HMRC opened a consultation on 21 July 2025 on draft measures for the Finance Bill 2025–2026, covering tax reforms, digitalisation, and anti-avoidance, with feedback due by 15 September 2025.

The UK’s HM Revenue and Customs (HMRC) has published draft legislation and explanatory notes for several proposed legislative measures in Finance Bill 2025-2026 on 21 July 2025. All of the drafts are open for public consultation until 15 September 2025.

Proposed legislative measures

  • Multinational and domestic top-up taxes: The UK government has proposed technical amendments to the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) rules in response to stakeholder feedback and to align domestic law with OECD administrative guidance. The proposed changes include updates on intra-group financial instruments with differing accounting treatments, ownership interest classifications, and tax consolidation definitions. They also address situations involving flow-through ultimate parent entities, specify exchange rate usage for DTT calculations, and introduce simplified computations for non-material group members using Country-by-Country Report data. Most provisions will apply for accounting periods beginning on or after 31 December 2025, though some (such as those tied to OECD’s January 2025 guidance) will take effect for periods ending on or after 21 July 2025. An election may allow early adoption of certain changes.
  • Research & Development (R&D) tax relief: The Government has issued draft legislation clarifying that exemptions related to overseas restrictions for companies with a registered office in Northern Ireland apply solely to claimants of R&D intensive support (ERIS). These exemptions do not extend to claimants under the newly combined RDEC scheme, who are subject to the same rules as other UK claimants. Specifically, the exemption covers ERIS claimants with a Northern Ireland registered office for claims submitted on or after 30 October 2024, provided they have not opted out of the Northern Ireland company provisions outlined in section 1112J of the CTA 2009.
  • Carried interest & share options: The draft legislation confirms that carried interest will be treated as income arising from a trade. This change will be implemented by removing carried interest from the chargeable gains rules and incorporating it into the income provisions under the Income Tax (Trading and Other Income) Act 2005.

Under this new approach, carried interest will be taxed as trading income regardless of its original source. For qualifying carried interest, a 72.5% multiplier will apply, effectively lowering the combined income tax and Class 4 National Insurance rate from the standard 47% to 34.08%.

  • Inheritance Tax (IHT) : The draft legislation confirms that unused pension assets will be included in a person’s estate for Inheritance Tax from 6 April 2027. Existing exemptions for employer-financed schemes funded before April 2006 and IHT charges on 10-year anniversaries or exits remain. Most death-in-service benefits are expected to stay exempt. Personal representatives will manage IHT payments, and any tax due can be excluded when calculating income tax on post-death distributions. Agricultural and business property reliefs won’t apply to pension-held assets.

  • Digitalisation: Draft legislation and updated draft regulations have been published for Making Tax Digital (MTD) for Income Tax, which will become mandatory for eligible landlords and sole traders from April 2026.
    • Income over GBP 50,000 from April 2026
    • Income over GBP 30,000 from April 2027
    • Income over GBP 20,000 from April 2028
  • Anti-avoidance & compliance: The published draft legislation introduces new anti-avoidance measures following a recent consultation. Key proposals include criminal offences for promoters who fail to disclose tax schemes, the use of Universal Stop Notices (USNs) to block promotion of avoidance arrangements, powers for HMRC to request financial data from promoters (PFINs), and Promoter Action Notices (PANs) that can restrict services to non-compliant promoters. Legal safeguards and tribunal approvals have been included, and broader regulation of the tax advice market remains under consideration.
  • Charity compliance: This measure is about changes to the charity tax rules for tainted donations, approved charitable investments and attributable income for charities and community amateur sports clubs (CASCs). The draft income tax legislation was released for the first three measures, aiming for the final rules to come into effect from April 2026.

All UK charities, community amateur sports clubs (CASCs) and their donors will be subject to the changes being introduced. However only a small number are likely to be affected by the changes.