A cancelled flight, an overnight airport hotel and a few days spent travelling between overseas destinations would not strike most people as particularly significant tax events. Yet in a recent First-tier Tribunal case, those seemingly routine travel arrangements were enough to determine whether an individual remained non-resident for UK tax purposes.

The decision in Parker v HMRC considered two aspects of the Statutory Residence Test that frequently arise in practice: the transit exemption and exceptional circumstances. While the facts involved an engineer working overseas, the judgment provides useful guidance for anyone whose residence position depends on carefully managing the number of days spent in the UK.

The outcome was far from academic. Had HMRC succeeded, the taxpayer would have become a UK resident and faced an additional tax liability of almost £65,000.

Why a handful of days can matter

The Statutory Residence Test determines whether an individual is resident in the UK for tax purposes. Although the rules are detailed, many residence disputes ultimately come down to day counts and whether particular days should be included or excluded.

For those working abroad, even a small increase in UK days can have significant consequences. Residence status may affect not only employment income but also overseas investments, rental income, capital gains and wider reporting obligations.

In Mr Parker’s case, the difference of 4 days between 89 and 93 days in the UK determined the outcome.

HMRC accepted that he had been present in the UK at midnight on 100 occasions during the relevant tax year. Seven of those days were disregarded because of Covid-related provisions. The remaining dispute centred on four days: three involving transit through Heathrow Airport and one arising from a flight cancellation caused by severe weather.

The transit day dispute

The legislation contains an exemption designed to prevent individuals from being treated as spending a day in the UK simply because they are travelling through it on an international journey.

Mr Parker worked in Iraq and travelled extensively between overseas locations. On several occasions, he arrived at Heathrow Airport, stayed overnight in a nearby hotel and departed the following day for another destination outside the UK.

HMRC argued that the exemption should not apply because the various flights had been booked separately. In its view, each journey ended when Mr Parker arrived in the UK, and a new journey began when he departed.

The Tribunal was unconvinced.

The judges described the distinction between through-tickets and separately booked flights as arbitrary, noting that nothing in the legislation required a journey to be booked on a single ticket for the transit exemption to apply. Mr Parker’s explanation was straightforward: separate bookings were often cheaper and easier to arrange. The Tribunal accepted that practical reality.

The decision will be welcomed by many people who travel internationally. Modern travel arrangements are rarely designed around tax rules and are more likely to reflect airline pricing, availability and convenience. The Tribunal’s willingness to focus on the substance of the journey rather than the booking structure suggests a more pragmatic approach than HMRC’s interpretation.

The case also raised an interesting question about family contact during transit.

On some of the journeys, Mr Parker met his wife and stepdaughter because they were travelling onwards with him. HMRC argued that these meetings represented activities unrelated to his passage through the UK and therefore prevented the exemption from applying.

Again, the Tribunal disagreed. It found that meeting family members who were joining the same journey was fundamentally different from travelling into the UK to spend time with family or friends. Mr Parker remained within the airport environment, staying at an airport hotel and travelling between the hotel and Heathrow. The judges concluded that these activities remained closely connected to his onward travel and did not undermine the transit exemption.

Exceptional circumstances and cancelled flights

The second issue arose on 29 February 2020 when Mr Parker boarded a British Airways flight from Heathrow to Dublin.

Before departure, severe weather associated with Storm Jorge caused Dublin Airport to close. The flight was cancelled, passengers were required to disembark, and British Airways arranged hotel accommodation before rebooking them on flights the following day.

The Statutory Residence Test allows certain days to be ignored where exceptional circumstances beyond an individual’s control prevent them from leaving the UK.

HMRC argued that flight disruption is a normal feature of international travel and that alternative arrangements may have been available. The Tribunal took a different view.

While poor weather itself may not be unusual, the judges looked at the overall circumstances rather than focusing on a single factor. Dublin Airport had been forced to close, flights were being cancelled, diverted and delayed, and widespread disruption affected travellers throughout the day. Viewed as a whole, the circumstances were not routine and were capable of being exceptional.

Perhaps the most significant part of the judgment was the Tribunal’s focus on practical reality.

Mr Parker had already boarded the aircraft when the flight was cancelled. His luggage remained with the airline, and British Airways had arranged replacement travel for the following morning. HMRC suggested he could have explored alternative routes out of the UK, but the Tribunal considered that expectation unrealistic in the circumstances.

The judges concluded that the correct question was not whether some theoretical route out of the UK might have existed, but whether Mr Parker was realistically able to leave the country that day. On the facts, he was not. By accepting the airline’s arrangements and departing on the next available flight, he had left as soon as circumstances genuinely permitted.

Wider lessons from the decision

Although the case concerned one taxpayer’s residence position, the principles are likely to have wider relevance.

International travel has become increasingly vulnerable to disruption, whether from severe weather, industrial action, technical failures or operational issues. For individuals whose residence position depends on remaining below particular day-count thresholds, unexpected events can quickly become significant.

The case also demonstrates the importance of maintaining detailed records. Throughout the dispute, evidence such as boarding passes, hotel invoices, travel confirmations and flight information played an important role in establishing the facts.

Residence enquiries often begin years after the relevant tax year has ended. What seems obvious at the time can be surprisingly difficult to reconstruct later. Keeping comprehensive travel records may prove invaluable if HMRC subsequently questions a residence position.

