The UK’s Finance (No. 2) Bill 2025–26 was granted Royal Assent on 18 March 2026, enacting the Finance Act 2026 and introducing changes to income tax, inheritance tax, company rules, and tax adviser registration.
The UK’s Finance (No. 2) Bill 2025-26 was granted Royal Assent on 18 March 2026 and has now been enacted as the Finance Act 2026, introducing measures across income, corporate, and inheritance taxes, environmental levies, and tax administration.
Key changes include revised property income rates, reforms to inheritance tax reliefs, a new vaping duty from October 2026, and a carbon border adjustment mechanism from January 2027. It also strengthens anti-avoidance rules and establishes a new registration framework for tax advisers.
The Act is organised into eight principal parts, along with accompanying schedules, addressing the following key areas:
- Part 1: Income tax, capital gains tax, and corporate taxes
- Part 2: Inheritance tax
- Part 3: Other existing taxes (including VAT, environmental taxes, gambling duties, and others)
- Part 4: Vaping products duty
- Part 5: Carbon border adjustment mechanism
- Part 6: Avoidance provisions
- Part 7: Tax advisers
- Part 8: Miscellaneous and final measures
The key tax measure are as follows:
Income and corporate tax
- Tax rates: The main rates of income tax for the 2026-27 tax year remain at 20% (basic), 40% (higher), and 45% (additional).
- Dividend tax: Effective from the 2026-27 tax year, the dividend ordinary rate increases to 10.75% and the dividend upper rate increases to 35.75%.
- New property rates: A new set of income tax rates specifically for property income will be introduced for the 2027-28 tax year: the property basic rate (22%), property higher rate (42%), and property additional rate (47%).
- Corporate tax: For the financial year 2027, the main rate of corporation tax is 25%, with a standard small profits rate of 19%.
Inheritance Tax (IHT) reforms
- Pension interests: Certain pension interests will now be treated as part of a member’s estate and charged to IHT immediately before their death.
- Relief limits: Agricultural Property Relief (APR) and Business Property Relief (BPR) are significantly reformed. A “100% relief allowance” is introduced, generally capped at GBP 2.5 million per transferor. Any value transferred above this cap will only be eligible for a 50% reduction.
- Rate freeze: The indexation of IHT rate bands, residential enhancement, and taper thresholds is frozen until the 2030-31 tax year.
New duties and environmental taxes
- Vaping products duty: A new excise duty on vaping products will commence on 1 October 2026, at a rate of GBP 2.20 per 10 milliliters.
- Carbon Border Adjustment Mechanism (CBAM): Starting 1 January2027, a tax will be charged on emissions embodied in specific goods imported into the UK, including aluminum, cement, fertilisers, hydrogen, and iron/steel products.
Tax Administration and Avoidance
- Tax adviser registration: Tax advisers are now prohibited from interacting with HMRC unless they are registered under a new regulatory framework.
- Anti-avoidance: The Act introduces a prohibition on promoting certain tax avoidance arrangements. Promoters who breach these rules face civil penalties of up to GBP 1,000,000 plus GBP 5,000 per participant, or criminal prosecution.
- Making tax digital: New powers allow for digital reporting and record-keeping requirements to be imposed on “relevant persons” carrying on activities that give rise to income tax.
Earlier, the UK Parliament reviewed the Finance (No. 2) Bill (Bill 342 for 2024–26), which had been introduced to the House of Commons on 4 December 2025.
