In part 2 of our Year End Tax Planning Guide we cover individuals, couples and families. This guide provides a comprehensive overview of the strategies available to families, couples, and individuals. Whether you are looking to lower your tax bill, maximize your annual allowances, or prepare for upcoming legislative changes, we outline the key opportunities to improve your financial position.
In summary:
Key points this year
The run up to the end of the tax year on 5 April 2026 is a good time to check that your family finances are arranged in the best way possible.
In this Year End Tax Planning Guide, we look at useful ways to take advantage of available tax reliefs and planning opportunities.
Note that throughout the Guide, we use the rates and allowances for 2025/26, and that the term spouse is used to include a registered civil partner.
Working with you
As your accountants, we have the insight into your affairs that can make a real impact, and we look forward to being of assistance.
FOR FAMILIES, COUPLES AND INDIVIDUALS
Tax rates and allowances
Income Tax rates and bands for 2025/26 are determined by which part of the UK someone lives in, and what type of income they have.
Rates and bands: English, Welsh and Northern Irish taxpayers 2025/26
| Taxable income | Non-savings and savings income rate | Dividend rate |
| £0 to £37,700 | 20% | 8.75% |
| £37,701 to £125,140 | 40% | 33.75% |
| Over £125,140 | 45% | 39.35% |
With the exception of dividend rates (covered below) Income Tax rates and thresholds remain the same for 2026/27. Taxable income is income in excess of the Personal Allowance. Non-savings income broadly comprises earnings; pensions; trading profits and property income.
Change coming: It has been announced that the rules which govern the order in which reliefs and allowances are allocated against income will change from 6 April 2027. This means that the Personal Allowance and other reliefs will be set against income from employment, trading or pensions first. They will only be applied to property, savings and dividend income after this. Currently, the order of offset is a matter of choice.
These rates and thresholds apply to non-savings income only. Scottish taxpayers pay tax on savings and dividend income using UK tax rates and bands. The Personal Allowance is set for the UK as a whole.
The Personal Allowance
In principle, everyone is entitled to a basic Personal Allowance before any Income Tax is paid. This meant that many people pay no Income Tax on the first £12,570 of income received, and those with lower levels of income may pay no Income Tax at all.
The Personal Allowance can be higher if someone is eligible for the Blind Person’s Allowance.
The freeze to the Personal Allowance, and higher and additional rate thresholds has been extended until 5 April 2031.
| Action point: Prioritise efficiency |
| The fiscal drag caused by the freezing of the Personal Allowance and tax thresholds such as the National Insurance limits and the Inheritance Tax nil rate band will have significant effect over time, adding to tax bills and pushing individuals into higher rates of tax. It is therefore all the more important to make sure that your affairs are structured as tax efficiently as possible. |
Manage hidden top rates of tax
Where income exceeds £100,000, there are additional points to watch. Though the 45% additional rate of Income Tax only applies to taxable income over £125,140, the effective rate of tax may be higher than this, as the Personal Allowance is reduced where adjusted net income is more than £100,000.
The Personal Allowance thus falls by £1 for every £2 of adjusted net income over £100,000, and where adjusted net income is £125,140 or more, all Personal Allowance is lost. The effective ‘hidden’ rate of tax on this income, is therefore 60%: and more if you are a Scottish taxpayer. Timely planning can help.
| Action point: Minimise loss of Personal Allowance |
| It may be possible to reduce taxable income and keep the Personal Allowance by making personal pension contributions, or donations under Gift Aid. |
Taxing savings and dividend income
Savings Allowance: The Savings Allowance applies to savings income, such as bank and building society interest, with the amount available based on the marginal rate of tax. Broadly, those taxed at up to the basic rate of tax have an allowance of £1,000: higher rate taxpayers have an allowance of £500. Additional rate taxpayers do not receive the Savings Allowance.
Savings income within the Savings Allowance still counts towards the basic or higher rate band. It can thus impact the rate of tax paid on savings and dividends above the Savings Allowance.
0% starting rate for savings income: Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. This remains at £5,000 until 5 April 2031. The 0% rate is not available if taxable non-savings income (broadly earnings; pensions; property income and trading profits, less allocated allowances and reliefs) is more than £5,000.
Change coming: The rate of Income Tax for savings income will go up from 6 April 2027.
| Income Tax for savings income | To 5 April 2027 | From 6 April 2027 |
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
Dividend Allowance: The Dividend Allowance is available to all taxpayers, regardless of the marginal rate of tax. It charges the first £500 of dividends to tax at 0%. Dividends received above this are taxed at the rates shown in the table at the head of the page. Note that dividends within the Dividend Allowance still count towards the basic or higher rate band and can thus impact the rate of tax payable on income above the Allowance.
