The quantity of property valuations disputed by HMRC has increased by over 20% in the last year. This is not surprising considering that stagnant inheritance tax (IHT) thresholds and rising property prices have led more individuals to fall within the IHT bracket.
With residential properties representing nearly 50% of the net worth of estates, disputing valuations presents an effective method for HMRC to enhance tax revenues, particularly as artificial intelligence can now be employed to detect discrepancies.
Expert Recommendations
There can be considerable financial repercussions if an executor undervalues property in an IHT declaration:
- In addition to the extra IHT owed, late payment interest – currently at 7.75% – will be applicable on the shortfall.
- A penalty may also be imposed if the underpayment arises from a return that contains inaccuracies due to a lack of reasonable care.
The best course of action for executors is to engage a professional valuer instead of merely depending on an estimate from a local estate agent. However, averaging the valuations from three estate agents will demonstrate that reasonable care has been exercised.
Future Outlook
Regrettably, the circumstances are not expected to improve in the coming years. IHT thresholds are projected to remain frozen until 5 April 2031, while the property market, despite being subdued due to the inflationary effects of the Middle East conflict, continues to show resilience and is unlikely to experience declining values, with the exception of London and the South East of England.
The incorporation of most unused pension pots into the IHT net starting April 2027 (unless inherited by a spouse or civil partner) will further increase the number of estates liable for IHT.
Estate Planning
Wills should be current, reflecting realistic property valuations and the impending inclusion of pension pots. Ensure that, whenever feasible, the residence nil rate band is fully utilized, as this can result in an IHT saving of £140,000 for couples.
Lifetime gifts are becoming increasingly popular as a means to mitigate potential IHT liabilities. One problem is that the main residence might be the only sizeable asset, but downsizing could be a way of releasing funds for lifetime gifting.
The government’s guide to how to value an estate for IHT and report its value can be found here.
More than 580,000 traders were penalised for late payment of VAT last year, representing a quarter of businesses registered for VAT. A sure sign that the tougher penalty regime introduced in 2023 is hitting cash-strapped businesses.
Penalty regime
- A penalty will not be imposed if a trader presents a reasonable justification. Illness and personal issues are not considered valid justifications unless they are exceptionally severe. Insufficient funds are also not deemed valid, nor is dependence on a third party or the absence of a reminder from HMRC.
- However, a trader can prevent any additional penalties from accumulating by establishing a time to pay (TTP) arrangement with HMRC. For instance, penalties can be avoided if a business secures an arrangement prior to a VAT payment being 15 days overdue.
Traders facing difficulties in settling a VAT obligation should refrain from disregarding the overdue invoice. Instead, it is advisable to negotiate a TTP arrangement to allow for some financial relief.
Regardless of whether any late payment penalties are applied, late payment interest will accrue from the due date until the VAT liability is settled. The current interest rate is set at 7.75%.
Penalty increases in 2027
Beginning in April 2027, the 3% late payment penalty that is applied after day 15 will rise to 4%, as will the penalty imposed after day 30.
At present, if a business is, for example, 50 days late in paying a VAT liability of £50,000, the total penalties incurred amount to £3,273. This total will escalate to £4,273 starting in April 2027; a clear indication that businesses must prioritize their cash flow management.
HMRC’s guidance on how late payment penalties work can be found in the guidance.
The total tax revenue collected by HMRC for the fiscal year 2025/26 saw an increase of 9.3% in comparison to the previous year. This rise is not unexpected, considering the increase in capital gains tax (CGT) rates and the employer national insurance contributions (NICs).
Receipts for CGT
The CGT receipts for 2025/26 were remarkably 62% higher than those for 2024/25:
CGT is often referred to as an ‘optional tax’ since it can be avoided by delaying asset disposals. Additionally, there is no CGT liability upon death, and future administrations may opt to lower CGT rates.
