Draft Finance Bill 2025-26: Tax Documents

The Government are committed to engaging with interested groups when developing and legislating for tax policy, and we are today publishing draft legislation ahead of potential inclusion in the next Finance Bill.

This will allow for technical consultation on the application of tax policy in legislation and provides taxpayers with greater predictability over future tax policy changes. Alongside this, the Government are making announcements in a small number of technical areas of tax policy to ensure the effective maintenance of the tax system.

The final contents of Finance Bill 2025-26 will be decided by the Chancellor at the next Budget. The Government are also publishing a consultation and a number of tax-related summaries of responses to consultations which have already been conducted.

The Government are determined to close the tax gap and make sure everyone pays the tax they owe. This is fair, essential for a well-functioning economy, and will help to keep taxes on working people as low as possible.

At autumn Budget 2024 and spring statement 2025, the Government announced the biggest ever package of measures to close the tax gap, including those set out below.

Tackling tax non-compliance in the umbrella company market: the Government are publishing draft income tax legislation to make recruitment agencies accountable for pay-as-you-earn on payments to workers supplied via umbrella companies. Where there is no agency, this responsibility falls to the end client. Regulations giving effect to this measure for national insurance contributions purposes will be laid separately. The legislation creates a joint and several liability, allowing His Majesty’s Revenue and Customs to pursue the agency or end client for payroll taxes that an umbrella company fails to pay on their behalf. This measure will reduce tax non-compliance, raising around £500 million in 2029-30, create a level playing field for compliant businesses, and protect workers from unexpected tax bills.

Enhancing HMRC’s powers, tackling tax advisers facilitating non-compliance: the Government are publishing draft legislation to improve the efficiency and effectiveness of powers that allow HMRC to tackle tax advisers facilitating non-compliance by their clients. This will strengthen HMRC’s powers to collect information from tax advisers, issue penalties where there is evidence of wrongdoing, and publish information about tax advisers where they are subject to sanctions. These measures will help close the tax gap by deterring tax advisers from facilitating non-compliance, and making non-compliant tax advisers responsible for their impact on the tax system.

Modernising and mandating tax adviser registration: the Government are publishing draft legislation which will mandate tax advisers to register with HMRC and meet minimum standards, before being able to interact with HMRC on behalf of clients. The changes will take effect from April 2026.

Closing in on promoters of marketed tax avoidance: the Government are publishing draft legislation for a package of measures to close in on promoters of marketed tax avoidance, whose contrived schemes leave their clients with unexpected tax bills. The package includes new powers for HMRC to focus on those who own or control promoter organisations and strengthening the disclosure of tax avoidance schemes regime.

Charity compliance measures: the Government are publishing draft legislation to change the rules for when donations to charity become tainted and what types of investments are acceptable for charitable tax relief, and changing the rules covering how tax relieved income must be spent for charitable purposes. These measures will support the Government aim of closing the tax gap through strengthening compliance powers to challenge abusive arrangements and poor compliance. They simplify the current tax rules by equalising treatment across all investment types and deal with receipts and expenditure in the hands of the charity. The changes will take effect from April 2026.

The Government will make greater use of data and technology to help individual taxpayers and businesses pay the right tax first time, while making tax digital will help people pay their tax quickly and easily.

Better use of new and improved third-party data to make it easier to pay tax right first time: the Government are publishing draft primary legislation alongside a summary of responses document. This follows the publication at the spring statement of a consultation to make better use of new and improved third-party data to make it easier to get tax right first time.

Making tax digital: the Government are publishing legislation to come into force from April 2026 covering:

Streamlining end of year process for MTD for income tax: draft primary and secondary legislation to streamline the MTD for income tax end of year filing journey. It will require taxpayers using MTD to deliver end of year returns through MTD-compatible software. This delivers a better filing experience for users.

Finalising design of MTD and exempting and deferring certain groups from digital requirements: draft primary and secondary legislation to exempt or defer small groups of taxpayers from MTD for income tax who may face disproportionate barriers to operating MTD or for whom operating MTD for income tax is impracticable. It also makes various minor, technical or policy changes to ensure MTD and penalty reform work as intended.

Lowering the income threshold to £20,000: draft secondary legislation extending MTD for income tax to sole traders and landlords with income over £20,000 from April 2028. This will help ensure more businesses are able to adopt new digital ways of working, supporting their productivity and growth.

At autumn Budget 2024, the Government announced measures to deliver key manifesto commitments, alongside other measures to fix the public finances through a fairer, more sustainable tax system.