Change coming: The rate of Income Tax applicable to dividends will increase from 6 April 2026. Note that the additional rate remains unchanged.
| Income Tax for dividend income | To 5 April 2026 | From 6 April 2026 |
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
| Action point: Review dividend planning | ||
| Profit extraction via dividends has become less central to remuneration planning in recent years as the Dividend Allowance has become less generous. The increase in dividend tax rate is another step along the same path. However, it may still be worth considering advancing dividend payment to access the lower rate of tax applying before 6 April 2026. |
Separate tax rate for property income
There will be separate tax rates for property income from 6 April 2027, applying to income from letting land and buildings. In England and Northern Ireland, the rates are expected to be:
| Property basic rate | 22% |
| Property higher rate | 42% |
| Property additional rate | 47% |
The treatment of residential finance costs for tax purposes remains the same, with individuals receiving basic rate relief as a tax reduction. Relief will therefore be given at the property basic rate from 2027/28.
Scotland and Wales: The UK government will engage with the Scottish and Welsh governments to provide them with the ability to set property income rates.
Tax and the family
Married couples
Spouses are taxed independently. Each has their own Personal Allowance and basic rate band. There is no sharing of tax bands.
Married Couple’s Allowance is available where one party was born before 6 April 1935. The Blind Person’s Allowance, if unused, can be transferred to the other spouse, but otherwise part of the Personal Allowance can only be transferred between spouses in specific circumstances (below).
Marriage Allowance
The transfer is sometimes called the Marriage Allowance, and it can be available where one spouse has not used all their Personal Allowance, and the other does not pay tax at higher rates. If eligible, one spouse can transfer 10% (£1,260) of the Personal Allowance, reducing the other’s tax by up to £252 (20% of £1,260).
Planning for tax efficiency
Tax bills can be minimised where spouses aim to:
- distribute income optimally between them
- use their Personal Allowance, Savings Allowance and Dividend Allowance fully
- manage exposure to higher rates of tax.
Where each spouse is in a different tax band, distribution of income has always been important. But with the Personal Allowance and key tax thresholds frozen until 2031, fiscal drag will push more people into higher rates of tax each year. This makes the opportunity to minimise the impact on the overall household particularly valuable.
Planning for jointly owned assets
Where assets are owned in joint names, any income is assumed to be shared equally between spouses for tax purposes, even if the asset is not actually owned in a 50:50 ratio.
This treatment can be changed to reflect the actual share of ownership. It is done by making a declaration of beneficial interests in joint property and income to HMRC on Form 17. Evidence is needed to support this.
| Example: Joint ownership |
| Sanjay and Izzy are married and own a buy to let property. Sanjay owns three quarters of the property, and Izzy one quarter. Without an election, the net rental income on which tax is payable is split 50:50. If the couple makes an election on Form 17, the income is split 75:25. To decide which is the most beneficial treatment for the buy to let property, however, the couple needs to look at their overall position, and take other income into account. |
Close company shares: The treatment of shares in close companies, a category into which many family companies fall, is different. Income from such shares is split in proportions reflecting actual ownership.
Capital Gains Tax (CGT)
Make use of the annual exemption
Spouses are taxed independently for CGT purposes. Each spouse has an annual exemption which can be used before any CGT has to be paid. The annual exemption is now fixed permanently at £3,000, and is no longer uprated yearly in line with inflation. Overall, the rules are less generous than in the past, but the annual exemption remains of benefit where assets are held jointly and then sold, with each spouse using their exemption to save tax.
The annual exemption cannot be transferred between spouses. Neither can a loss made by one party be set off against a gain of the other. Note also that the annual exemption cannot be carried forward to future years. It must be used or lost.
Transfer assets between spouses
The transfer of assets between spouses is neutral for CGT, and such transfer is sometimes carried out shortly before an asset is sold to minimise tax. This can be useful if one pays tax at higher rates and the other has not used the basic rate band in full. It may also make the difference between paying tax at 18% rather than 24%.
| Tip: Take care with transfers |
| Any transfer must be an outright gift, and the donor should no longer exert control over, or derive benefit from the asset. The transfer of assets between spouses, or transfer of interests in a business can prompt questions from HMRC. This is particularly the case if tax saving seems to be the main reason for the transfer. |
Planning points for unmarried couples
Unmarried couples will find it beneficial to equalise income as much as possible to minimise Income Tax. But it should be noted that unmarried couples do not benefit from CGT neutral transfers between parties, making the transfer of assets potentially liable to CGT. Where any such transfer is substantial, an Inheritance Tax (IHT) liability could also arise.
Will planning is especially important for unmarried couples. Both parties must make a will if they want the other to benefit from their estate at death.