Conclusion

The Parker decision provides welcome clarification on two areas of the Statutory Residence Test that regularly create uncertainty. The Tribunal rejected HMRC’s narrow interpretation of the transit exemption and adopted a practical approach when assessing exceptional circumstances, focusing on the realities of international travel rather than artificial distinctions or hypothetical alternatives.

Residence disputes rarely arise because someone deliberately ignored the rules. More often, they stem from travel arrangements, unexpected disruption and the practical realities of modern working life. The Parker case is a reminder that a handful of days can sometimes determine a tax position worth many thousands of pounds.

At Wilkins Southworth, we advise individuals and families on UK residence, overseas work arrangements and international tax planning. If you would like to discuss your residence position or review how the Statutory Residence Test applies to your circumstances, please contact our team.

The abolition of the remittance basis from April 2025 represented one of the biggest changes to UK international tax rules in decades. The reforms form part of the wider non-dom tax changes introduced from April 2025. 

Recently, much of the discussion surrounding the reforms has focused on the four-year Foreign Income and Gains (FIG) relief available to qualifying new residents arriving in the UK. However, what has received far less attention is the reporting side of the regime.

Under the previous remittance basis system, offshore income and gains often remained outside HMRC reporting requirements if they were not brought into the UK. For many internationally mobile individuals, particularly those with offshore investment portfolios or overseas property interests, the regime offered a degree of privacy alongside tax efficiency.

As we now know, the foreign income and gains relief system operates very differently. 

While the new rules may still provide valuable relief for qualifying individuals, HMRC’s disclosure expectations are now significantly greater than under the old regime. In many cases, clients fully appreciate this only when they begin preparing their first tax return under the new rules.

Background to the foreign income and gains relief rules 

The foreign income and gains relief regime was introduced from 6 April 2025 alongside the abolition of the remittance basis of taxation. Broadly speaking, the UK has moved away from a domicile-based system towards one that is far more heavily based on residence.

Under the new framework, qualifying new residents may claim relief on certain foreign income and gains arising during their first four years of UK residence. To qualify, an individual must generally have been a non-UK resident for at least 10 consecutive tax years before becoming a UK resident again.

Where relief applies, qualifying foreign income and gains can usually be brought into the UK without an additional UK tax charge. That remains one of the more attractive features of the regime for internationally mobile individuals and families relocating to the UK.

At first glance, the rules may appear relatively straightforward. In practice, however, the compliance and reporting obligations are considerably more detailed than many clients expect.

The major change: Worldwide reporting and disclosure

The most significant practical difference between the old remittance basis and the FIG regime is the level of disclosure.

Under the remittance basis, foreign income and gains that remained offshore often did not need to be fully reported to HMRC. For many non-domiciled individuals, this created a relatively contained reporting environment, particularly where offshore income was retained outside the UK.

The FIG regime changes that position considerably.

Foreign income and gains generally need to be identified and reported as part of the UK Self Assessment process where relief is claimed, even where no UK tax ultimately becomes payable. Claims are also made on a source-by-source basis rather than through a broad exemption mechanism.

In practical terms, this may involve reporting:

• Overseas bank interest
• Foreign dividends
• Offshore investment portfolio income
• Rental income from overseas properties
• Gains on foreign share disposals
• Certain trust distributions

For clients with multiple accounts, investment platforms or international structures, the reporting exercise can become significantly more detailed than under the previous regime.

Importantly, the relief itself may remove the UK tax charge, but it does not remove the reporting requirement. That distinction is becoming increasingly important.

Many offshore structures and investment arrangements were originally established during a period when disclosure expectations were materially lower. The UK tax system has now moved much closer towards full transparency of overseas income and gains.

Why this matters more than some clients realise

The practical challenges posed by the FIG regime are not always obvious at first. 

Many internationally mobile individuals have historically organised their affairs around the old remittance basis rules. As a result, records, investment structures and reporting systems may not have been designed with detailed UK disclosure requirements in mind.

This can create difficulties where individuals now need to:

• Identify multiple offshore income sources
• Separate different categories of foreign income and gains
• Reconcile overseas reporting periods with UK tax years
• Calculate foreign currency conversions accurately
• Coordinate information between advisers across several jurisdictions

Some clients may incorrectly assume that if foreign income is exempt from UK tax under the FIG regime, there is nothing to report. Under the new system, that assumption can quickly create problems.

At the same time, HMRC continues to expand its focus on offshore compliance and international reporting consistency. The department already receives large volumes of overseas financial information through international information-sharing agreements and increasingly uses digital analysis to identify inconsistencies between returns, accounts and offshore data.

This wider direction of travel is difficult to ignore. The UK tax system has become far more transparent in recent years, particularly regarding offshore wealth and international structures.

The wider planning implications

Although the FIG regime offers valuable planning opportunities in certain situations, making a claim is not always as straightforward as many clients initially assume. A FIG claim can affect several allowances and reliefs, including:

• Personal allowance entitlement
• Capital gains tax annual exempt amount
• Certain foreign losses
• Relief for finance costs relating to overseas property income

The position can become more complicated where clients have multiple sources of foreign income or gains, or where overseas tax rules interact with UK reporting obligations.

In some situations, a partial claim may prove more beneficial than claiming relief on every source of foreign income. In others, the administrative burden associated with reporting may itself become a significant consideration.

Coordination between UK advisers and overseas professionals is also becoming increasingly important, particularly for clients with:

• International investment portfolios
• Overseas businesses
• