HMRC has released new information regarding the process of collecting inheritance tax (IHT) on pensions.

In the October 2024 Budget, the Chancellor revealed that most pension death benefits would be subject to IHT starting from 6 April 2027. However, it wasn’t until March 2026 that the necessary primary legislation was enacted. This is not the final step, as HMRC now needs to establish regulations to implement the new rules, followed by consultations to create “detailed guidance and other supporting materials.” The completion of these elements is expected by next spring, which is alarmingly close to the April 2027 implementation date.

The lengthy process underscores the challenges involved in creating a system that accommodates:

  • The personal representatives (PRs), typically the executors named in the will,
  • The administrators and trustees of the pension scheme,
  • The beneficiaries of the pension death benefits, whether as a lump sum or income,
  • HMRC, which may require both IHT and income tax on the pension benefits.

At the end of May, HMRC published a comprehensive ‘technical note’ outlining its perspective on the current situation. This document emphasized the considerable new responsibilities assigned to PRs:

IHT liability: PRs will bear the primary responsibility for reporting and settling any IHT owed on pension benefits. However, once the pension scheme confirms that an individual is entitled to a lump sum or pension, that beneficiary also becomes jointly and severally liable. This implies that if the PRs fail to pay the IHT owed, the beneficiary will be responsible for it.

Withholding funds: As anyone familiar with estate administration can attest, locating the deceased’s assets and determining their value at the time of death can be time-consuming. To mitigate this unavoidable delay, PRs will have the option to request that a pension scheme withhold up to 50% of a beneficiary’s entitlement as a safeguard against a potential IHT liability. The maximum duration for withholding is 15 months. However, a withholding notice cannot apply to beneficiaries classed as exempt (mainly surviving spouses and civil partners) nor to a limited range of excluded benefits (such as dependants’ scheme pensions, joint life annuities and death in service payments).

The new duties for PRs mean that you might wish to review who you have appointed as your executors. If you have no will, then the changes to IHT have given you another reason for making one.

HMRC technical note on IHT on pensions is available here.

The government has announced that starting in 2028, micro-entities and small businesses will be required to submit profit and loss (P&L) accounts to Companies House, with the option to keep these accounts private.

Initially, the changes were set to take effect in April 2027, but due to concerns raised by stakeholders, the implementation has been postponed to April 2028.

Filing requirements

From April 2028, both micro-entities and small companies must file a P&L account with Companies House. However, they will have the choice to opt out of making this information public:

  • Details regarding the opt-out process have yet to be released.
  • Even if a company decides not to publish its P&L account, HMRC (as is currently the case) and law enforcement agencies will still have access to this information to assist in identifying fraud and tax evasion.
  • All companies will be required to file their annual accounts using commercial software, which is already a requirement for HMRC submissions. The current web and paper-based filing options at Companies House will be discontinued.

Given that HMRC already receives a complete set of accounts, the general sentiment regarding the option to opt out of publishing P&L accounts is that it may be somewhat redundant; it could lead to increased time and costs.

Considering the existing HMRC filing obligations, companies should verify that their filing software is compatible with the requirements of Companies House.

Other changes

Additional reforms will also be implemented starting in April 2028:

  • The option for companies to prepare and submit abridged accounts will be eliminated.
  • The frequency with which a company can shorten its accounting reference period will be limited; currently, there are no restrictions on how often this can occur.

Companies House will contact all companies through their registered email address to tell them about the upcoming changes.

The government’s report explaining the changes to accounts filing from April 2028 can be found here.

The enterprise management incentive (EMI) reforms introduced in April 2026 have significantly advanced the acceptance of this benefit. With increased qualifying limits, companies can now continue to offer EMI tax-advantaged share options as they expand and develop.

EMIs are effective in retaining and rewarding essential personnel. Employees can be granted options at a predetermined price, which can be exercised at a specified time or upon achieving a performance target. The maximum market value of unexercised EMI share options that an employee may hold over a three-year period is £250,000.

