Quarterly news

Inheritance Tax (IHT) net set to widen. Significant IHT changes from 2026 will cap Business Property Relief (BPR) and Agricultural Property Relief (APR) at £1 million. Many estates may face new tax liabilities as a result.

Upcoming Changes to BPR and APR

Changes announced last year are set to bring a radical overhaul of two key IHT reliefs, business property relief (BPR) and agricultural property relief (APR), from 6 April 2026.

The main change is a restriction on the amount of 100% relief available for qualifying agricultural and business property. Currently, there is no limit to the relief. Under the new rules, a £1 million allowance will apply. Any qualifying property above this limit will receive relief at 50%. As a result, more people will need to plan for potential IHT liabilities.

Key Points in Brief

• The £1 million allowance applies to the combined value of business and agricultural assets in an estate qualifying for 100% BPR or APR.
• The same allowance also applies to relievable agricultural and business property held in trusts.
• Property above £1 million will receive relief at 50%.
• From 6 April 2030, the allowance will increase in line with inflation.

What This Means for You

The £1 million limit is per person. Unused allowance cannot be transferred between spouses or civil partners. Anything not used will be lost.

Advance planning will become essential to ensure maximum use of the allowance. You will need to consider these changes alongside other IHT rules, such as lifetime gifting, and how IHT interacts with other taxes.

Some business owners may need to adjust their succession plans. This could include transferring assets to the next generation earlier or restructuring business ownership.

Planning for Future Liabilities

Decisions around IHT can require careful thought and sensitive handling. While last-minute adjustments to the rules are possible, the expectation is that these changes will take effect in 2026. Plans should reflect this.

From 6 April 2027, further changes are expected. These will bring unused pension funds and death benefits into the scope of IHT. Planning may be necessary, especially for those with significant pension savings. Professional advice can help you understand your options.

Next Steps

Bespoke advice is always recommended. Contact us to discuss how these changes may affect you and your estate planning.

Under new rules, more pensioners in England, Wales, and Northern Ireland are now eligible for the Winter Fuel Payment. In Scotland, more pensioners can claim the Pension Age Winter Heating Payment.

Recovery for Higher Incomes

If your taxable income exceeds £35,000, HMRC will recover any payment you receive. Recovery will happen either by:

• Adjustment to your 2026/27 tax code, or
• Through your Income Tax self-assessment return for 2025/26

For many, these additional steps may be an unwelcome inconvenience.

Automatic Payments and Opt-Out

These payments are usually made automatically. If you wish to avoid the payment and recovery process, you must opt out.

Deadlines for opting out this year have already passed in all parts of the UK. Unless HMRC makes a last-minute change, anyone who has not opted out will automatically enter the payment and recovery cycle for winter 2025/26.

Opting Out in Future Years

The first year you can now opt out is 2026/27:

• England, Wales, Northern Ireland: Opt out from 1 April 2026 for 2026/27 and following years.
• Scotland: You can apply to opt out now via the mygov.scot online form. This will affect payments starting winter 2026/27.

It may not be as straightforward as you think.

When is a volunteer not really a volunteer? When might they be considered a worker under employment law?

The Court of Appeal will consider this later this year in the case of Coastal Rescue Officer Mr Groom.

Mr Groom volunteered for many years with the Coastal Rescue Service (CRS). The relationship broke down after he faced disciplinary action and requested a trade union representative. CRS refused, saying that right only applied if he was a worker. The case eventually reached the Employment Appeal Tribunal (EAT).

Not the label that matters

It is a common misconception that “volunteer status” exists in law. What matters is the legal status, not the title.

Depending on the specific arrangement, someone called a “volunteer” could, in law, be treated as a:

• Worker
• Employee

Both statuses come with employee rights and employer responsibilities, including:

• Minimum wage
• Paid holiday entitlement

Check the Reality of the Arrangement

One defining feature of a worker is working under a contract.

In this case, CRS argued there was no contract. Its volunteer handbook stated:

“A voluntary two-way commitment where no contract of employment exists.”

The EAT looked at the practical reality:

• Mr Groom had a Volunteer Agreement specifying:
  • Minimum attendance at training and incidents
  • Expectations to uphold CRS’ professional reputation
• Payment was available for some activities:
  • Volunteers could submit monthly claims for costs or disruption caused by volunteering
  • Submitting claims was optional; some chose not to claim

The tribunal noted that this payment arrangement created a contractual obligation for the activities for which payment was made.

Take-away message

The EAT ruled:

“The only proper construction of the documents is that a contract comes into existence when a [volunteer] attends an activity in respect of which there is a right to remuneration.”

• Implication: Mr Groom is a worker for activities that were paid.
• Not all volunteering is affected: Unpaid activities still need separate consideration.

Key point for organisations: Anyone using volunteers, interns, or offering work experience should review arrangements carefully to avoid inadvertently creating worker or employee status. The Court of Appeal decision will be critical.

If all else fails, two thousand bottles of wine might clinch the deal.

For most people, claiming Private Residence Relief (PRR) on the sale of a main residence is straightforward. Broadly, PRR should apply if:

• You lived in the property as your main residence throughout ownership
• You did not let out any part of the property
• No part of the property was used exclusively for business
• The grounds, including all buildings, are less than about 1.25 acres
• You are UK resident for tax purposes
• The property was not purchased primarily to make a profit

The Chelsea Property Case

A recent Tribunal case tested these rules. Mr and Mrs Eyre purchased a house in Chelsea for just under £10 million, and sold it after refurbishment for £27.75 million.

Key points:

• The original house was demolished and a new one built in its place
• Features included a classic car stacker and a swimming pool with expensive marble
• The Eyres moved in 2013 and sold in 2015
• HMRC assessed £3.3 million, arguing the property was a venture in trade and not their main residence

Tribunal Decision

The Tribunal disagreed with HMRC. Reasons included:

• The house was purchased to live in, not to sell
• The Eyres’ residence was genuine:
  • They were on the electoral roll there
  • Their mail was redirected
  • They paid council tax at the property
• Highly personalised refurbishment indicated long-term residence:
  • Moving in 2,000 bottles of Château Montrose suggested they intended to enjoy the home, not sell immediately

Key takeways

• PRR claims can be challenged when properties are bought for high-value refurbishment or resale
• Genuine residence and lifestyle evidence matters
• Proper documentation (electoral roll, council tax, mail, personal touches) can support relief claims

We are always pleased to advise on PRR – whatever you happen to have in your cellar.

HMRC presses on with roll-out of Making Tax Digital for Income Tax (MTD IT), but has changed plans for Corporation Tax.

MTD IT is now approaching implementation, with updated draft legislation published over the summer. HMRC also released a Transformation Roadmap, highlighting that digital self-service is the future. According to the document:

“HMRC will look very different by 2030. Almost all our straightforward customer queries will be handled digitally or automatically, with at least 90% of customer interactions being digital.”

New rules for sole traders and landlords

MTD IT requires income and expenses to be reported to HMRC online using specific software, on a quarterly basis. The rollout will be phased, based on qualifying income:

• From 6 April 2026: income over £50,000 for 2024/25
• From 6 April 2027: income over £30,000 for 2025/26
• From 6 April 2028: income over £20,000 for 2026/27

Other taxpayers

HMRC has indicated it will continue to explore ways to bring the benefits of digitalisation to sole traders and landlords with income below £20,000. This suggests possible future updates for those currently below the threshold.

MTD and Corporation Tax

Surprisingly, plans to introduce MTD for Corporation Tax have been abandoned. However, this does not mean no changes will occur. HMRC’s Transformation Roadmap indicates ongoing modernization, including:

• Renewal of internal systems for Corporation Tax to support future improvements
• Developing a new approach suited to the diverse Corporation Tax population
• Consulting with stakeholders to ensure the best outcomes and provide early clarity

HMRC acknowledges that the Corporation Tax population includes a wide range of entities, from small businesses to multinationals, charities, property management companies, and unincorporated associations.

Helping with digital compliance

Digital compliance will bring challenges for taxpayers. We are on hand to advise on the best way forward for you and your business. Please contact us with any queries you may have.

From 1 January 2026, new reporting rules will give HMRC a clearer view of who uses cryptoasset service providers and the transactions involved.

Under the new rules, service providers must collect specific data and report information on their users. Users will also need to provide identifying details. Failure to do so, or providing inaccurate information, can result in a penalty of up to £300.

International Information Sharing

This is part of the global initiative to standardise cryptoasset reporting, known as the Cryptoasset Reporting Framework (CARF). The framework aims to make cryptoasset transactions more visible for tax purposes by sharing information across countries.

