Finance Bill: Other measures of note

Measures of interest to businesses

Today’s edition includes a number of articles on Finance Bill measures affecting businesses including capital allowances, advance certainty, transfer pricing, Stamp Duty Reserve Tax (SDRT) listing relief, umbrella companies and the Carbon Border Adjustment Mechanism (CBAM). Some other measures that may be of interest are set out below.

Pillar Two

The Finance Bill contains proposed amendments to the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) provisions driven by consultation responses from businesses and advisors and ensures the UK rules remain consistent with administrative guidance released by the OECD. Draft clauses were first published on Legislation Day (L-Day) in July and were discussed in our previous article. The Finance Bill includes both the L-Day amendments (mostly unchanged apart from updates to provide additional clarity) as well as further proposals. HMRC’s policy paper details the full list of amendments but the key new proposals include:

• Updating the disqualifying conditions within the Qualified Domestic Minimum Top-up Tax safe harbour to cover a scenario where another territory’s Pillar Two rules do not apply to securitisation vehicles;
• Excluding UK securitisation vehicles from liability under the undertaxed profits rule (UTPR);
• Removal of transitional arrangements in respect of the qualifying status of non-UK Pillar Two taxes now that various regulations have been made, as well as introducing transitional provisions in respect of qualification of UTPRs;
• Introduction of provisions to deal with Pillar Two taxes whose application are subject to an election or a claim (as an example, in Poland the Pillar Two rules apply from 1 January 2025, but an election can be made to apply them from 1 January 2024); and
• The changes will mainly take effect for accounting periods beginning on or after 31 December 2025. However, a retrospection election is available to apply them to earlier periods (beginning on or after 31 December 2023). The change to the treatment of pre-regime deferred tax assets (announced on L-Day) takes effect for accounting periods ending on or after 21 July 2025.

Corporate Interest Restriction (CIR)

Administrative requirements for the CIR rules are to be simplified. The CIR rules aim to prevent groups obtaining a deduction for interest expenses considered ‘excessive’. Previously, groups needed to send HMRC a valid reporting company appointment within 12 months of the end of the period of account that the group wanted it applied to, in order to be able to file valid CIR returns. This meant that if issues were discovered with the appointments after the deadline had passed it could lead to CIR returns being invalidated. Under the simplifications, appointments can be made retrospectively with no time limit (compared to the current 12 month time limit) for periods of account ending on or after 31 March 2024, while for periods of account ending on or after 31 March 2026 groups no longer need to submit the appointment to HMRC.

Changes are also being made to the way taxable earnings (tax-EBITDA) are calculated for certain businesses. This will exclude capital expenditure deducted by virtue of specific reliefs for waste disposal site preparation and restoration, cemeteries and crematoria, and flood and coastal erosion risk management projects to avoid a UK-only group suffering a mismatch that would have otherwise arisen. These changes will take effect for periods ending on or after 31 December 2021 (with an extended amendment window for these changes for CIR returns filed before 1 October 2026).

Research and development tax (R&D) relief

The Finance Bill includes amendments that clarify that the overseas restrictions exemptions for companies with a registered office in Northern Ireland only apply to R&D intensive support (ERIS) claimants and do not apply to claimants under the new merged R&D Expenditure Credit (RDEC) regime who are subject to the same rules as other UK claimants. In particular, the exemption applies to claimants under the ERIS with a registered office in Northern Ireland for claims made on or after 30 October 2024 where they have not opted out of the Northern Ireland companies’ provisions at section 1112J CTA 2009.

Also, as announced at the recent Budget, there is legislation to clarify that payments made/received between group companies for the surrender of RDEC amounts (and Audio-Visual Expenditure Credits or Video Games Expenditure Credits amounts) are to be ignored for corporation tax purposes for both companies provided they do not exceed the credit surrendered. .

Measures of interest to individuals

For individuals, as expected, the Finance Bill includes legislation for significant changes first announced in Autumn Budget 2024 for which draft clauses were published on L-Day including:

• From 6 April 2026, changes will be made to inheritance tax (IHT) business property relief (BPR) and agricultural property relief (APR). Assets which currently qualify for 100 percent relief from IHT under the BPR or APR rules will, from 6 April 2026, qualify for relief at the reduced rate of 50 percent. An individual or trust will have a 100 percent relief allowance of up to £1 million. At Autumn Budget 2025 it was announced that, for individuals, amounts of unused 100 percent relief allowance will be transferrable to a surviving spouse or civil partner, including where the first death is before 6 April 2026. Our earlier articles titled Inheritance Tax reform: A once-in-a generation change and Autumn Budget 2025: IHT Business and Agricultural Property Relief provide more information; and
• From 6 April 2027, most unused pension funds and death benefits will be brought within the scope of IHT. In Autumn Budget 2025 it was announced that the deceased member’s personal representatives will be able to direct the pension scheme administrators to withhold 50 percent of taxable benefits for up to 15 months and to pay any IHT due in certain circumstances. This was discussed in our previous article written after L-Day.