Children
Children are treated independently for tax purposes. If they have sufficient income to be liable to tax, they are treated as an adult would be treated, with their own Personal Allowance; basic rate tax band; savings band; and their own CGT annual exemption.
Working in the family business
To make use of the Personal Allowance, younger members of the family can sometimes be employed in the family business, subject to any relevant legal restrictions. Employment must be a reality, with payment only made where work is actually done, and the rate of payment being commercially justifiable. Attention to minimum wage rules is also needed.
Transfer of income producing assets
Where a child’s income is low, there may be some scope to transfer income producing assets to them, in order to use their Personal Allowance.
For optimal tax efficiency, consider who is best to make any such transfer, however. If provided by a parent, the income remains taxable on the parent if it exceeds £100 (gross) per tax year. This means that there is sometimes more scope for a grandparent or other relative to pass wealth to the next generation. In this case, the implications for IHT should also be taken into account.
Top tips for grandparents
IHT lifetime gifts: There were fears that Autumn Budget 2025 might chip away at the rules around IHT exemptions. This, however, did not happen, and there continue to be a number of measures that can be used to advantage in a family context. They are often used to enable grandparents to provide financial help to grandchildren in a tax efficient manner, and by reducing the value of the estate that sits above the £325,000 nil rate band, they also work to reduce any IHT due on death.
Areas to consider include use of the IHT annual exemption of £3,000; and other exemptions allowing small gifts of up to £250 per recipient; wedding gifts of up to £2,500 to a grandchild or great grandchild; and gifts made out of normal expenditure out of income. Gifts can also be exempt if made more than seven years before death.
Pension contributions: One way a lifetime gift can be structured is as a pension contribution for a grandchild. A pension can be set up from the child’s birth, and whilst only a parent or guardian can set the pension up, anyone can contribute thereafter. A contribution of up to £2,880 per year can be made. This automatically receives 20% tax relief, bringing the figure up to £3,600 per year.
Where the maximum figure is invested every year from birth to age 18, and then left to grow until the grandchild reaches retirement age, this could represent significant financial provision for the future.
| Tip: Contributing to a pension for an adult child |
| Making pension contributions for an adult child can also make a significant impact. For tax purposes, contributions by a third party are treated as though the individual scheme member had made them. As well as helping boost the pension, therefore, such contributions will impact the figure for adjusted net income used to determine eligibility for the High Income Child Benefit Charge, Tax-Free Childcare, and the Personal Allowance taper. The value of this is not to be understated. |
In summary: Getting the IHT rules right is complex. As well as the implications for tax, it is important to take an all-round view, including the impact of gifts on the overall financial wealth of the donor. Please contact us to explore this further.
Use Junior Individual Savings Accounts (ISAs)
Junior ISAs are available for children under 18, who live in the UK. Parents, or guardians with parental responsibility, can open a Junior ISA for their children. The investment limit remains £9,000 per year.
| Tip: Act before 6 April 2026 |
| ISA limits apply per tax year, and cannot be carried forward. They must be used before 6 April or lost. |
Junior ISAs cannot be held at the same time as a Child Trust Fund (CTF).
Management of the investment falls to the parent or guardian, but the money belongs to the child, who can take control of the account from age 16. No withdrawals can be made, however, until they turn 18. A Junior ISA will automatically change into an adult ISA when the child reaches this age. Those aged 16 or 17 can open their own Junior ISA.
Child Trust Funds
CTFs were set up for children born between 1 September 2002 and 2 January 2011, with an initial government deposit of at least £250. Matured CTFs are worth on average around £2,240, and when the owner turns 18, they can decide whether to withdraw or reinvest the money.
| Tip: Check for ‘forgotten’ Child Trust Funds |
| The government estimates that 758,000 matured CTFs have not been claimed by their owners. Many have simply forgotten that a CTF was opened for them. Searching ‘find my Child Trust Fund’ on gov.uk will start the process of tracking down any lost account. |
Lifetime ISAs
Parents or grandparents may want to consider gifting funds to adult children to invest in a Lifetime ISA (LISA). LISAs can currently be used to buy a first home, or save for later life, and can be opened between the ages of 18 and 40. The maximum investment limit is £4,000 per year. To this, the government adds a top-up of 25%, capped at £1,000.
Note that the government is about to consult on the introduction of a new, first time buyer only product that will provide a bonus when used to buy a house. It is expected that it will still be possible to open a LISA until such a product becomes available, and for existing account holders to continue to save into their LISA in line with the existing rules indefinitely.
Where Gift Aid fits in
Gifts made under Gift Aid to charities or Community Amateur Sports clubs have surprisingly tax efficient consequences.
