Finance Bill 2025-26: highlights from L-Day 2025

Topic

What this means and why it matters

What people expected

What the Government said

Non-dom changes

The previous regime for “non-doms” was replaced by a new residence-based regime, which includes a 10-year inheritance tax tail for certain long-term residents.

Some expected a relaxation of the rules in effect since 6 April 2025 – in particular the 10-year Inheritance Tax tail.

Nothing – no indication of a relaxation of the new rules.

Offshore anti-avoidance rules

The Government is reviewing complex offshore tax rules (including the settlements code, transfer of assets abroad rules and capital gains tax rules) to modernise these rules, remove ambiguity/uncertainty in the legislation and make the rules simpler to apply in practice.

Expected clarification on what will be changed, including when the rules will/will not apply to structures not intended to avoid UK tax.

Summary of responses published. No draft legislation yet. No confirmation of which areas will be reviewed and/or changed.

Formal consultation expected, with further updates to be given at Autumn Budget 2025.

Any legislative changes following consultation are expected to take effect no earlier than the start of the 2027/2028 tax year.

Carried interest tax reform

Carried interest is a share of profits paid to fund managers which has previously benefited from a special tax rate of 28% in many cases.

The Government wants to tax carried interest more like regular income to increase fairness and reduce tax advantages for high earners.

Expected carried interest to be taxed more like income, with some relief for long-term holdings.

From April 2026, all carried interest will be taxed as trading profits subject to income tax at rates of up to 45%, along with Class 4 National Insurance contributions. However, a 72.5% multiplier will apply to certain longer-term holdings, giving an effective tax rate of 34.1%.

Inheritance tax – reform of business property relief and agricultural property relief

These reliefs reduce inheritance tax on qualifying agricultural and business assets.

The Government is capping these reliefs in an attempt to prevent very large estates from avoiding tax entirely.

Expected to limit 100% relief to a capped amount of £1m, with reduced relief above that.

From April 2026, 100% relief applies only to the first £1 million of combined agricultural and business assets. Relief above that is reduced to 50%.

A 50% rate will also apply in all cases to quoted shares classified as “not listed” on recognised stock exchanges, such as AIM.

Inheritance tax – pension funds and death benefits

Pension pots passed on after death were often tax-free. The Government wants to treat them more like other assets to ensure fairness and increase tax revenue.

Expected to bring unused pensions into inheritance tax.

It was originally proposed that inheritance tax due under the new rules would be collected and paid over by pension scheme administrators.

From April 2027, most unused pension funds and death benefits will be subject to inheritance tax. However, death in service benefits payable from both discretionary and non-discretionary registered pension schemes will be excluded from inheritance tax.

Personal representatives, rather than pension scheme administrators, will be liable for reporting and paying any inheritance tax due on unused pension funds and death benefits.

There are complicated provisions designed to prevent income tax and inheritance tax on the same amounts.

Tax adviser regulation and anti-avoidance

The Government wants to reduce tax avoidance by holding advisers to higher standards and increasing transparency.

Expected new rules to improve standards and target the promoters of avoidance schemes.

The draft legislation strengthens HMRC’s ability to tackle tax non-compliance and improve standards among tax advisers.

Key measures include enhanced powers for HMRC to penalise and publicly name advisers who facilitate non-compliance, mandatory registration and minimum standards for tax advisers from April 2026, along with a targeted crackdown on promoters of marketed tax avoidance schemes.