How It Will Work

The rules apply to any UK-based business that:

• Transacts cryptoassets on behalf of users
• Provides a means for users to buy, sell, transfer, or exchange cryptoassets

Examples of affected services include:

• Online marketplaces where NFTs (non-fungible tokens) are bought and sold
• Wallet apps used to exchange bitcoin
• Services that manage a cryptoassets portfolio for clients

If you use a cryptoasset service provider after 1 January 2026, you will need to supply identifying information. This will link your crypto transactions to your tax records and help HMRC establish any tax liability.

Even if you live in the UK but use a non-UK cryptoasset service provider, your information will be shared with HMRC if the provider’s country participates in CARF.

Next Steps

Taxation of cryptoassets can be complex. Professional guidance can help ensure compliance and avoid penalties. Please contact us for further advice.

Many director-shareholders will have a loan account with their company. HMRC is reviewing directors’ loan accounts. Learn the tax risks, reporting duties and when to seek advice.

Why HMRC Is Focusing on Directors’ Loan Accounts

Many director-shareholders maintain a loan account with their company. HMRC is now reviewing these accounts closely. It is important to understand the tax risks, reporting responsibilities, and when to seek advice.

What Is a Directors’ Loan Account?

A directors’ loan can be:

• A formal short-term loan, or
• An informal arrangement, where a director withdraws cash for personal use or has personal expenses paid by the company.

If, at the end of the accounting period, a director has borrowed more than they have lent, the account is considered overdrawn. Overdrawn balances are usually cleared by:

• Paying a dividend
• Awarding a bonus
• Releasing or writing off the loan

HMRC campaign

HMRC has written to directors who had loans between April 2019 and April 2023 that were written off or released. These letters flag cases where taxable income may not have been reported on self-assessment tax returns.

• For 2023/24, income can be declared within the normal amendment period.
• For 2022/23 or earlier, HMRC advises using the Digital Disclosure Service.

If you are unsure, it is wise to discuss your situation before taking action.

Tax Implications of Directors’ Loans

While HMRC’s letters focus on personal tax, directors’ loans can also affect Corporation Tax and employment tax. Proper handling is essential, whether or not you receive HMRC correspondence.

Corporation Tax

• Loans to directors who are shareholders may trigger loans to participators rules.
• If a loan remains outstanding nine months and one day after the year-end, a Corporation Tax (s455) charge may apply.
• Exceptions: loans under £15,000 to full-time employees with no material company interest (less than ~5%).

Employment Tax

• Loans may be treated as a beneficial loan if:
  • Interest is below the official rate (3.75% from 6 April 2025), and
  • Total loan exceeds £10,000 during the tax year
• Reported via the annual P11D, with Class 1A National Insurance payable on the cash equivalent.

Writing Off the Loan

When a director’s loan is written off in a close company:

• The director is generally taxed on the loan amount as a deemed dividend, not as employment income.
• Proper formalities must be followed:
  • Approval by shareholders at a general meeting
  • A formal loan waiver documented by deed
• This reduces the risk of HMRC treating the write-off as earnings and applying National Insurance.

Getting Advice

The rules around directors’ loans are complex. Professional guidance can help ensure compliance and proper documentation, and prevent unexpected tax charges.

Figures for the tax gap are published each year. They highlight the difference between the amount of tax owed to HMRC and the amount actually paid. This year the gap has grown again, and now stands at £46.8 billion.

The headache for HMRC is how to drive down this loss of tax. One way it tries to do so is by analysing which taxes and which customer groups account for the biggest slices of the gap, and then concentrating compliance strategy wherever it perceives a risk.

Key findings

The key findings for this year were:

• small businesses represent the largest proportion of the tax gap (60%)
• Corporation Tax accounts for 40% of the total tax gap
• the main behavioural reasons for the overall tax gap were failure to take reasonable care (31%), error (15%) and evasion (14%).

For these purposes, small businesses are defined as businesses with up to 20 employees, whose turnover is below £10 million. Small businesses are also the biggest contributors to the Corporation Tax gap, as well.

Taking reasonable care

Significantly, the tax gap very much underlines the importance of taking reasonable care. It’s not a term defined in statute, and whilst acknowledging that it will depend on the circumstances and abilities of each individual, HMRC expects that it will involve keeping and preserving sufficient records to make correct and complete returns; as well as finding out about how any unfamiliar event or transaction should be dealt with; and taking appropriate advice.

We are always happy to advise on any areas of concern, giving you the confidence that you are complying with your obligations. Please do contact us, whatever your question. We are here to help.