On 21 July (Legislation Day), the UK Government published draft legislation for Finance Bill 2025-26, outlining changes ahead for many individuals, families and businesses.
These follow announcements made in Autumn Budget 2024. The most significant changes involve the UK’s inheritance tax (IHT) rules and will impact how businesses and agricultural land are passed from their owners to younger family members.
A consultation on the draft legislation is running until 15 September 2025. If implemented, the changes will take effect from April 2026.
Read on for our summary of the expected changes, links to our in-depth articles, what you should be thinking about now, and how our tax specialists can help you to prepare before next April.
IHT: Business Property Relief and Agricultural Property Relief (BPR and APR)
From 6 April 2026, BPR and APR will be collectively capped at £1m for each individual, above which only 50% relief will be available.
The draft legislation outlined some concessions around instalment payments but on the whole, the position for business owners and farmers is as many feared following Autumn Budget 2024: a full exemption from IHT will no longer be available in many cases.
A further change involves AIM-listed shares. Historically, shares on stock exchanges designated as “not listed”, notably AIM, were entitled to 100% BPR. From 6 April 2026, this will be restricted to 50%.
If you’re a business owner or farmer, this means:
- You won’t be able to rely on your business and agricultural land passing to your children, grandchildren etc free of IHT on death (above the £1m cap)
- You won’t be able to settle shares or agricultural land into trust free of IHT (above the £1m cap)
There are tax planning opportunities available now that will cease from 6 April 2026, so we recommend considering your position now. Read our article for more about the BPR and APR changes and how we can help you to explore the planning opportunities.
BPR and APR: read more
IHT: Bringing pension funds within scope
From 6 April 2027, the balance of most pension funds unused at the date of death will be brought into the pension member’s estate for IHT purposes.
- Where individuals die after 75, this will generally mean that pension pots will be subject to IHT (on the value at death), and income tax on extraction. The draft legislation provides that funds taken from the pension to fund the IHT should not also be subject to income tax
- The fact that a pension fund may hold BPR/ APR qualifying assets does not affect the IHT due – hence this relief is essentially wasted where such assets are held via a pension
For individuals who have been saving money in a pension with the expectation of passing it to their children free of IHT, this has been another blow on top of the other IHT changes.
Our article explains the changes in more detail, and what pension members should be thinking about before the changes take effect.
IHT on pension funds: read more
Umbrella companies and employee car ownership schemes (ECOS)
Some of the draft legislation is designed to target perceived abuse and non-compliance within certain umbrella company structures and car ownership arrangements.
- From 6 April 2026, employment businesses (recruitment agencies) will be liable for unpaid taxes when engaging umbrella companies that flout PAYE and National Insurance Contribution (NIC) obligations
- From 6 October 2026, ECOS will be brought within the scope of benefit in kind (BiK) legislation, ending their long-standing tax advantage. Vehicles provided through ECOS arrangements will be deemed as liable for the income tax associated with the benefit
The proposals seek to tighten existing rules, particularly where schemes are used to disguise earnings or circumvent PAYE obligations. This reflects HMRC’s ongoing focus on labour market compliance and the use of third-party intermediaries.
If you’re an affected business or payroll provider, you should review your existing arrangements as soon as possible, to ensure they remain robust, transparent, and aligned with HMRC’s direction of travel. Read our article for more details.
Umbrella companies and ECOS: read more
Carried interest changes
From 6 April 2026, carried interest will be taxable as trading income and therefore subject to income tax and Class 4 National Insurance Contributions.
To the extent that carried interest is “qualifying”, there is a 27.5% discount applied to the income which (for an additional rate taxpayer) will create an effective tax rate of 34.075%. The conditions attached to qualifying carried interest are similar to the existing conditions for carried interest to be subject to capital gains tax.
For most affected taxpayers, the effect of the new rules will be an additional 2.075% tax liability on their “qualifying” carried interest. We recommend taking professional advice to clarify this position.
PISCES guidance
The Private Intermittent Securities and Capital Exchange System(PISCES) is a new type of private stock market giving investors more opportunities to access and trade shares in privately owned companies. It’s expected to be used to trade shares held by employees.
Under the draft legislation, it will be possible for existing Enterprise Management Incentives (EMI) and Company Share Option Plan (CSOP) option agreements to be amended – without loss of the EMI and CSOP tax advantages – to allow exercise if shares are, or will become, PISCES shares.
This measure will apply to those agreements granted before the Finance Bill 2025-26 receives Royal Assent.
HMRC’s supporting documents for Finance Bill 2025-26 are available here.
How BKL can help
Our specialists in tax, IHT, trusts and estates help entrepreneurs, families and trustees to understand UK tax complexities and structure their estates tax-efficiently. This covers all points in the business lifecycle, and all aspects of your business ownership and wealth.
We can explain how the Finance Bill 2025-26 changes will impact your unique situation, guide you through the factors that may affect your tax liability, and advise you on preserving and passing on as much of your wealth as possible.
For a chat about how we can help you, get in touch with Susie Mullin or send us an enquiry.