They can be used as a planning tool, reducing taxable income for:
- the High Income Child Benefit Charge and Tax-Free Childcare
- the Personal Allowance taper
- and generally, as a safeguard against being pushed into higher tax bands.
Claim higher rate relief
Those paying tax at higher rates can get a refund of the difference between the basic rate tax paid on the donation, and the higher rate they actually paid. This is something that becomes even more relevant with the current freeze on the Personal Allowance and key tax thresholds, which will take more taxpayers into higher rates of tax.
| Tip: Remember to claim higher rate relief |
| Many people paying tax at higher rates fail to claim the additional relief to which they are entitled. A claim can be made via the tax return, or by asking HMRC to amend the tax code. |
Getting the admin right
It is important to record all donations under Gift Aid. The date; the amount of the gift; and name of the recipient charity should be noted. A valid Gift Aid declaration must also be in place.
If one spouse pays tax at higher rates, and the other at basic rate, in order to benefit from enhanced relief, it should be the higher rate taxpayer who makes the Gift Aid declaration.
Timing is important
Where a donor is planning a significant donation to charity, and there is the likelihood that they will be paying tax at a higher rate next year, making the gift after 5 April 2026 can provide flexibility.
A gift made before 5 April 2026 can only be set off against 2025/26 income; but one made between 6 April 2026 and 31 January 2027 could be treated as made in either the 2025/26 or 2026/27 tax year.
The conditions to do this are strict. To treat such a gift as if made in 2025/26, a carry back election is needed. The donation must be paid, and the election made no later than 31 January 2027, and must be included in the 2025/26 tax return. The claim must be made in the tax return, and cannot be made in an amended return. The chance to make a carry back election is lost once a return is filed. This means advance planning is vital.
If this is of relevance to you, we should be pleased to discuss the options available.
High Income Child Benefit Charge and Tax-Free Childcare
These are areas that can add considerable complexity.
High Income Child Benefit Charge
How it works
The High Income Child Benefit Charge (HICBC) applies where one of a couple gets Child Benefit and either they, or their partner have what is called adjusted net income above a certain threshold. Adjusted net income is broadly net income after the deduction of contributions to personal pension schemes and Gift Aid payments.
For income earned above this threshold, the charge claws back Child Benefit payment until an upper threshold is reached. At this point, all financial benefit of receiving payment is lost.
Current thresholds
The HICBC now applies where adjusted net income is more than £60,000. It then claws back Child Benefit payment at a rate of 1% for every £200 of income above £60,000, to the upper threshold, which is £80,000.
Who is liable
For HICBC purposes, partner means spouse, civil partner, or someone you live with as if you were married.
If both parties are over the income threshold, HICBC is the responsibility of the higher earner; this means that either partner can be liable, regardless of whether they are the one receiving Child Benefit. This can cause practical issues where couples run their finances independently, and one party doesn’t know the other claims Child Benefit.
How to pay: latest information
The procedure for payment has been problematic in the past, and anyone who had to pay the charge was required to complete a self assessment tax return. There is now, however, the option to use a new service and pay the HICBC through PAYE, by having the tax code adjusted.
The PAYE route can be used provided there is no other reason to submit a self assessment tax return, such as self-employment or rental income. Anyone who needs to stay in self assessment must also pay the charge through self assessment.
The PAYE option is only available on or before 31 January in the year after the tax year for which there is a liability.
| Example: Registration time limits |
| Sandra needs to pay HICBC for the tax year starting 6 April 2025. She can register to do so under PAYE until 31 January 2027. |
Note, however, that where someone has previously been registered for self assessment in order to pay HICBC, they need to deregister from self assessment first. This is done by phoning HMRC. They then need to register to pay under PAYE. The page with relevant details on gov.uk is found by searching ‘Child Benefit tax charge pay charge PAYE’.
| Tip: Plan before 5 April to minimise liability to HICBC |
| If both partners can keep income below £60,000, it is possible to keep payment of Child Benefit in full. Strategies to do this include: making personal pension contributions making payments under Gift Aid reallocation of profits where spouses are in business together. It is important to get the detail and timing right. |
Planning round Tax-Free Childcare
Tax-Free Childcare (TFC) helps with the cost of approved childcare for children up to age 11, on a per child basis. For disabled children, the age limit is 16.
Eligible parents register with the government and open an online account. The government then tops up payments into the account, at a rate of 20p for every 80p paid in, with a maximum top-up of £2,000 per child. For disabled children, the maximum is £4,000.
