Finance Bill 2025-26 published

The Bill introduces two, arguably three, new taxes: a new annual levy on the most valuable properties, a vaping products duty and a UK carbon border adjustment mechanism. It abolishes bingo duty and diverted profits tax, the latter being replaced by a new mechanism for charging ‘unassessed transfer pricing profits’ within corporation tax.

Part One of the Bill deals with changes to income tax, capital gains tax and corporate taxes. This includes the usual legislation enabling the government to collect income tax and corporation tax in the year ahead (both need to be annually renewed) as well as confirming that the main rates of these taxes will not be changed and that income tax thresholds will remain frozen all the way through to 2031.

Clauses 4-8 implement the Chancellor’s announcement that tax rates on savings income, property income and dividend income (apart from the dividend additional rate) will all rise by 2% from 2027-28. There is legislation making agencies responsible for PAYE on payments made to workers that are supplied using umbrella companies (clause 24), implementing the new loan charge settlement opportunity (clauses 25-27), creating a winter fuel payment charge for better off pensioners (clause 55) and putting carried interest within income tax (clause 56).

On the business side there are clauses making writing-down allowances less generous (clause 28), restricting relief on disposals to employee-ownership trusts (clause 35) and wrapping diverted profits tax into corporation tax (clause 46). Clauses 52-54 tackle abuse of charity tax rules, dealing with what are described as ‘tainted donations’.

On an international theme there are sizeable schedules making amendments to the residence-based tax regime which replaced the separate regime for non-doms, and to the multinational and domestic top-up taxes which are part of the Pillar Two process.

Part Two of the Bill makes changes to inheritance tax, most notably restricting agricultural and business property reliefs and bringing unused pension pots within scope of IHT.

Part Three of the Bill makes changes relating to other existing taxes. As well as the usual setting of rates for alcohol, tobacco and vehicle excise duties (among others), there are high profile changes applying VAT to top-up payments under the Motability Scheme (clause 77) and excluding suppliers of private hire and taxi journeys from the VAT Tour Operators Margin Scheme (the so-called ‘taxi tax’). This part of the Bill also contains a clause scrapping bingo duty (clause 85).

Part Four of the Bill introduces a new excise duty on vaping products, called vaping products duty. The new duty will come into effect from 1 October 2026.

Part Five introduces the UK’s Carbon Border Adjustment Mechanism (CBAM). The CBAM will place a carbon price on emissions embodied in some goods which are imported into the UK, ensuring that certain carbon intensive imported goods face a comparable carbon price to that paid by domestic manufacturers. The tax will apply from 1 January 2027.

Part Six contains measures aimed at combatting tax avoidance. Chapter 1 seeks to impose a statutory prohibition on promoting avoidance arrangements that have no realistic prospect of success. Chapter 2 introduces a new power for HMRC to issue Promoter Action Notices, to require businesses to stop providing goods or services to promoters of tax avoidance where those goods or services are used in the promotion of avoidance. Chapter 3 introduces a new power for HMRC to issue information notices in relation to individuals and entities suspected of being connected to the promotion of tax avoidance schemes. Chapter 4 includes proposals to allow HMRC to publish the names of legal professionals who carry on promotion activities, and updates the civil penalty regime for failing to comply with DOTAS (Disclosure of Tax Avoidance Schemes) obligations.

Part Seven introduces a new requirement for all tax advisers to register with HMRC if they wish to interact with HMRC on behalf of a client. It defines a ‘tax adviser’ and sets out the process and registration conditions as well as the penalties for a failure to comply. A second chapter includes proposals to increase HMRC’s powers to investigate and sanction tax advisers who seek to facilitate non-compliance by their clients.

Part Eight contains miscellaneous other provisions, including changes to Making Tax Digital (MTD) for Income Tax described as ‘finalising the design’ of the project (clauses 253-258). This includes creating powers for HMRC to cancel and reset penalties, and to allow a ‘reasonable excuse’ to have effect in the expiry of late submission points so the return may be treated as being filed on time.

Other clauses in this part of the Bill expand HMRC’s data-gathering powers (clauses 252), increase corporation tax late filing penalties (clause 262) and give HMRC the power to issue advance tax clearances to entities undertaking large investment projects in the UK (clause 263).

The Bill weighs in at a hefty 554 pages. That’s including the contents section and covers. Without them it is 536 numbered pages of legislation.

The biggest measures in the Bill (by length of the legislation) are as follows:

(NB. Table includes all measures where text of clauses and schedules together is 10 pages or more)

Second reading of the Bill is scheduled for Tuesday 16 December. We will report on all stages of the Bill's progress on the CIOT website.

Useful information:

Text of the Bill and Explanatory Notes 

Report on Budget debate and votes on the Finance Bill resolutions

OOTLAR (Overview of Tax Legislation and Rates)