What the latest announcements on VAT, mileage, IHT and the PE exempt regime mean for businesses and individuals
Last week, the Chancellor made several announcements whose significance may not be immediately obvious. Whether you’re planning as an individual or a business, we’ve set out what these changes could mean for you.
Mileage allowance increase for businesses
An increase to the mileage allowance for the use of personal vehicles from 45p to 55p per mile, for the first 10,000 miles travelled annually, will apply from 6 April 2026. This will be backdated for the current tax year. The package, along with temporary VAT relief on family days out, is designed to support consumers with the cost of living.
Temporary VAT reduction for family attractions and children’s activities
From 25 June to 1 September 2026, a temporary reduction in VAT from 20% to 5% on qualifying activities related to family days out will apply to:
- Qualifying children’s meals consumed on premises
- Children’s admission tickets for cinemas, theatres, concerts, shows and exhibitions
- Admissions to certain family attractions
The temporary relief is expected to benefit a broad range of businesses, including restaurants, cafés, cinemas, theatres, museums, theme parks, zoos, soft play centres and other family-focused attractions.
If this applies to your business, you should begin reviewing affected supplies and system as soon as possible.
Chancellor Rachel Reeves has announced her Great British Summer Savings scheme with the aim of saving families money on days out. Reducing VAT on qualifying attractions and meals from 20% to 5% for a few months is a welcome announcement for those already stretched by the cost of living, but the long overdue increase in tax-free mileage rates, backdated to 6 April 2026, has the potential to make a bigger impact for those who use their car for work.
Tommy Roy
Partner
Significant changes to inheritance tax on pensions
From 6 April 2027, most unused pension funds and death benefits will be included in your estate. This month, HMRC provided more information on how the changes in IHT will work in practice.
Executors (personal representatives) will be responsible for:
- Identifying all pension arrangements
- Contacting each provider
- Obtaining valuations and beneficiary details
- Reporting and paying any IHT due
This means pension and estate planning should be reviewed sooner rather than later, both to understand the potential tax exposure and to make sure records, beneficiary nominations and wider succession plans are in good order ahead of the changes.
UK foreign permanent establishment exemption: changes for multinational groups
Currently, UK companies are taxed on foreign PE profits, with double tax relief where relevant. The company can choose to make an irrevocable election, meaning foreign profits are exempt but foreign losses cannot be used in the UK.
Where no election is made, groups may benefit from UK tax relief for foreign losses.
The following changes are expected to affect companies with accounting periods beginning on or after 1 January 2027. For UK-resident companies that conduct activities in relation to oil and gas extraction and exploration through foreign PEs this measure will apply from 1 September 2026.
The key change is that exemption will become compulsory:
- Companies will no longer be able to choose whether to tax or exempt foreign branches
- Both profits and losses will sit outside the UK tax net
In effect, the existing election is being removed and applied universally.
One of the most impactful changes is the removal of loss relief: foreign PE losses will no longer reduce UK taxable profits. This addresses the Government’s concern that groups have been able to claim UK relief for overseas losses without bringing corresponding profits into charge.
The impact will vary depending on your group profile, but key areas to consider include:
- Loss utilisation
- Structuring decisions
- Investment planning
- Forecasting and effective tax rates
- Governance and compliance
How BKL can help
While these announcements cover very different areas, they all have practical implications for tax, cashflow and long-term planning. Whether you need to assess the impact on your business, review your estate plans or understand how the new rules could affect your group structure, taking advice early can help you prepare with confidence.
If you would like to discuss how any of these changes may apply to you, please get in touch with your regular BKL contact or using the form below.
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Frequently asked questions
What should businesses do now to prepare for the temporary VAT reduction on family activities?
Businesses should review which of their supplies qualify and update pricing, billing, and EPOS systems before 25 June 2026.
The temporary VAT rate cut to 5% applies only to specific children’s meals and admissions, so careful product mapping is essential.
You should also plan how the change is communicated to customers and monitor cashflow impacts during the period.
Early preparation helps avoid errors in VAT returns and ensures compliance with HMRC requirements.