Who qualifies
Claimants must generally be in work, either on an employed or self-employed basis. They and their partner must generally have adjusted net income less than £100,000 per year, but expect to earn at least the equivalent of 16 hours at the minimum wage per week for the three months following application. This is around £203 per week for those over 21 in 2026/27. Some types of income, such as dividends and interest, do not count towards this minimum earnings requirement.
| Tip: Plan for eligibility |
| TFC can be claimed until adjusted net income is over £100,000. If income goes over this limit, all entitlement is lost. Strategies which reduce adjusted net income for HICBC purposes will also reduce income for TFC. |
Investing tax efficiently
Tax efficient investment comes with varying risk profiles.
From high risk to low risk, we look at both ends of the spectrum.
Venture capital schemes
These offer generous tax incentives to individuals investing in young, higher risk companies which are not listed on a recognised stock exchange.
Specific conditions must be met to qualify for tax relief under the schemes. These include rules on how long shares must be held for. Do please contact us to discuss this further.
The Enterprise Investment Scheme (EIS)
The main tax advantages of the EIS are:
- Income Tax relief on the investment at 30% on investments of up to £1 million per year, and £2 million for knowledge-intensive companies. This relief can be carried back to the previous tax year
- Capital Gains Tax (CGT) exemption on gains made when the EIS shares are disposed of
- there is also the possibility of deferring capital gains on the disposal of other assets on the purchase of EIS shares.
Seed Enterprise Investment Scheme (SEIS)
This also provides generous tax relief for individuals investing in new, unquoted, growing companies. Qualifying investors can invest up to £200,000 per tax year in qualifying companies, receiving Income Tax relief of up to 50% of the sum invested. Some, or all, of any unused relief in one tax year can also be carried back to the preceding tax year if there is unused relief available for that year. There is also favourable CGT treatment.
Venture Capital Trusts (VCTs)
VCTs complement the EIS and SEIS; but whereas the EIS requires investment directly into the shares of a company, VCTs work via indirect investment through a mediated fund. VCTs are quoted companies required to hold at least 80% of their investments in shares or securities in qualifying unquoted companies.
| Tip: Change coming |
| The Income Tax relief that can be claimed by someone investing in VCTs will fall from 30% to 20% from 6 April 2026. There is therefore a window before 6 April 2026 to invest in VCTs before the rate of tax relief falls. Please talk to us for more advice. |
This is a high level overview designed to give an indication of some of the potential tax advantages accruing. For personalised, in-depth advice, please get in touch.
Individual Savings Accounts
Individual Savings Accounts (ISAs) are free of Income Tax and CGT, and do not impact the availability of the Savings or Dividend Allowances. The tax benefits of ISAs continue to be attractive, especially in view of the reduction in the CGT annual exemption in recent years.
There are four types of ISA:
- cash ISAs
- stocks and shares ISAs
- innovative finance ISAs
- lifetime ISAs (LISAs).
Investment limits
There is a maximum investment limit each tax year. In 2025/26, this is £20,000. This can be invested in one ISA, or split over multiple accounts. Only one LISA each tax year, however, is permitted. The maximum investment here is £4,000 per year.
| Tip: Change coming |
| Following the Autumn Budget 2025, note that: ISA investment limits are frozen until 5 April 2031 the annual ISA cash limit will fall from 6 April 2027, except for those over 65 the government is consulting on a new first time buyer only product. |
Change to cash ISA limit: This move is intended to encourage investment in stocks and shares instead. From 6 April 2027, therefore, the maximum that can be invested in a cash ISA will be £12,000, rather than £20,000, for anyone under the age of 65. The overall maximum will continue to be £20,000, but will in future need to include both cash and stocks and shares products. Those aged 65 and over are not impacted by the change and will still be able to invest up to £20,000 in a cash ISA.
Rules
ISAs: ISAs are available for anyone over 18, resident in the UK. Each spouse has their own yearly subscription limit, so although they cannot hold an ISA jointly, a couple can invest a maximum of £40,000 per tax year between them. Withdrawals can be made from an ISA at any time, without losing the tax benefits.
Junior ISAs: Parents or guardians with parental responsibility can open a Junior ISA for a child under 18 who lives in the UK. Junior ISAs are covered elsewhere in this Guide.
LISAs: LISAs are available to anyone resident in the UK, over 18, and under the age of 40. They are intended to help towards purchase of a first home, or provide for later life. The government provides a 25% top-up towards this, up to a maximum of £1,000 per year. Where money is withdrawn for any other purpose, the top-up is clawed back. An exception is made for those who are terminally ill, with less than 12 months to live.
| Tip: Review ISA position each year |
| ISA limits cannot be carried forward to future years. They are lost if not used by the end of the tax year. We therefore recommend taking stock of your position by 5 April each year, to see if there is scope to take advantage of the ISA rules. |
Capital Taxes
Planning for the future is always important: forthcoming changes to Inheritance Tax now make it a priority.