Tax advantages

Typically, there is no tax liability when EMI share options are granted to an employee or when those options are exercised. However, a capital gains tax may be applicable when the shares are sold, with the gain potentially qualifying for a flat rate of 18%.

Qualifying limits

The following limits are applicable to EMI contracts granted since 6 April 2026:

The maximum market value of unexercised EMI options granted by a company cannot exceed £6 million (up from £3 million).

  • Gross assets must be under £120 million, and the company must have fewer than 500 full-time equivalent employees (previously £30 million and 250 employees).
  • The maximum exercise period for EMI options has been extended to 15 years (previously 10 years).
  • Companies can retroactively apply the 15-year exercise period to previously granted EMI share option contracts.

Company considerations:

  • Companies that have not previously qualified for EMI should assess whether they now meet the criteria and if EMI options are suitable for future employee equity incentives.
  • Similar evaluations should be made if a company has previously qualified but has since surpassed the gross assets or employee limits due to growth, or if it has reached the former £3 million cap for unexercised EMI options.
  • Companies with existing EMI options must determine if they wish to extend the exercise period to 15 years.

Details on EMIs (along with other employee share schemes) can be found here.

Individuals are revising their tax-planning approaches to account for inheritance tax (IHT) being applied to unused pension pots starting April 2027. However, an unintended consequence of this planning is its effect on long-term care expenses.

The issue

In England, if an individual’s capital and savings exceed £23,250, they are responsible for covering all their long-term residential care costs. While this threshold may seem low, it’s important to note that the value of a home will not be considered if a partner (or a relative aged 60 or older, or a dependent child) continues to reside there. Consequently:

Deprivation of assets regulations stipulate that individuals cannot secure funding for care costs by transferring assets to family members. This is where the new pension tax regulations pose a challenge: many seniors are trying to minimize future IHT liabilities by withdrawing significant amounts from their pensions and subsequently gifting that money to their children and grandchildren.

A local authority may view such gifts as a deliberate deprivation of assets.

There is no limitation on how far back local authorities can investigate. If an individual is determined to have deprived themselves of assets, they will be considered as still possessing the money or assets that were given away.

Considering the increased life expectancy, the financial repercussions of unexpectedly needing to cover care costs can be considerable.

Finding the right balance

A significant gift may achieve the IHT goal, but it could lead to complications regarding future care expenses. Local authorities will assess whether care needs were predictable at the time a gift was made, making earlier gifts, when the individual was in good health, much easier to defend. Meticulous record-keeping is crucial. The documentation should demonstrate that the intent behind a gift is legitimate estate planning or family assistance, rather than an attempt to evade care costs.

Starting from 6 April 2027, individuals under the age of 65 will be limited to saving a maximum of £12,000 in cash individual savings accounts (ISAs) each tax year. However, the overall ISA limit will remain at £20,000, with new regulations implemented to reduce the chances of bypassing the lower cash ISA limit.

Objective of the new regulations

The new regulations aim to prevent a saver from contributing up to £20,000:

  • In cash to a non-cash ISA and keeping the cash there for an extended period, earning tax-free interest.
  • In a non-cash ISA and subsequently transferring those funds to a cash ISA.
  • To a non-cash ISA and then utilizing the funds to acquire cash-like investments.

A non-cash ISA refers to either a stocks and shares ISA or an innovative finance ISA.

Implications of these changes

There will be a 22% tax on any interest accrued on cash held within a non-cash ISA. This rate is applicable regardless of whether the saver is a higher or additional rate taxpayer. The personal savings allowance cannot be utilized to offset this charge.

The transfer restriction means that excess cash cannot be shifted to a cash ISA to avoid the 22% tax. To evade this charge, cash must either be invested or withdrawn from the ISA.

A non-cash ISA portfolio consisting entirely of cash-like investments will not be allowed:

Only money market funds (which are low-risk investments in highly liquid, short-term debt securities) will qualify as cash-like investments.

