Legislation Day Announcements

1. Income tax / Employment

Reform of the tax treatment of carried interest

Introduction of a revised tax regime for carried interest, to be included in chapter 2 of Part 2 and Schedule A1 ITTOIA 2005.

The revised tax regime will apply where an individual performs investment management services directly or indirectly in respect of an investment scheme under any arrangements, and carried interest arises to the individual under those arrangements. The legislation provides that the individual is treated as carrying on a trade and the carried interest (less any permitted deductions) will be treated as the profits of that trade. The individual will therefore be subject to income tax and self-employed Class 4 NICs.

Where the carried interest is 'qualifying', the legislation provides that the amount to be treated as trading profits is 72.5% of the 'qualifying profits'. The qualifying profits are the amount of qualifying carried interest (which depends on the average holding period of the relevant investment scheme, the new provisions mirroring those in the current IBCI rules) less any applicable permitted deductions.

Non-UK residents will be taxed on carried interest arising in respect of investment management activities performed in the UK, in accordance with a new time-based 'UK workdays' apportionment methodology. This is subject to three exceptions: (i) no activities carried on before 30 October 2024 (Autumn Budget 2024) will be treated as performed in the UK; (ii) UK services performed in a tax year falling below a de minimis 60-UK workday threshold will be treated as non-UK services; and (iii) UK services performed in a tax year will be treated as non-UK services if three full tax years (in addition to the relevant current tax year) have passed during which time the individual was neither UK resident nor met the 60-UK workday threshold.

The legislation also:

• defines what is meant by 'carried interest';
• details the amounts which are to be treated as 'permitted deductions';
• sets out certain circumstances in which carried interest is treated as arising to an individual;
• explains how to determine the average holding period of an investment scheme;
• provides for an election to be made to treat carried interest as arising at an earlier time.

Effective from 6 April 2026.

Private Intermittent Securities and Capital Exchange System (PISCES) tax implications

PISCES is a new type of secondary trading platform which will facilitate the intermittent trading of private company shares. It is aimed at supporting private companies to scale and grow, and boosting the pipeline of future IPOs in the UK.

This measure allows existing EMI and CSOP option agreements to be amended to include a sale on PISCES as an exercisable event (the exercise of the option being on condition that it happens immediately prior to the sale of the shares on PISCES), without losing the tax advantages offered by the relevant scheme. The amendment must be either agreed by the employer and employee option holder in writing or notified in writing to the employee.

Effective from 15 May 2025.

In addition to the draft legislation, the Technical Note ('Tax implications for companies and employees in relation to employees trading their shares on PISCES'), first published on 26 March 2025, has been republished with revisions providing further details regarding the introduction of PISCES, the interaction with tax advantaged share schemes (including how existing CSOP and EMI contracts can be amended to include PISCES), and the application of the readily convertible asset rules.

2. Anti-avoidance

Proposals to close in on promoters of marketed tax avoidance

A number of new measures will be introduced, amending existing legislation tackling promoters and enablers of tax avoidance.

1. DOTAS and DASVOIT: the existing DOTAS and DASVOIT regimes will be amended to introduce:
   • a strict liability criminal offence for the failure of a promoter of tax avoidance arrangements to notify arrangements to HMRC; and
   • an update to the DOTAS/DASVOIT civil penalty regime so that HMRC may directly issue DOTAS/DASVOIT penalties instead of seeking tribunal approval.
2. Universal stop notice (USN): USNs will be introduced, applying to all promoters and enablers of marketed tax avoidance. A USN will prohibit the promotion of the avoidance arrangements set out in the notice. Breach of a USN will attract a range of sanctions which include publication, financial penalties and criminal prosecution.
3. Promoter action notice (PAN): PANs will be introduced, requiring businesses to stop providing products or services to promoters and enablers of tax avoidance where those products or services are connected to the promotion of avoidance, and HMRC suspects the promoter or enabler is in breach of a USN or Stop Notice.
4. Connected parties information notice (CPIN): CPINs will be introduced to enable HMRC to compel or require persons that it reasonably suspects are connected to the promotion of a marketed tax avoidance scheme to provide relevant information, including documents.
5. Promoter financial information notice (PFIN): PFINs will be introduced to allow HMRC to obtain access, with tribunal approval, to financial or banking data, held by financial institutions, relating to promoters and parties connected to the promotion of avoidance.
6. Legal professionals: the scope of existing powers will be widened to ensure that HMRC can take targeted action against legal professionals that facilitate the promotion of avoidance schemes, by allowing the publication of legal professionals' details under certain circumstances. The proposals will allow HMRC to publish the names of legal professionals who undertake activities under legal professional privilege, whilst providing a safeguard for those legal professionals who cannot make full representations against publication due to such privilege.

Effective on or after Royal Assent to the Finance Bill.

In addition to the draft legislation, a response to consultation has been published.

Enhancing HMRC's powers: tackling tax adviser facilitated non-compliance

Schedule 38 FA 2012 currently gives HMRC powers to address dishonest conduct by tax advisers, including issuing file access and conduct notices and applying penalties.