The new rules impact business property relief (BPR) and agricultural property relief (APR); and the treatment of unused pension funds and death benefits. Overall, they change the outlook for planning considerably.
Capital Gains Tax basics
The Capital Gains Tax (CGT) rates for disposals by individuals are:
- 18% for UK basic rate taxpayers
- 24% for UK higher and additional rate taxpayers.
These rates also apply to the disposal of residential property. Scottish taxpayers pay CGT based on UK rates and bands.
Annual exemption: The annual exemption for 2025/26 remains at £3,000. An individual can make gains up to this limit without payment of CGT. In the case of spouses and civil partners, it is always beneficial if both parties can use the exemption.
Key CGT reliefs: These include private residence relief (covered in the Property Matters section of this Guide); business asset rollover relief, allowing a gain on a business asset to be deferred; and business asset gift relief, allowing a gain on business assets given away to be held over until disposed of by the recipient. It is also possible to bring forward unused allowable losses from previous years to reduce gains.
Business Asset Disposal Relief (BADR)
BADR may be available for certain business disposals, and has the effect of charging the first £1 million of gains qualifying for the relief at an effective rate of 14% for 2025/26. Strict eligibility conditions apply.
One such condition is that for companies, there is the need to qualify as ‘trading’ companies. The legislation defines this as not including ‘to a substantial extent activities other than trading activities’, and it can be a contentious area.
A recent case at the tax tribunal serves as a reminder of the importance of the trading condition. It concerned two taxpayers who had claimed BADR on the disposal of their shareholding in Chelsea Yacht and Boat Company Ltd. The company provided moorings, services and maintenance, and additional services such as repairs. The claim to BADR, however, was denied on the grounds that the company’s main source of income was from mooring fees and licences (non-trading income), rather than ‘trading’ activity, such as boat repairs.
| Tip: Monitor non-trading income |
| It is not unusual for a business to have a foot in both camps, as in this case. But to claim BADR successfully, it’s important to keep the balance between trading income and non-trading income right. The trading condition can be challenged by HMRC, and mistakes can be expensive. |
BADR: Higher tax rate coming
The value of BADR has been chipped away over recent years, and the rate of tax increases again for disposals made on or after 6 April 2026.
| Tip: Access BADR at current 14% rate |
| For disposals made on or after 6 April 2026, the rate of CGT for BADR rises from 14% to 18%. Where eligibility conditions are already met, it might be possible to consider making any qualifying disposal before April 2026 to take advantage of the current 14% rate of relief. This is a very short window for action. Please talk to us as a matter of priority if this is important to you. |
Investors’ Relief
This CGT rate available for external investors in unlisted trading companies has been rising in stages. Like BADR, it increases from 14% to 18% for disposals made on or after 6 April 2026.
Employee Ownership Trusts
The rules on relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts were changed with effect from 26 November 2025.
Cryptoassets
Disposal of cryptoassets may create a tax liability. In most cases, HMRC is likely to treat the holding of cryptoassets as a personal investment, rather than a trade, bringing disposals within the CGT rules.
| Tip: Keep reporting in mind |
| The self assessment tax return now has boxes specifically for the reporting of profits and losses on the disposal of cryptoassets. The trend of greater HMRC scrutiny takes a further step with new reporting rules from 1 January 2026. These require cryptoasset service providers to collect data and report information on those using their services, and will make cryptoassets transactions more visible to HMRC. |
The taxation of cryptoassets is a complex area.
Inheritance Tax
The basics
- IHT is paid on the value of an estate at death, and some chargeable lifetime gifts.
- The rate of tax on death is 40%, and 20% on lifetime gifts.
- Many lifetime gifts will escape IHT altogether where the donor lives for seven years after making the gift.
- Valuable IHT reliefs exist, such as the nil rate band and the residential nil rate band.
- IHT only affects a minority of estates, and there is usually no IHT to pay if assets are left to a spouse or civil partner.
The nil rate band and residential nil rate band
The first £325,000 is chargeable to IHT at 0%. This is known as the nil rate band (NRB). Unused NRB can be passed to the surviving spouse/civil partner. The residential nil rate band (RNRB) is a further nil rate band of £175,000 available where an interest in a qualifying residence is passed to direct descendants.
