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Happy New Tax Year
As we are now in April, the new 2025/26 tax year has started, and the private client team wishes everyone a happy new tax year. While we look forward to the changes that are now in effect, for those required to complete a tax return for 2024/25, a reminder that tax returns do not have to wait until January. Early preparation can give you plenty time to plan cash flow for making payment or request early repayments where applicable.
With higher interest rates and increased state pension, more taxpayers are required to complete tax returns. Our team would be happy to help with any queries or review your position.
The new tax year has seen some key changes that have taken effect from 6 April 2025. We would like to highlight the changes to the Capital Gains tax rates for Business Asset Disposal Relief and the abolition of the Furnished Holiday Let regime. A note on these changes can be found below.
Looking further ahead to 6 April 2026, HMRC has confirmed that Making Tax Digital will commence from this date for certain taxpayers, and it is not too early to think about how this could affect you and the requirements needed.
While nothing has changed around the rules for dividend waivers, we are seeing more challenges from HMRC in this area, so it is vital to ensure that the rules are followed.
Lastly, as scammers become more elaborate in seeking your personal information, taxpayers are frequently being targeted by those pretending to be HMRC, so it is vital to be careful to ensure you trust sources before giving out any information.
Business Asset Disposal Relief – changes to the tax rate
In the 2024 Autumn Budget, significant changes were announced to the UK’s Capital Gains Tax (CGT) regime. The tax reliefs particularly affected by these changes were Business Asset Disposal Relief (BADR) and Investors’ Relief (IR).
BADR
BADR, formerly known as Entrepreneurs’ Relief, allows qualifying business owners to pay a reduced CGT rate upon the disposal of all or part of their business, subject to certain conditions. Historically, gains under BADR were taxed at 10%. However:
- From 6 April 2025: The CGT rate for BADR has risen from 10% to 14%.
- From 6 April 2026: The rate will further increase to 18%.
These changes mean that business owners planning to sell qualifying assets should consider the timing of their disposals to manage potential tax liabilities effectively.
The lifetime limit has remained unchanged at £1 million per individual.
Investors’ Relief
Investors’ Relief offers a reduced CGT rate for investors in unlisted trading companies, encouraging long-term investment. Two key changes to IR were announced in The Autumn Budget that are now in effect:
- Reduction in Lifetime Limit: The lifetime limit for qualifying gains under IR has been reduced from £10 million to £1 million.
- As with BADR, the CGT rate for IR has increased from 10% to 14% on disposals from 6 April 2025 and will be increased again to 18% for disposals on or after 6 April 2026.
These adjustments significantly reduce the tax advantages previously available to investors, making it essential for stakeholders to reassess their investment strategies in light of the new regulations.
Abolition of Furnished Holiday Lettings
One of the major changes for the new tax year is the abolition of the Furnished Holiday Let rules (FHL). This change will apply to individuals, trusts, and companies alike. So, what does this mean for those holding FHL properties in terms of Income Tax and Capital Gains Tax (CGT)?
Originally introduced in 2014, the treatment of FHLs was generally more favourable than standard rental property subject to certain letting conditions being met. The main benefits being full relief for mortgage interest, ability to claim capital allowances on capital expenditure and forming part of relevant earning calculations for pensions. Where qualifying, upon a sale BADR could also be claimed.
Going forward, the main income tax changes are:
- Income and gains from an FHL will be treated as standard UK property income and form part of the same property business, where more than one property is owned.
- Taxation of FHL properties will align with the general UK property rules.
- Any brought forward FHL losses will be treated as general rental losses and can be offset against future rental profits.
- The previous letting conditions will no longer apply.
This will have the following impact for owners of these properties:
- Mortgage interest paid will now be restricted as a tax reducer at the basic rate of income tax of 20%.
- Capital expenditure can no longer be claimed through the capital allowances regime and will only see relief given against a future sale.
- No access to BADR reduced rates of CGT, so any sales will be taxed at 18% or 24%, depending on level of income.
- Income generated will no longer count toward relevant earnings for pension purposes.
- No ability to use gift holdover or rollover relief against CGT when selling or gifting the FHL.
