As we enjoy the height of summer, there’s no slowing down on the tax and financial front. This month’s edition brings a number of important developments that could significantly impact estate planning, property ownership, and compliance obligations for individuals and businesses alike.
We highlight major changes to Inheritance Tax (IHT), including the extension of IHT to unused pension funds and a significant overhaul of Business and Agricultural Property Reliefs-both confirmed in the draft Finance Bill 2025-26. These reforms are set to reshape how estates are taxed and should be considered carefully in future planning.
Also covered are updates to the Making Tax Digital (MTD) rollout, with phased implementation beginning in 2026 and a sharper penalty regime already in effect. For those looking to take their first step onto the property ladder, we provide a helpful overview of the Shared Home Ownership scheme.
As always, be sure to check the key tax diary dates at the end of the newsletter to stay on top of your obligations.
IHT Unused Pension Funds and Death Benefits changes
It was confirmed with the publication of the draft Finance Bill 2025-26 that measures first announced in the Autumn Budget 2024 to bring most unused pension funds and death benefits into the scope of Inheritance Tax (IHT) will start from 6 April 2027. This will significantly extend the IHT net, capturing pensions that were previously excluded. Individuals with sizeable pensions will need to consider these changes with some care, and review their estate planning accordingly.
This measure will affect individuals inheriting estates within the scope of IHT, including beneficiaries of any unused pension funds or death benefits included in those estates. Personal representatives will be liable for reporting and paying any IHT due on unused pension funds and death benefits.
Death-in-service benefits payable from a registered pension scheme and dependants’ scheme pensions from a defined benefit arrangement, or from a collective money purchase arrangement are excluded from these changes and will not be within the scope of IHT.
There were some changes to the original proposals following a technical consultation that closed in January 2025. As a result, personal representatives, rather than pension scheme administrators, will now be primarily liable for reporting and paying IHT on any unused pension funds and death benefits.
This means that pension scheme administrators and personal representatives will need to work together in administering IHT on pensions. There are concerns that this process could lead to multiple issues, including payment delays, greater complexity and GDPR privacy matters.
IHT Agricultural and Business Property Relief changes confirmed
Despite intense lobbying by the farming community, the proposed reduction in IHT Business and Agricultural Property reliefs are included in the draft Finance Bill 2025-26.
On 21 July 2025, the government published draft legislation for Finance Bill 2025-26. The consultation period for the draft legislation is open until 15 September 2025. This comes at a time when the government has seen borrowing in June surge to the second highest level on record and placing further pressure on public finances and increasing the urgency for tax reforms.
The legislation includes confirmation of a significant overhaul of Inheritance Tax (IHT) reliefs that were first announced in the Autumn Budget 2024. These measures faced criticism over their potential impact on small farms and rural communities. However, with the publication of the Finance Bill, these measures now look set to come into effect from 6 April 2026.
The changes will see the introduction of a new £1 million allowance that will apply to the combined value of property in an estate qualifying for 100% business property relief or 100% agricultural property relief. This means that the existing 100% rate of IHT relief will only apply to the combined value of property in an estate qualifying for 100% business property relief or 100% agricultural property relief. The rate of IHT relief will be reduced to 50% for the value of any qualifying assets over £1 million. This means that any assets receiving 50% relief will be effectively taxed at 20% IHT (the full rate being 40%).
This change applies per individual, meaning married couples could potentially pass on up to £3 million tax-free between them (when combined with nil-rate bands).
The government has also confirmed they will reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. The existing rate of relief will continue at 50% where it is currently this rate and will also not be affected by the new allowance.
It was also announced that the option to pay IHT by equal annual instalments over 10 years interest-free will be extended to all qualifying property which is eligible for agricultural property relief or business property relief.
Higher penalties for MTD filers
Making Tax Digital for Income Tax will become mandatory in phases from April 2026. If you are self-employed or a landlord earning over £50,000 you need to start preparing to submit quarterly updates, keeping digital records and a new penalty system will apply.
Initially, MTD for IT will apply to businesses, self-employed individuals, and landlords with an annual income exceeding £50,000. From 6 April 2027, the rules will extend to those with an income between £30,000 and £50,000. A new system of penalties for late filing and late payment of tax will also be introduced.
From April 2028, sole traders and landlords with income over £20,000 will need to follow MTD rules. The government is also exploring ways to bring those earning under £20,000 within the MTD framework at a future date.
To help ensure taxpayers pay on time, HMRC increased the late payment penalties with effect from 1 April 2025. This applies to VAT-registered businesses as well as early adopters of Making Tax Digital for Income Tax.
The updated penalty rates are as follows:
- 15 days late: increased from 2% to 3%
- 30 days late: increased from 2% to 3%
- From day 31 onwards: a 10% annual penalty now applies, up from 4%, with daily interest added from this point
Taxpayers that remain with self-assessment face a separate set of penalty rules.
Shared home ownership
Shared home ownership offers a more accessible route to owning a home for those who cannot afford the full deposit or mortgage on a property that suits their needs. Under this scheme, buyers purchase a share of a property, typically between 10% and 75% of its market value and pay rent on the remaining portion to a housing provider.
The initial purchase can be funded through a mortgage or savings, along with a deposit usually ranging from 5% to 10% of the share. Over time, owners have the option to buy additional shares in the property through a process known as “staircasing,” reducing the amount of rent paid to the landlord.
Shared ownership lets buyers get on the housing ladder with a smaller deposit and a part-rent, part-buy model.
Shared ownership properties can be new builds or resales and are often available through housing associations or local councils. For individuals with long-term disabilities, adapted homes may also be available through the scheme.
All shared ownership homes are leasehold, and buyers are typically responsible for service charges and ground rent.
Different rules apply in Northern Ireland, Scotland and Wales where alternative schemes, such as Right to Shared Ownership, may apply if you are currently renting.
Shared ownership can help individuals get on the ladder towards full home ownership making it a valuable option to consider.
Tax Diary August/September 2025
1 August 2025 – Due date for corporation tax due for the year ended 31 October 2024.
19 August 2025 – PAYE and NIC deductions due for month ended 5 August 2025 (If you pay your tax electronically the due date is 22 August 2025)
19 August 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2025.
19 August 2025 – CIS tax deducted for the month ended 5 August 2025 is payable by today.
1 September 2025 – Due date for corporation tax due for the year ended 30 November 2024.
19 September 2025 – PAYE and NIC deductions due for month ended 5 September 2025. (If you pay your tax electronically the due date is 22 September 2025)
19 September 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2025.
19 September 2025 – CIS tax deducted for the month ended 5 September 2025 is payable by today.