Other changes announced at Autumn Budget 2025 that are within the Finance Bill include:

• From 26 November 2025, capital gains tax (CGT) relief for qualifying disposals of shares to Employee Ownership Trusts (EOTs) was reduced to 50 percent;
• With effect from April 2025, there are retrospective grandfathering provisions in respect of trusts settled pre-30 October 2024 by settlors who were non-UK domiciled at the time of settlement (former excluded property trusts). For the lifetime of these existing trusts, the combined IHT six percent ten-year anniversary charge and six percent exit charge are capped at a maximum of £5 million in respect of the value of property per trust every 10 years. See our previous article for more details; and  
• A new settlement opportunity will be open to anyone with outstanding loan charge liabilities, including employers. Again, this was discussed in an earlier article.

Measures of interest to both businesses and individuals

Some measures featured in the Finance Bill affect both businesses and individuals. The more significant of these are discussed below.

Carried interest

From April 2026, there will be a new regime for UK carried interest to tax it as income from a trade. The trading income treatment will apply to the carried interest irrespective of the underlying source. Where the carried interest is qualifying, a 72.5 percent multiplier will apply, reducing the overall income tax and Class 4 NIC rate from typical rates of 47 percent to 34.08 percent. For further information see our earlier article written after L-Day. The Finance Bill includes revisions to the draft clauses published on L-Day which are discussed in more detail on LinkedIn by Eli Hilman, KPMG UK Tax Partner. Two further points have been clarified in the Finance Bill that are relevant to individuals. Firstly, that pre-April 2026 gains which fall in a Temporary Non-Residence period do not fall out of charge but come back into the income tax charge under new rules. Secondly, provisions to remove the gains taxed on individuals from the existing CGT anti-avoidance rules for non-resident trusts, where such gains are taxed on individuals under the new regime.

Share exchanges and reconstructions

From 26 November 2025, there are changes to the anti-avoidance provisions applicable to the share exchange and share reconstruction rules (with grandfathering provisions for taxpayers who submitted a clearance to HMRC for a share exchange or reorganisation before 26 November 2025).

Crypto-asset reporting

Clauses 272 and 273 of the Finance Bill set out the requirement for UK Crypto-Asset Service Providers (including exchanges, on and off ramps, and traditional institutions offering custody of digital assets) to report on UK tax resident customers in addition to existing rules requiring the same reporting on non-UK residents.

These sections are intended to supplement the main primary legislation in s349 Finance (No.2) Act 2023 which allows HM Treasury to issue regulations giving effect to international agreements for tax transparency, including the Common Reporting Standard (CRS), Digital Platforms Information Reporting, and the Crypto-Assets Reporting Framework (CARF). HMRC have already issued regulations under s349 requiring reporting on non-UK residents. Since the collection of information on UK residents is not a requirement under the OECD’s CARF package, the new legislation emphasises the requirement to also report on UK residents with transactions in crypto-assets after 1 January 2026. HMRC are of the view that the power to mandate collection of Taxpayer Identification Numbers (TINs) from UK residents is already established under the existing legislation.

The first reporting on both UK and non-UK residents will be due in May 2027, and the information on UK residents will be used by HMRC to detect non-compliance and taxpayers with capital gains who have not paid tax. Information will also be exchanged with tax authorities globally as part of the wider Automatic Exchange of Information under CARF.

Tax Avoidance

The Finance Bill included a number of measures targeted at a small number of bad actors in the tax advice market that design and promote aggressive tax avoidance schemes. Some of the measures have the capacity to impact on regular businesses or individuals who are unwittingly providing services to those bad actors. Key measures include:

• Promoter Action Notices (PANs) -  HMRC will be able to issue PANs which will 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 and the promoter is in breach of the statutory prohibition of the promotion of certain tax avoidance arrangements or a Stop Notice (contained within clause 156 (1) of this Finance Bill). PANs will not restrict the provision of legal or auditing services or the provision of services that provide access to the internet. Failure to comply with a PAN would attract a range of sanctions including publication, financial penalties and being reported to relevant representative bodies or regulators; and
• Information Notices - HMRC will also be able to issue information notices to those they suspect are connected to the promotion of tax avoidance schemes. The notices will require recipients to provide relevant information and documents that will assist HMRC in identifying controlling minds behind avoidance structures and enforce anti-avoidance legislation. This includes the ability to request information from financial institutions although such a notice requires tribunal approval. Criminal sanctions for not complying with a notice or carelessly or deliberately providing inaccurate information can apply and, in some cases, these can extend to ‘responsible persons’ in the business. Financial Institution notices are exempt from the criminal sanctions.