It is important to emphasise that the abolition of FHLs does not mean you have to change the way a property is rented out. It is more an impact on how the property is taxed, with some advantageous rules being removed, rather than a change of rental legislation.
While the abolition of the FHL regime restricts certain reliefs, there are still planning options available:
- Capital Allowances: While new assets won’t qualify for capital allowances, deductions for replacements are still allowed. Existing capital allowances pools can continue claiming Writing Down Allowance (WDA).
- Use of Rental Losses: As mentioned above, brought forward losses from the FHL, which would previously only have been able to be offset against profits from the same FHL, will now form part of the overall rental losses and can thus be used to offset future rental profits from any (UK) properties.
Holiday let owners should review their properties to see how these changes may affect them.
Making Tax Digital for Income Tax: Where Things Stand
As we move closer to April 2026, there are no major updates to report on Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). The rules remain the same: from 2026, MTD will apply to self-employed individuals and landlords with income over £50,000, with those earning between £30,000 and £50,000 joining from April 2027. The Spring Statement did announce that MTD will be expanded to those earning over £20,000 from April 2028.
For now, it’s important to note that clients will need to keep digital records from the start. Handwritten notes or spreadsheets without appropriate bridging software won’t meet the requirements. Quarterly updates must be submitted through MTD-compatible software, based on those digital records. A full list of approved software options (including some free ones) is available on HMRC’s website.
HMRC won’t be providing its own software, so both businesses and agents must choose a compliant third-party solution. Spreadsheets can still be used, but only if they are digitally linked to the submission software via appropriate tools.
We’ll continue to keep you updated as HMRC releases further guidance, particularly around digital exclusions, exemption applications, and multiple agent functionality. In the meantime, we would be happy to discuss the implications now to allow full understanding of the shift towards digital record-keeping and how this will impact you.
Dividend Waivers
For companies that only have shareholders with the same class of shares, dividends are normally paid out as a fixed amount per share, with each shareholder then receiving their amount due based on the number of shares held.
There can be circumstances, however, where the shareholder may not want to receive the dividend due. This could be for commercial reasons, such as the owner wishing to keep funds in the company but still rewarding other shareholders, or because they may not need the money. Therefore, the shareholder can waive their entitlement to the dividend.
Businesses need to take care, however, especially family businesses, as HMRC can take the view that the shareholder waiving their dividend is passing their income over to the other shareholders, so they have anti-avoidance legislation in place to still treat the waived dividend as income and be taxable.
This can also be open to attack where waivers have been taken over several years.
Generally, for waivers to be valid, a company must ensure:
- The company must have enough reserves to ensure that the full amount of dividends, including the waived amount, could be paid.
- Where there have been several waivers in the past, the company’s reserves would have been able to fund all the dividends due.
- The waiver must be for bona-fide commercial reasons.
- Suitable waiver documentation is prepared of which the waiver is a formal deed. This must be witnessed and signed.
- A dividend must be waived before the shareholder becomes entitled to it.
- The documentation needs to be filed and stored with the company’s records.
While waivers can be used effectively, care must be taken to ensure that HMRC cannot scrutinise them and deem them to still be income. An option to avoid this, if appropriate, is to restructure using alphabet shares. Alphabet shares can allow for the same voting and capital rights; however are different classes of shares. They can allow for separate dividends payable to each class and remove the need for a waiver.
Cyber security – HMRC phishing and scams
Finally, it is important to stay safe online. While many think they are computer literate and scammers will not affect them, fraudsters are becoming increasingly clever and prevalent in the growing digital tax world. It is important to be vigilant and on the lookout for HMRC phishing and scams.
Most frequently, these scams are disguised in the form of emails, texts, and phone calls, often prompting you to claim a tax rebate. It is important not to open or respond to any such correspondence unless you are confident it comes from a reliable source.
Here are some Dos and Don’ts we recommend putting in place when you receive correspondence from HMRC (and others):
Finally, if you think you have become victim of a scam, you can report this to Action Fraud. This can be done online or by phone. If you have lost money because of an online scam, this should also be reported to the Police.