loans do not exceed £10,000 at any point in the tax year, no taxable benefit arises on an interest-free or low-interest beneficial loan. The employee’s only cost is any interest charged under the agreement.

If the loan exceeds £10,000, a taxable benefit arises based on the difference between the interest charged and HMRC’s official rate (currently 3.75%) The rate can change year on year.

Value of this approach

This approach does not eliminate tax but alters the timing of the tax payment. If the loan is later released or written off, the amount is treated as earnings subject to income tax and Class 1 NIC. The NIC is collected through PAYE, however the income tax is reported on the employee’s Form P11D. The employee is then required to file a Self-Assessment tax return.

Dividend planning and the settlements constraint

A child can own shares at any age (although dividends are typically held in a bare trust until the child reaches 18 years), therefore another possible route that avoids employment income is through share ownership. However, the settlements legislation remains the principal obstacle. If a parent provides shares or funds to their child and the income from those investments exceeds £100 per year, the income is taxed as if it were the parent's. Therefore, to have dividends taxed on the child, funds need to be provided by someone other than a parent (e.g. a grandparent).

Value of this approach

This approach aims to set aside income for future school fees in a tax-efficient manner rather than as a quick method in which to raise funds. Whether it works depends on the source of the invested money.

Salary sacrifice: Restricted relief

Salary sacrifice is no longer an effective way to reduce the cost of school fees. The employee benefits from reduced gross pay (and therefore lower income tax and NIC), but the taxable benefit is based on the higher of the salary foregone or the benefit value; any excess is treated as taxable earnings.

Value of this approach

Any potential saving may come if the employer negotiates a genuine group discount with the education provider (e.g. with a nursery which several employees’ children attend). The planning opportunity is therefore commercial rather than tax-driven.

Practical point

Calculations are required to ascertain the method that results in the lowest overall tax and NIC liability.

Three main changes to Employer’s National Insurance contributions (NICs) were announced in last October’s Autumn Statement, all of which came into effect from 6 April 2025:

 • The rate of Employer’s NICs increased from 13.8% to 15%.

 • The threshold at which Employer’s NICs start to be due reduced from £9,100 to £5,000 per employee.

 • The employment allowance (EA) went up from £5,000 to £10,500, with a removal of the £100,000 test which previously prohibited larger employers from claiming it.

Winners and losers

The interaction of these changes will result in winners and losers, particularly in relation to the EA, which was significantly increased. The EA is an allowance for businesses (which meet certain criteria) to reduce their Employer’s NICs liability.

When she delivered the Autumn Statement 2024, Rachel Reeves said: “This will allow a small business to employ the equivalent of four full-time workers on the national living wage without paying any National Insurance on their wages.”

Let’s break that down. The national living wage (NLW) is the minimum hourly rate which must be paid to employees and workers over 21. Lower amounts apply to those under 21 or those in their first year of an apprenticeship. It’s worth noting that company directors, although treated as employees for tax purposes, are not required to be paid the NLW unless they have a separate employment relationship with the company.

For 2025/26, the NLW is £12.21 per hour, so for a full-time employee working 35 hours per week, that comes to £427.35 per week, or £22,222 per year. Employer’s NICs is calculated as 15% above the £5,000 threshold, so the tax due would be (£22,222 - £5,000) x 15% = £2,583.30. With four employees, the total NICs comes to £10,333.20 which would be covered by the £10,500 EA - meaning no employers’ NIC is due on their wages.

Of course, this is a simplification and does not take into account factors like overtime, benefits-inkind or paying annual or performance bonuses. It also assumes a 35-hour working week rather than, for example, a 37.5-hour or 40-hour week, which some people work. But it makes good rhetoric at the despatch box.

Do the sums

Interestingly, the £5,000 threshold creates an incentive to employ more people for fewer hours. For example, if the business employed part-time workers for 20 hours per week, their pay at the NLW rate would be 20 x £12.21 = £244.20 per week or £12,698 per year, resulting in NICs of £1,155 per employee. They could employ nine part-time employees and still have the NICs covered by the £10,500 allowance. Employing part-time workers gives them 9 x 20 = 180 working hours per week rather than 4 x 35 = 140 hours per week with fulltime employees.

A similar principle applies for employees. If I have one job earning £36,000 a year, I would pay NICs of £1,874.40, but if I have three jobs each paying £12,000, I pay no NICs (unless certain ‘aggregation’ rules apply) because each job pays below the £12,570 primary Class 1 NICs threshold.

Points to note

A couple of things to bear in mind relating to the EA:

 • The EA has to be claimed each year via payroll software.

 • It is available to most employers (including self-employed, partnerships, LLPs, companies, etc.).

 • Single-director companies with no other employees cannot claim. You must have at least one other employee paid above the £5,000 threshold to qualify.

 • You cannot claim for personal, household, or domestic staff.

 • The allowance may have to be split between ‘connected companies’ depending on the circumstances. Practical tip

With the EA now worth £10,500 per year, make sure you are claiming it if you are eligible. You can also claim for previous years if you’ve missed an eligible claim in the past