These measures will amend Schedule 38 by:

• allowing HMRC to obtain information from tax advisers using a file access notice where there is reasonable suspicion that the adviser has facilitated non-compliance in a client's tax affairs;
• removing the requirement for tribunal approval before issuing a file access notice, replacing it with a senior HMRC officer approval mechanism;
• revising the penalties for failure to comply with a file access notice to include the provision of inaccurate information, and allow HMRC to increase the penalty amounts where approved by the tribunal;
• introducing a new penalty framework when HMRC establishes that a tax adviser has deliberately facilitated non-compliance in a client's tax affairs; and
• introducing new powers to publish information about tax advisers where HMRC has used relevant sanctions.

Effective from 1 April 2026.

Umbrella Companies: tackling non-compliance in the umbrella company market

New measures will be introduced to make recruitment agencies (or end clients where there is no agency) accountable for PAYE and Class 1 NICs on payments to workers supplied through umbrella companies.

Effective from 6 April 2026.

3. Tax Administration

Modernising and mandating tax adviser registration with HMRC

Introduction of a wide requirement for all tax advisers who interact with HMRC on behalf of their clients (including by filing returns with, or contacting, HMRC) to register with HMRC. Tax advisers will have to meet a number of eligibility criteria in order to register, including that they are, themselves, tax compliant (so with no outstanding tax returns or amounts of tax due), and do not have any unspent conviction for certain specified offences. There is no requirement to register if the individual:

• works for an organisation and interacts with HMRC in the course of business carried out by that organisation (we assume this refers to in-house tax advisers, though this is not expressly set out in the accompanying explanatory notes);
• falls within the definition of tax adviser solely by virtue of providing software tools (eg payroll or accounting software) to clients;
• only interacts with HMRC in any matter relating to customs duty, or excise or import VAT connected to customs duty:
• is a VAT representative for a non-established taxable person appointed under s48 VATA 1994 and interacts with HMRC in their capacity as such;
• interacts with HMRC in relation to the tax affairs of a person who is a group undertaking in relation to the tax adviser; or
• the interaction relates to an appeal to a court or tribunal.

Failure to comply with the new regime may lead to financial penalties, suspension and, in some instances, prohibition from registration.

Effective from 1 April 2026 (with a three month transition period).

Better use of new and improved third party data

Introduction of a new obligation on third party data holders to report data to HMRC to be used for risk assessment, tax compliance and tax administration purposes (eg, by pre-populating tax returns). Specifically:

• financial institutions and other providers of specific types of interest-bearing products and payments will be required to provide details of bank and building society interest and interest from other sources; and
• merchant acquirers and payment facilitators will be required to provide card sales data.

The Government will (at some unspecified future time and subject to further consultation) consider expanding these requirements in order to collect additional datasets, including rents and other payments arising from land and property, and data relating to dividends and other income from investments.

In addition to the draft legislation, a response to consultation has been published.

Effective no earlier than the start of tax year 2027/28.

Making Tax Digital for Income Tax and penalty reform

Measures allowing for the refinement and simplification of the MTD for Income Tax regime, including making provision for HMRC to make regulations to determine the scope of MTD for Income Tax, including determination of who, how and when MTD will apply, exemptions from the regime and the imposition of a requirement for those within scope to submit returns electronically. Provisions regarding penalties for those within the MTD regime are also included. In addition, the qualifying income threshold to join the regime will be reduced to £20,000 from the 2026/27 tax year.

Effective from 1 April 2026.

4. Other

Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) further amendments

A number of revisions will be made to the UK's Pillar Two legislation, to ensure consistency with the agreed OECD GloBE rules, commentary and administrative guidance, and to implement amendments identified following stakeholder consultation.

Parts 3 and 4 of F(No 2)A 2023 will be amended with:

• adjustments to provisions that set out how pre-regime deferred tax assets should be treated;
• technical amendments to the clawback provisions that apply to tax equity partnerships;
• simplified calculations for non-material members;
• changes to the rules allowing the profits of a flow through ultimate parent entity to be reduced;
• adjustments to the election to exclude intragroup transactions;
• adjustments to the way that DTT is allocated;
• technical adjustments to the test of whether de-merged groups meet the revenue threshold;
• technical adjustments to the application of Part 3 to permanent establishments;
• adjustments to the method of converting DTT amounts into sterling;
• changes to the test of whether an instrument is to be regarded as equity or debt; and
• other minor amendments and corrections.

The measures will mainly take effect for accounting periods beginning on or after 31 December 2025, though some provisions may be permitted to take effect from an earlier date at the election of affected taxpayers. The changes to the treatment of pre-regime deferred tax assets will take effect for accounting periods ending on or after 21 July 2025.

IHT - Reforms to agricultural property relief (APR) and business property relief (BPR)

The rate of relief on assets currently qualifying for 100% APR or BPR from IHT will be reduced to 50%, over and above a £1 million 100% allowance. A £1 million allowance will also apply to the combined value of relievable agricultural and business property in trusts.

The rate of BPR available will be reduced from 100% to 50% in all circumstances for shares listed other than on a 'recognised stock exchange', including shares listed on the Alternative Investment Market (AIM). The rate of relief will also reduce from 100% to 50% for qualifying shares listed on foreign exchanges which are not recognised stock exchanges.

In addition to the draft legislation, a response to consultation has been published.

Effective from 6 April 2026.

Reforming Inheritance Tax — unused pension funds and death benefits

This measure will bring the value of most unused pension funds and pension death benefits within the value of a person's estate on their death for IHT purposes, regardless of whether the pension scheme administrators or scheme trustees have discretion over the payment of any death benefits. Personal representatives will be liable for reporting and paying any IHT due on unused pension funds and death benefits.

Death in service benefits payable from a registered pension scheme and dependant's scheme pensions from a defined benefit arrangement, or from a collective money purchase arrangement, are excluded from these changes.

In addition to the draft legislation, a response to consultation has been published.

Effective from 6 April 2027.

HMRC Transformation Roadmap

HMRC Press release: New HMRC service announced for workers to take control of their tax affairs

HMRC's Transformation Roadmap sets out its plans to modernise and reform tax and customs administration. HMRC's three priorities, and the actions it will take in relation to each of these, are set out below.

1. Improving day-to-day performance and the customer experience: HMRC will become a "digital-first organisation" with a minimum of 90% of interactions undertaken digitally by 2029/30. An increased number of "digital self-serve options" will be introduced for customers so that "routine tasks" can be completed online or in the HMRC app without a need to call or write to HMRC. One example is the roll out of a new online service for all PAYE taxpayers, allowing taxpayers to notify HMRC of income changes, check allowances and deductions, and ensure the correct amount of tax is paid.
2. Closing the tax gap: A number of changes to practice and policy will be made in an effort to close the £46.8 billion tax gap (2023/24 figure), including the following:
   
   • Additional investment in HMRC, including recruitment of 5,500 new compliance officers, and investment in new technology, with greater use of AI analytical tools to assess risks and to provide "automated nudges" to taxpayers.
   • Increasing efforts to combat wealthy and offshore tax evasion, with the recruitment of 400 expert officers to focus on high-risk cases, collaborating internationally to target agents, accountants and lawyers enabling taxpayers to hide money offshore.
   • Expansion of HMRC's counter-fraud capability over the next five years, increasing the number of annual charging decisions for the most harmful fraud by 20% (to 600 per year) by 2029/30.
   • Introduction of new standards for intermediaries operating in the tax and customs system, including the requirement for tax advisers to register with HMRC, and enhancing powers and sanctions for HMRC to act against tax advisers who facilitate taxpayer non-compliance.
   • Increasing the interest rate charged and any penalties on overdue tax debts to encourage taxpayers to pay tax on time (effective from 6 April 2025).
   • Addressing "legal interpretation disputes" (ie, cases where there is no avoidance, but "where the customer's interpretation of the law, and how it applies to the facts of a particular case, result in a different tax outcome than that intended by the legislation"). HMRC proposes to tackle this through "clearer expectations in guidance products and by pursuing available options for legislative changes in those areas most prone to a disputed legal interpretation challenge".
3. Reform and modernisation of the tax and customs system: HMRC will simplify and modernise the tax administration framework, with a significant focus on the use of new technology, including the use of AI to target compliance activity and increased collaboration with other Government departments and devolved bodies to share data.

Further changes, aimed at reducing complexity in the administration system (as set out in recent consultation documents), include resolving disputes more effectively (increasing access to ADR and the statutory review process); reforming the penalty system; and the potential reform of revenue correction powers, including the development of a customer correction power, and the alignment and simplification of compliance powers across tax regimes.

The document also sets out the Government's future vision for the tax and customs system, encompassing HMRC's longer-term aims for the tax administration system. These are largely focused on the use of new technology, including AI, across many areas of the department's work. HMRC notes that it will develop its future plans in this area "in partnership with key stakeholders including tax advisers, software developers and the banking and payments sector".

Personal Tax: Offshore Anti-Avoidance legislation: Summary of responses

HMRC published a Call for Evidence in October 2024, exploring options to modernise the personal tax offshore anti-avoidance rules (including the Transfer of Assets Abroad, Settlements, and CGT legislation, in particular, the rules dealing with non-UK trust and corporate structures), with the stated aim of removing ambiguity and uncertainty and ensuring the rules are simple and effective.

A summary of responses has now been published. The Government will give further consideration to the responses received and will consider how best to engage with relevant experts in taking forward further consultation in this area. An update will be provided at Autumn Budget 2025.

Any legislative changes are not expected to take effect before the 2027/28 tax year, at the earliest.

Consultation on Land Remediation Relief

Land Remediation Relief (LRR) is an existing 150% Corporation Tax relief aimed at incentivising the regeneration of brownfield land and reducing the pressure to develop greenfield sites.

Given the Government's stated commitment to prioritising the development of brownfield sites, this consultation seeks to review the effectiveness of LRR and determine whether it is still meeting its objective of boosting development of brownfield land, as well as seeking to understand how robust the relief is against potential abuse.