Which businesses are most likely to benefit from the 5% VAT rate on children’s activities?
Operators in the leisure, hospitality, and attractions sectors are most affected. This includes restaurants, cafés, cinemas, theatres, museums, theme parks, zoos, and soft play centres.
Any business offering qualifying children’s admissions or meals can benefit through improved demand and pricing flexibility. However, eligibility depends on the precise nature of the supply, so reviewing how services are structured is important to ensure the reduced rate is applied correctly.
Will the VAT reduction automatically apply, or do businesses need to take action?
The reduced rate does not apply automatically in practice: businesses must actively put it into action. HMRC expects businesses to charge VAT at the correct rate based on the nature and timing of the supply. This means updating systems, ensuring staff are aware of qualifying transactions, and keeping accurate records. Errors could lead to under-declared or over-declared VAT, so a proactive approach to compliance is essential.
How does the mileage allowance increase affect employees and business owners?
The increase to 55p per mile (for the first 10,000 miles) raises the tax-free reimbursement threshold for using personal vehicles for work. Employees and directors can receive higher mileage payments without triggering a tax charge, while businesses may see increased allowable deductions.
Reviewing mileage policies and expense processes ensures you maximise the benefit from 6 April 2026 and apply the correct rates going forward.
Is the mileage rate change backdated, and what does that mean in practice?
Yes, the new mileage rate is backdated to 6 April 2026, meaning it applies to the current tax year.
Businesses may need to revisit earlier mileage claims and adjust reimbursements or reporting where appropriate. This could create opportunities to correct under-claimed expenses, but also requires careful documentation to ensure accuracy in payroll and tax reporting.
How will inheritance tax changes on pensions affect estate planning?
From 6 April 2027, most unused pension funds will be included in a person’s estate for inheritance tax purposes. This represents a significant shift, as pensions have often been used as a tax-efficient wealth transfer tool.
Individuals should review beneficiary nominations, overall estate value, and succession strategies now to understand potential exposure and consider restructuring where appropriate.
What responsibilities will executors have under the new pension IHT rules?
Executors will be responsible for identifying pension arrangements, contacting providers, gathering valuations, and reporting and paying any inheritance tax due. This increases the administrative burden and complexity of estate administration. Ensuring clear records and up-to-date documentation during lifetime can make a significant difference to how smoothly an estate is handled later.
Is it still possible to use pensions as an inheritance planning tool?
Yes, but their role is changing rather than disappearing. While pensions may lose some of their previous IHT advantages, they can still form part of a broader estate planning strategy. The key is to reassess how pensions interact with other assets, trusts, and succession plans, rather than relying on them as a standalone solution.
What is changing with the UK’s foreign permanent establishment (PE) tax rules?
The UK is moving to a mandatory exemption regime for foreign permanent establishments. This means overseas branch profits and losses will sit outside the UK tax system, removing the current choice to elect into exemption.
The biggest impact is that foreign losses will no longer reduce UK taxable profits, which could increase tax liabilities for some multinational groups.
How might the PE changes affect multinational group tax planning?
Groups with overseas operations should reassess loss utilisation, effective tax rates and structuring decisions. The removal of loss relief may affect investment decisions and forecasting models. Businesses may also need to revisit governance processes and compliance frameworks to reflect the new rules applying from accounting periods beginning on or after 1 January 2027.
What is a common misunderstanding about these announcements?
A common misconception is that these measures are purely short-term or isolated changes. In reality, while some elements (like the VAT reduction) are temporary, others—such as pension IHT reforms and PE tax rule changes—have long-term structural implications. Treating them as minor updates risks missing important planning opportunities or exposure to future tax liabilities.
When should businesses and individuals seek professional advice on these changes?
You should seek advice as soon as possible if any of these measures apply to you. Early action allows time to adjust systems, restructure arrangements, and plan for upcoming deadlines such as April 2026 and April 2027 changes. Proactive planning can help manage tax exposure, maintain compliance with HMRC requirements, and support better financial decision-making across both short-term and long-term horizons.