  • The current ISA investment regulations remain unchanged, meaning that investments like short-dated UK gilts will not be classified as cash-like investments.
  • The 100% requirement does seem to create a potential loophole, as holding even a minimal amount of shares could bypass the restriction.

For those aged 65 and older

Savers aged 65 and above will continue to enjoy the existing cash ISA limit of £20,000. This entitlement will take effect from the beginning of the tax year in which the saver turns 65.

From that point, the transfer restriction will no longer apply. The charge on interest earned on cash held in a non-cash ISA and the prohibition on 100% cash-like investments will, however, remain in place.

The government’s factsheet on the ISA anti-circumvention rules is available here.

Unless opted out, pensioners will have received the winter fuel payment for 2025/26; however, HMRC can recover this payment if their income exceeds £35,000. Recently, HMRC has updated its guidance regarding the recovery process.

The threshold

The winter fuel payment, known as the pension age winter heating payment in Scotland, must be repaid if a pensioner’s income surpasses £35,000. If the income is £35,000 or lower, the payment is retained in full.

In cases where multiple individuals in the same household receive a payment, HMRC assesses each person’s income independently. For instance, if one partner earns £36,000 and the other earns £34,000, only the partner with the £36,000 income will be required to repay their winter fuel payment.

The income

For the winter fuel payment disbursed in November or December 2025, the relevant income pertains to the 2025/26 tax year:

All forms of taxable income are considered before any deductions are applied. The figures for savings and dividend income are calculated before accounting for the personal savings allowance or dividend allowance. Income from individual savings accounts (ISAs) and other tax-exempt savings is not included.

Your portion of the income is only counted when it originates from a joint source, such as a joint savings account.

The recovery

Pensioners who file a self-assessment tax return must report the winter fuel payment on their return, and if it is subject to repayment, this amount will typically be included in the self-assessment tax bill automatically.

For others, HMRC usually recovers the payment through an adjustment to their tax code. The payment received in November or December 2025 will be reclaimed by modifying the tax code for the 2026/27 tax year, resulting in a higher tax rate than what was previously paid each month. For example, with a winter fuel payment of £200, a tax code adjustment would lead to an additional tax payment of approximately £17 each month.

HMRC are having to remind taxpayers that there is no deadline extension if a VAT return submission date falls on a weekend or a bank holiday.

Due Date Reminder

The deadline for submitting quarterly VAT returns is set for one month plus seven days following the end of the quarter. For instance, for the quarter that concludes on 30 June, the due date is 7 August:

  • This deadline also applies to payments made to HMRC, but it is important to account for the time required for the payment to clear HMRC’s account.
  • If you are utilizing the annual accounting scheme, the VAT return is typically due two months after the conclusion of the accounting period.

In response to the increasing number of late VAT return submissions and payments resulting from inaccurate information provided by artificial intelligence (AI) and third-party websites, HMRC has taken action. VAT returns can be submitted during weekends or on bank holidays; if that is not feasible, the return should be filed on the last working day before the due date.

Penalty Notification

Despite HMRC’s advisories, taxpayers who are occasionally late should be cautious to avoid penalties, except for late payment interest:

  • Late payment penalty: HMRC imposes a penalty only if a VAT payment is made more than 15 days after the due date, so this should not be a concern if a taxpayer waits until the first working day following the payment deadline.
  • Late submission penalty: A delay of just one day will incur a penalty point, but a £200 penalty is only applied once a threshold of four points is reached (or two points for annual submissions), and points will expire after 24 months, provided the taxpayer stays below the threshold.
  • Late payment interest: This interest is currently charged at a rate of 7.75% from the due date until the payment is made. For example, being ten days late on a VAT payment of £40,000 would result in an interest charge of just under £85.

Submitting one late quarterly VAT return each year should not result in a late submission penalty being applied.