Nevertheless, individuals who sold assets encountered an increase in rates from 10% and 20% to 18% and 24%. Numerous landlords likely sold their properties in anticipation of the Renters’ Rights Act 2025 taking effect, while business owners could have realized a tax rate reduction of 4% by selling before 6 April 2026.
During one’s lifetime, there are limited options to evade CGT on buy-to-let properties; however, those with a significant investment portfolio may wish to defer disposals until later in life, particularly if they plan to retire abroad. With strategic planning—professional guidance being crucial in this regard—CGT can be alleviated; the tax savings could enable a more comfortable standard of living during retirement.
Employer NICs
The revenue from Class 1 employer NICs has surged to nearly £144 billion, marking an increase of over £35 billion.
Most employers have limited opportunities to circumvent these increases, which took effect from April 2025. However, an unincorporated business might consider bringing on senior staff as partners, likely as limited partners to avoid personal liability in the event of business failure.
It is important to note that there has been speculation about the potential introduction of some form of employer NICs on partnership profits.
Receipts on income tax
Income tax receipts have risen less sharply, although frozen thresholds and allowances are inexorably taking their toll, dragging more and more taxpayers into higher tax bands. Some higher earners may contemplate relocating to a more tax-friendly jurisdiction, which, if the overseas stay is long enough, could avoid CGT on the disposal of investments.
Details of HMRC tax receipts and NICs can be found at HMRC official statistics. Alternatively, contact our team of accountants in Barnsley.
There are no financial restrictions on the worth of bicycles that can be offered to employees under the cycle-to-work scheme. Thus, it came as a surprise when the Chancellor did not set a limit in the November 2025 Budget, especially considering that some bicycles can exceed £5,000. The cycle-to-work scheme has gained immense popularity, which isn’t surprising given the tax benefits involved.
Typical Scenario
Once registered with a cycle-to-work scheme provider, the employer procures the bicycle and leases it to the employee, likely through a salary sacrifice plan. The leasing term usually spans from 12 to 18 months. Employees repay the cost of the bicycle through monthly deductions from their gross salary.
For example, if the deductions amount to £400 each month, an employee in the higher tax bracket could save around £160 in taxes per month, along with a minor reduction in National Insurance contributions (NICs). In turn, the employer benefits from a £60 savings in NICs each month.
The cycle-to-work scheme must be available to the entire workforce, although a salary sacrifice arrangement is not a requirement.
At least half of the bicycle’s usage should be for qualifying journeys, which typically means commuting to work.
At the End of the Hire Period
After the hire period concludes, employees have the option to return the bicycle to the provider or extend the hire agreement, which involves a nominal fee.
Many employees often choose a third option: taking ownership of the bicycle by paying a reasonable market value to the employer. For a cycle that is only a year old and valued at over £500, HMRC approves a disposal value of 25% of its original price. The percentage decreases for older bicycles and those valued below £500.
Detailed guidance on the cycle-to-work scheme for employers can be found here (note that the rates of NICs in the guidance are out of date).
Bricks and mortar are not always a sure-fire winner.
From January 2016 to January 2026, did house prices grow faster than inflation?
Nationwide Building Society reports that the average home price in the UK was £196,829 in January 2016. Fast forward ten years, and that figure climbed to £270,873, marking a 37.6% increase. During that same timeframe, the Consumer Prices Index (CPI) rose by 40.2%.
If these figures have taken you by surprise, it’s worth considering how the post-Covid-19 housing boom might have colored your memory, overshadowing the sluggish period that followed. Between January 2023 and now, the average house price saw a modest increase of 4.9%, in contrast to the CPI’s rise of 10.4%.
Interestingly, the recent slowdown in house price growth can be attributed to broader inflationary trends. One significant factor affecting house prices has been the Bank of England’s decision to raise interest rates to combat inflation, which soared to over 11% in October 2022. Up until June 2022, the Bank’s rate was a mere 1%. For those with the impending end of a five-year fixed-rate mortgage, it’s clear that the prevailing interest rate environment—now complicated by the conflict in Iran—has made borrowing much more costly compared to five years ago.