Taken together, this potentially gives relief of up to £1 million for the joint estate of a married couple/civil partnership. Restrictions apply where estates, before reliefs, are more than £2 million.
| Tip: Consider impact of frozen thresholds |
| These IHT thresholds are now frozen until 5 April 2031, and the lack of uprating means not only that they become less valuable over time, but that more individuals are potentially brought within scope of tax. |
Strategies for planning
Routine IHT planning involves making best use of all available IHT reliefs and exemptions; and taking advantage of the lower rate of tax on chargeable lifetime transfers. It is also important to consider the impact of other taxes. A lifetime gift, for example, may save IHT but create a CGT liability: and we are happy to help you decide on the implications of your plans for the future.
Clearly there are many factors other than tax to consider when making a decision that involves someone divesting themselves of any significant wealth, and it is important to retain sufficient capital and income for personal financial security. However, where circumstances permit, using the opportunity to make gifts up to the available limits can be a useful planning tool, reducing the chargeable value of the estate on the amount exceeding the £325,000 threshold for IHT.
Annual exemption
An amount of £3,000 per year may be given without an IHT charge. Any unused annual exemption can be carried forward for one year only.
Lifetime gifts
Lifetime gifts fall into three categories:
- potentially exempt transfers. IHT is only due here if the donor dies within seven years of making the gift. Taper relief, reducing the rate of IHT, may be available for gifts made three to seven years before death
- transfers to a company or trust, which are immediately chargeable
- exempt gifts.
Exempt gifts: Judicious use of exempt gifts can maximise overall relief, freeing up the annual exemption for use elsewhere.
Small gifts: Gifts to individuals of up to £250 in total per tax year, per recipient, are exempt.
Gifts for weddings or civil partnerships: Gifts to mark a wedding/civil partnership to a child are exempt up to £5,000; £2,500 for a grandchild or great-grandchild; and £1,000 for any other individual. This can be combined with any other allowance except the small gift allowance.
Normal expenditure out of income: Gifts made out of income, which are typical, habitual, and do not detract from the donor’s standard of living are exempt. We are happy to explain the rules in more detail, but payments under deed of covenant and the payment of annual premiums on life insurance policies would usually be covered here.
Family maintenance: A gift for family maintenance is also exempt. This includes transfer of property made under a court order on divorce; a gift for the education of children; or maintenance of a dependent relative.
Gifts to charities: Gifts to UK-registered charities are generally exempt.
Gifts between spouses: As noted above, these are generally exempt. The position can be more complex where one party is not what is technically termed as long-term UK resident
IHT: Forthcoming changes
Two major changes require consideration:
- the extension of IHT to unused pension funds and death benefits from 6 April 2027
- restrictions to business property relief (BPR) and agricultural property relief (APR) applying from 6 April 2026, and the impact of last-minute amendments to the original proposals which were announced at the end of 2025.
IHT change for pension funds
In a move aimed to stop pension saving being used as a tax planning vehicle to transfer wealth without an IHT charge, rather than to fund retirement, unused pension funds and death benefits payable from a pension are brought into the value of an estate for IHT from 6 April 2027.
This does not include death in service benefits payable from registered pension schemes. Note, too, that where the pension fund is left entirely to a spouse or civil partner, there is no IHT charge. Where there is an IHT liability, however, pension assets will be exposed to IHT at 40%.
It will be the personal representatives’ responsibility to report and pay any IHT due. They will, however, be able to direct the scheme administrators to keep back 50% of the taxable benefits for up to 15 months from the date of death, and use this to pay HMRC, in certain circumstances.
Strategic planning
There may be a need to reconsider overall planning where:
- there is significant pension saving involved
- and the aim had been to use part, or all of this to pass to loved ones on death.
Deciding how wealth is to be passed on; working out how funds are withdrawn from investments; which investments are used; when they are accessed; and in what order, take on new importance.
With IHT due within six months of the date of death, and typically before probate is granted, liquidity is another consideration.
Actions you may want to consider include:
- making lifetime gifts to reduce the value of your estate, with all the implications for your personal finances and tax involved
- accessing pension funds, noting the consequences this may have
- reviewing overall investment and retirement funding strategies. Traditional advice in the past has been to use non pension assets (ISAs, cash savings and other investments) before pension assets, but these strategies may now change
- purchasing life insurance to provide a lump sum on death to settle any IHT liability. Ensuring this is written in trust will keep it outside your estate for IHT and give your beneficiaries the liquidity they need before probate is granted. This is a complex area, where further advice will be needed
- checking that your will is up to date, and an appropriate beneficiary is nominated for your pension.
Change to BPR and APR: latest information
BPR and APR have for years provided access to unlimited 100% IHT relief both at death, and (where relevant) on lifetime chargeable transfers; or 50% relief in some cases. They have benefitted businesses, families and estates alike, enabling them to pass the baton to the next generation.