The Chancellor has declared a 10p per mile rise in the tax-free mileage rates that can be reimbursed to employees who use their personal vehicles for business activities, effective retroactively from 6 April 2026.

Mileage rates

The 10p per mile increase is applicable solely to the initial 10,000 business miles driven within each tax year. Consequently, the reimbursement rates for employers compensating employees for business mileage in their own cars are now:

  • Cars and vans: You can claim 55p per mile for the first 10,000 business miles you travel in a tax year. Any additional business miles over 10,000 can be claimed at 25p per mile.
  • Motorcycles: You can claim 24p per mile for all business miles, regardless of how many miles you travel.
  • Bicycles: You can claim 20p per mile for all business miles, with no reduced rate after a certain mileage threshold.

For trips involving cars and vans, employees can receive an extra reimbursement of 5p per mile for each passenger, totaling 70p per mile if three passengers are present.

E-bike users should receive the bicycle reimbursement rate for electrically assisted pedal cycles, while the motorcycle rate applies to other types of electric bikes.

If an employee utilizes multiple cars for business mileage within the tax year, the 10,000-mile limit is applicable across all vehicles, not individually. For instance, if 4,000 business miles are recorded in one car during the first quarter of 2026/27 and 9,000 miles in another car over the remaining nine months, the maximum tax-free reimbursement would be 10,000 miles at 55p, plus 3,000 miles at 25p, totaling £6,250.

Any reimbursement that exceeds the approved rates for the tax year is classified as earnings and is subject to taxation.

Regarding National Insurance contributions (NIC), the NIC-free rates are comparable, with 55p per mile available for every business mile driven in a car or van, without a 10,000-mile limit.

Additional Information

Employees who do not receive the maximum mileage reimbursement can claim tax relief on the difference between the reimbursement rate and what they actually received. Thus, if an employer provides no reimbursement, an employee can claim the full 55p/25p per mile car rates.

Sole traders and partnerships may apply the mileage rates for cars, vans, and motorcycles when calculating vehicle expenses to be deducted from trading profits. This also applies to unincorporated landlords when determining property income. However, in both scenarios, there is no extra allowance for passengers carried.

HMRC guidance on business travel mileage for employees’ own vehicles can be found here.

Anyone confused or anxious about the inheritance tax (IHT) changes being introduced for pensions needs to be aware that scammers might try to target their savings.

Changes to pensions

From 6 April 2027, inherited pension funds will be subject to IHT unless inherited by a spouse or civil partner. Not surprisingly, scammers are using the change as an opportunity to target your pension savings. The scam works by offering a ‘safe haven’ overseas for your pension savings. Two problems here: one is quite important, but the second is more serious:

  • First problem: For anyone who is a long-term resident in the UK, moving a pension fund overseas will not affect the IHT position because worldwide assets – including overseas pension funds – are included as chargeable assets for UK IHT purposes.
  • Major problem: Whether the tax planning works or not is irrelevant as the fraudster will simply plunder your pension fund.

The scams you need to know

Pension scams are becoming increasingly sophisticated, with scammers using artificial intelligence (AI) and deepfake technology to make the scam appear more convincing. There are several red flags to watch out for:

  • The first warning should be if the initial email, call or message comes unexpectedly. Cold calling about pensions is illegal, so you should treat any unsolicited approach with suspicion.
  • Along with the ‘IHT saving’, the scammer will tempt you with the higher returns available if funds are moved.
  • The scammer will want to apply pressure by saying you only have a limited amount of time to accept their offer.

A scammer wants their victim to act impulsively and alone; they definitely don’t want them to obtain professional advice. Should you agree to transfer your funds, the scammer will often provide coaching on how to circumvent your pension provider’s safety rules: for example, by providing an answer as to why funds are being moved.

The old adage of ‘it sounds too good to be true’ is invariably true in these cases, so any approach should be treated with extra caution.

The Financial Conduct Authority’s online tool to check whether a company is authorised or not is available here. For tax information and advice contact our team.