The tax treatment of carried interest: the Government are publishing draft legislation to introduce a revised tax regime for carried interest, a form of performance-related reward received by fund managers. This revised tax regime will sit wholly within the income tax framework, with carried interest treated as trading profits and subject to income tax and class 4 national insurance contributions. The changes will take effect from April 2026.

Technical amendments to residence-based tax regime: the Government will bring forward technical fixes to legislation contained in the Finance Act 2025 that replaced the special tax rules relating to domicile. These changes are to ensure that the legislation works as intended. As examples, these technical changes to legislation will include:

Inheritance tax spousal election for non-long term resident spouses: ensuring the election correctly lapses after 10 consecutive years of non-residence have passed;

Section 690: ensuring that the present inclusion of treaty non-residents on a concessionary basis is placed within legislation; and

Temporary repatriation facility: ensuring that the legislation works as intended for offshore income gains and migrating trusts (trusts which were previously settled overseas but are now UK resident).

The Government will set out further details on these amendments in due course.

Inheritance tax, unused pension funds and death benefits: the Government are publishing draft legislation to bring most unused pension funds and death benefits within the value of a person’s estate for inheritance tax purposes from 6 April 2027. Following technical consultation, and in line with the current treatment of pensions already in the scope of IHT, personal representatives, rather than pension scheme administrators, will be liable to report and pay IHT. All death in service benefits payable from a registered pension scheme, including those in scope of IHT under existing rules, will be excluded from the value of an individual’s estate for IHT purposes. This supports the Government objective to build a fairer tax system by removing distortions which have led to pension schemes being increasingly used and marketed as a tax planning vehicle to transfer wealth, rather than for funding retirement. It also removes inconsistencies in the IHT treatment of different types of pensions.

Inheritance tax, agricultural property relief and business property relief: as announced at autumn Budget 2024, the Government are publishing draft legislation to reform these inheritance tax reliefs from 6 April 2026 to make them fairer and more sustainable. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter, and in all circumstances for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. The changes will take effect from April 2026.

Changes to employee car ownership schemes: the Government are publishing draft legislation which is intended to bring employee car ownership schemes into scope of the benefit in kind rules as company cars. This legislation ensures employees receiving vehicles through these arrangements pay company car tax, ensuring fairness with other taxpayers. The changes will take effect from October 2026.

The Government are continuing to ensure the tax system operates effectively and delivers on our commitments.

Benefit in kind tax for plug-in hybrid electric vehicles: the Government are announcing that if a new emissions standard for plug-in hybrid electric vehicles is introduced in Great Britain, it will help to mitigate the significant increase in benefit in kind tax that would result from higher carbon dioxide emissions figures.

The Department for Transport will, in due course, consult on introducing the Euro 6e emissions standard for cars and vans in Great Britain from April 2026. The standard already applies in Northern Ireland from January 2025. Where the standard applies, this change will significantly increase the BiK tax due on PHEV company cars, which is linked to CO₂ emissions.

The Government recognise that while it is right that higher emitting vehicles pay more tax, company cars continue to play an important role supporting our transition towards zero emission vehicles and the decarbonisation of transport. Subject to the consultation outcome, the Government intend to legislate for an easement that will apply UK-wide between April 2026 and April 2028 to help mitigate the benefit in kind tax impact. In Northern Ireland, the easement will also apply retrospectively to January 2025 in order to ensure consistency across the UK.

Private intermittent securities and capital exchange system: following the announcement on 15 May 2025, the Government are publishing draft legislation to allow employers, with their employees’ permission, to amend existing enterprise management incentive and company share option plan contracts to include a PISCES trading event as an exercisable event, without losing the tax advantages the schemes offer.

Trader provided free legislation, inland border facilities: the Government are publishing draft legislative amendments to existing trader provided free legislation. This will mean that all border locations will be responsible for providing and funding their own customs infrastructure. This measure will affect border locations where this infrastructure is currently provided and funded by the Government at inland border facilities.

Land remediation relief: land remediation relief is a 150% corporation tax relief aimed at incentivising the regeneration of brownfield land and reducing the pressure to develop greenfield sites; the Government are today publishing a consultation that seeks views on the design and impact of land remediation relief as part of the Government support for brownfield development.

We are also publishing legislation to ensure the effective functioning of tax legislation.

Technical updates to pillar 2 rules: the Government are publishing draft legislation to make technical updates to the UK’s pillar 2 rules in response to stakeholder feedback and to maintain consistency with the latest internationally agreed commentary to the OECD model rules.

Application of overseas restriction for research and development expenditure credit: the Government will legislate to ensure that the overseas restriction operates in Northern Ireland as intended. This legislation will apply to claims made on or after 30 October 2024. The changes will take effect from April 2026.

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