On 21 July 2025, the Government published the draft clauses for the Finance Bill 2025–26. These proposals are now open for consultation until 15 September 2025 and are set to shape the UK’s tax landscape in the coming year.
The measures cover a broad range of areas, including Income Tax, Corporation Tax, Inheritance Tax Research & Development (R&D) tax relief, anti‑avoidance rules and HMRC enforcement powers.
Below we highlight the most important points for businesses and individuals.
Income Tax
- Draft clauses refine the treatment of certain employment-related benefits, closing loopholes in benefit-in-kind reporting.
- Adjustments to the High Income Child Benefit Charge aim to improve fairness and reduce administrative burdens.
- A new framework for digital reporting of income continues the Government’s Making Tax Digital programme, increasing real‑time reporting for landlords and the self‑employed. As reminder, this means that sole traders and landlords with income above £50,000 will join from April 2026, those with income above £30,000 will join from April 2027 and those with income above £20,000 will join from April 2028.
Corporation Tax
- Further restrictions are proposed on loss relief and group relief rules, targeting arrangements perceived as artificial.
- Measures to align UK corporation tax rules with OECD Pillar Two reforms will impact multinational groups with global revenues exceeding €750m.
- Changes to the Capital Allowances regime may incentivise investment in specific green technologies, although details remain under consultation.
Inheritance Tax (IHT)
The draft legislation confirms that from 6 April 2027, unused pension assets will no longer be exempt from IHT when a member dies.
This change applies to:
- UK registered pension schemes (RPSs)
- Certain overseas pension schemes (QNUPSs)
- Old-style “section 615(3)” schemes for people working abroad
However:
- Employer-Financed Retirement Benefit Schemes (EFURBS) funded entirely before 6 April 2006 will still be exempt.
- The current IHT exemptions from 10-year anniversary and exit charges for RPSs, QNUPSs and section 615(3) schemes remain unchanged.
- Death-In-Service lump sums and dependants’ pensions (from defined benefit schemes) are still expected to be exempt – but it is not completely clear whether this protection will cover “death in service only” schemes.
Who pays the IHT?
- The deceased member’s personal representatives will normally handle the calculation and payment.
- Scheme administrators will only pay the tax if asked by the beneficiary and if the amount is at least £4,000.
Other key points:
- Farmland or business assets in a pension scheme will not qualify for Agricultural or Business Property Relief.
- If Income Tax is due on post-death pension distributions, the IHT paid can be deducted when working out the taxable amount.
R&D Tax Relief
- Proposed rules introduce stricter qualifying criteria for overseas R&D expenditure, reinforcing the UK‑focus of the regime.
- A new ‘pre‑notification’ requirement for first‑time claimants is included to reduce spurious claims.
- HMRC will gain enhanced powers to withhold payments where fraud is suspected, a clear response to the recent surge in R&D tax relief abuse.
Anti‑Avoidance Measures
- The draft Finance Bill contains new Targeted Anti‑Avoidance Rules (TAARs) to prevent the use of partnerships and hybrid entities to shift profits or obtain double relief.
- Strengthened Disclosure of Tax Avoidance Schemes (DOTAS) obligations will require earlier and more detailed reporting by promoters and users of schemes.
- The Government also plans to expand its General Anti‑Abuse Rule (GAAR) panel to speed up case resolution.
HMRC Enforcement Powers
- HMRC is set to gain stronger powers to obtain information from third parties without prior tribunal approval in certain high‑risk cases.
- New penalties for persistent non‑compliance will apply to individuals and businesses repeatedly failing to meet filing or payment deadlines.
- A proposed ‘naming and shaming’ regime could see deliberate tax defaulters publicly listed more quickly.
What Should You Do Now?
- Review the draft clauses carefully – especially if you are affected by changes to Corporation Tax, IHT, or R&D Tax Relief.
- Submit consultation responses before 15 September 2025, as this is a key opportunity to influence final legislation.
- Consider early planning for potential IHT reforms and changes to reliefs, particularly for clients with trusts or agricultural/business property.
- Ensure compliance procedures are up to date – with HMRC set to gain enhanced enforcement powers, robust record‑keeping and reporting will be more important than ever.
Contact our team should you have any questions surrounding the legislation.