While the stabilization of house prices and recent reductions in mortgage rates have provided some relief for first-time homebuyers, it hasn’t been favorable for buy-to-let investors. According to Zoopla, at the beginning of the year, inquiries per rental property hit their lowest point since 2019, down by 20% from January 2025. This decline in demand has led to a slowdown in rental growth, plummeting from 7.8% annual growth in January 2025 to just 3.1% a year later, based on data from the Office for National Statistics (ONS). Furthermore, in England, buy-to-let investors are gearing up for the changes brought about by the Renters’ Rights Act, which will eliminate no-fault evictions (commonly known as ‘section 21 orders’) starting May 1, 2026.
Overall, purchasing and owning a home generally remains a sound investment choice, but it’s wise to avoid relying on it as your sole investment strategy.
Buying and owning your own home generally remains a sensible move, but be wary of treating it as the only investment you need to make.
Read more on private rent and house prices from the ONS here.
The normal expenditure out of income exemption enables individuals to give gifts during their lifetime that are instantly free from inheritance tax (IHT)—eliminating the typical seven-year wait. A recent ruling by the First-tier Tribunal (FTT) has provided some clarity on what qualifies as ‘normal expenditure.’
Exemption
To fall under this exemption, gifts must meet three conditions:
- They should be part of the individual’s regular expenditure.
- They need to be made from income.
- They must allow the individual to retain enough income to uphold their typical standard of living.
While the income requirement may seem straightforward, it can be more complex. There is no official definition of income, and it doesn’t always align with taxable income. For example, it can include non-taxable income like that from individual savings accounts (ISAs). Additionally, HMRC considers income to transition into capital once it has been saved for two years.
The term ‘usual standard of living’ typically reflects what was considered normal for the individual at the time the gift was given. Thus, the exemption may still apply even if the giver later has to reduce their standard of living due to circumstances like job loss, despite having made regular gifts when surplus income was available.
Normal expenditure
The FTT case focused solely on whether the taxpayer’s gifts qualified as normal expenditure. For gifts to be deemed normal, they should be made on a habitual or regular basis, but they don’t need to be for a set amount.
The taxpayer had made numerous significant donations to charitable causes, but HMRC questioned his contributions to campaigns advocating for the UK’s exit from the EU. The exemption for these donations was denied because they occurred over just nine months, a timeframe considered too short to establish a consistent pattern; the donations lacked predictability and specific reasoning behind their amounts.
Typically, a consistent pattern implies gifts being given over three to four years, although a single gift could qualify if there is clear evidence that it was intended to be the start of a pattern.
Detailed guidance on the normal expenditure out of income exemption is available in HMRC’s internal manuals: IHTM14231 to IHTM14255.
MTD is now live but with low numbers registered with HMRC, many sole traders and landlords affected are still looking at how to comply, keep the administrative burden to a minimum and will probably be looking for inexpensive – or even free – software to use.
Few sign ups
By early April, about 80% of those who should have registered for MTD hadn’t. The problem is that many don’t see the upside of keeping digital records and reporting figures to HMRC quarterly:
Many people find it hard enough to gather the documents for their annual self-assessment tax return and will not welcome having to comply with strict quarterly reporting requirements:
- The annual self-assessment tax return will be difficult enough for many people to sort out their affairs and they won’t relish meeting tough quarterly reporting deadlines.
- As the MTD compliance threshold is income based, there will be some who will have to comply but will not even have a tax liability. They almost certainly won’t want to pay more agent fees for MTD compliance.
For many, the best option may be to keep the minimum required records with a standard spreadsheet and then use free bridging software to deal with the quarterly reporting requirement. The first quarterly update is due on 7 August so it’s time to get organised.
Software
HMRC has developed a software finder tool that directs taxpayers to appropriate software, including several free options. Many of the options on offer, however, are still in development.
For many sole traders and landlords, software that imports information directly from the taxpayer’s bank account may be the perfect solution, but not if they are putting their business and/or letting income and expenditure through their personal bank account.
Exit Options
The £50,000 MTD threshold from 6 April 2026 is calculated using income for 2024/25. Some people will now have an income below £50,000 and HMRC has explained when it is possible to apply to opt out of MTD.
Unfortunately, opting out is only possible where all sources of qualifying income have ceased; not the case if, for example, self-employment ceases, but there is still property income. Opting out of MTD can be done via HMRC’s webchat, by telephone or by writing to HMRC.
The start point for finding software that works with MTD for income tax can be found here.
Businesses faced some less than funny changes in April including reduced capital allowances, increased fines for late filing of corporation tax returns and the closure of HMRC’s free corporation tax return filing portal.
Capital allowances
Capital expenditure will normally qualify for a 100% first year allowance, but where expenditure does not qualify, a subsequent annual writing-down allowance (WDA) will be given. The main rate of WDA has been reduced from 18% to 14% for periods beginning on or after 1 April 2026 (6 April 2026 for sole traders and partnerships). That means this:
- Most expenditure on cars does not qualify for a 100% deduction, so the WDA reduction effectively results in more tax payable.
- Expenditure on new (not second-hand) zero-emission cars still qualifies for a 100% deduction, although this relief is set to end on 31 March 2027 (5 April 2027 for sole traders and partnerships).
A hybrid rate of WDA will apply for accounting periods spanning 1/6 April 2026.
Penalties
Fines for late submission of corporation tax returns have doubled. The first late filing penalty is now £200, up to £400 if more than three months late.
If the return was also late for the two accounting periods before that, the £200 and £400 penalties are respectively increased to £1,000 and £2,000.
Corporation tax returns
HMRC have closed their free online corporation tax filing service on 31 March 2026, which is no problem for those using an agent. That is:
From now on anyone filing company tax returns with HMRC will be required to use commercial software.
Any changes or amendments to previously filed tax returns will also have to be made using commercial software.
Everything that was once available online, including the HMRC’s tax return filing portal, is now off-limits. Hopefully the records have been downloaded and these should be stored safely.
Companies House was also set to require companies to file accounts using commercial software from 1 April 2027 but this will now be postponed.
The government’s guide to capital allowances can be found here.
Only slightly more than £4 million has been disclosed through HMRC’s cryptoasset disclosure service, possibly a sign of the lack of knowledge and adherence to regulations regarding cryptoassets.
Capital gains tax (CGT) applies to the majority of cryptocurrency gains, and HMRC believes that many investors in cryptoassets have neglected to report their gains when they are sold or given as gifts:
- People may believe that cryptocurrency transactions are tax-free, particularly if they are just exchanging one kind of cryptocurrency asset for another.
- When cryptoassets are added to one of the specialised Visa cards, which can be used anywhere in the world, it is also simple to dispose of them if they are used to pay for goods or services.
For instance, an investor uses some of their Bitcoin to purchase a new cryptocurrency. The investor switches back to Bitcoin as the value of the new cryptocurrency rises. Since both transactions are disposals, gains over the £3,000 exemption are subject to CGT.
Compliance
More than 100,000 letters have been sent by HMRC asking investors to reveal their cryptoasset tax obligations. However, until recently, it was very simple for investors to evade scrutiny by using foreign cryptoasset service providers, who were not obligated to provide HMRC with any information.
On January 1, 2026, new reporting regulations went into effect. These are applicable when a cryptocurrency investor purchases, sells, transfers, or exchanges cryptocurrency assets; however, the reporting requirements have not yet been signed by a number of host countries. Likewise, using a decentralised exchange might circumvent the new reporting rules.
Cryptoassets also pose a problem for inheritance tax (IHT). The assets form part of a deceased’s estate, but access may not be possible when security involves private keys and passwords.
HMRC’s detailed guidance on the new cryptoasset reporting requirements can be found here. Alternatively, contact our accountants in Barnsley.