A cap on these two reliefs will be introduced from 6 April 2026, and it is important to note that though the farming lobby has been particularly vocal, this is not just a farming issue. The change to BPR impacts trading businesses, and business owner managers should therefore consider their plans for the future. For convenience, we use the term ‘business’ here to include both trading and farming businesses.
As originally announced, the proposals would have significantly increased the IHT payable on the transfer of many businesses. There have, however, been two significant last-minute amendments to the original proposals, and these will soften the impact for many.
Lifetime allowance: latest information
Under the original proposals, only the first £1 million of qualifying business and agricultural assets attracted 100% relief. It has now been announced that this limit will be increased, and under these latest proposals, the first £2.5 million of qualifying assets will attract 100% relief. This is extremely welcome news.
The £2.5 million limit is a combined limit across all eligible business and agricultural property. Any additional assets above this limit will only attract relief at 50%. The £2.5 million allowance is frozen until 5 April 2031, and is expected to increase in line with inflation thereafter.
The new rules will also apply for lifetime transfers made on or after 30 October 2024, where the donor dies within seven years of the gift, but only if the death occurs on or after 6 April 2026.
Assets to which the existing 50% relief already applies do not count towards the £2.5 million limit, and the 50% rate continues to apply unchanged.
The £2.5 million limit could be used to cover, for example:
- £2.5 million of property qualifying for BPR or
- £1 million of property qualifying for BPR and £1.5 million of property qualifying for APR.
Transfer between spouses and civil partners: latest information
Under the original proposals, the 100% rate of relief was a per person limit, and there was no provision for unused allowance to be transferred between spouses or civil partners. This has now changed.
The Autumn Budget 2025 announced that any unused allowance will be transferable between spouses and civil partners. This will apply to those widowed and losing spouses or civil partners before the policy is introduced.
Impact
These amendments to the original proposals mean that a couple will be able to pass on up to £5 million of agricultural or business assets between them before paying IHT. Existing allowances, such as the nil rate band, can be used in addition to this.
The government has said that these two amendments mean that only a small number of estates will now pay additional IHT: ‘Raising the threshold will significantly reduce the number of farms and business owners facing higher Inheritance Tax bills under the reforms, ensuring that only the largest estates are affected.’
There is no doubt that the amendments are extremely welcome news for those affected. However, there is still a need to weigh up any possible impact in your individual circumstances, and we would be pleased to help you do this. Even with these amendments, planning for the future remains a key issue: and in all circumstances, the importance of reviewing and updating wills cannot be overstated.
Trusts: The new £2.5 million limit will also apply to the combined value of relievable agricultural and business property in trusts.
Qualifying Alternative Investment Market (AIM) shares: The rate of BPR available will be reduced from 100% to 50%.
| Tip: Planning for IHT liabilities |
| Even with the amendments to the original proposals, some businesses which would previously have passed to the next generation without a tax charge will now need to plan for an IHT liability. This may impact cash flow, liquidity, and in some cases the future viability of the business. Careful planning will be key. |
Funding an IHT liability
IHT is normally due six months after the date of death. The new rules provide the option to pay the IHT liability by equal annual instalments over ten years, interest-free, for all property which is eligible for APR or BPR. For some, it may be appropriate to plan to meet the cost of future liabilities through life assurance arrangements.
But there are much wider questions involved, which may impact long term plans for the business. Even though an IHT liability is a personal tax problem, many businesses may feel they have no option but to fund it via extraction from the company, and this could have potential consequences for its future.
Options you may want to consider, in order to plan round the IHT changes, include:
- sale of the business
- involving the next generation now, and moving assets down a generation
- restructuring how a property or business is owned, considering use of trusts, or use of companies
- for partnerships, reviewing partnership structure and agreements.
| Tip: New costs to factor in |
| Under the new rules, many estates with business property or agricultural property will require valuation. Obtaining an accurate, professional, open market valuation is not something that has been necessary under the current regime, and is an additional cost to consider. |
Year end checklist
For families, couples and individuals
Maximise use of tax rates, tax bands and allowances
Act to minimise loss of Personal Allowance
Assess allowances available for all family members
Use ISA investment limits before 6 April 2026
Claim higher and additional rate repayments under Gift Aid
Consider investment in VCTs before 6 April 2026 to access higher rate of Income Tax relief
Plan to minimise impact of High Income Child Benefit Charge
Consider registration to pay High Income Child Benefit Charge via tax coding
Review pension planning
Update wills and estate planning, especially in view of forthcoming IHT rule changes
Contact us as soon as possible for maximum tax efficiency.
Working with you
This Guide will help identify areas that could significantly impact your overall tax position. Advice specific to your circumstances, however, is always essential.
If you would like to discuss how we can support your business with our outsourced accounting services and virtual CFO services, please get in touch.
Use of this information is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.
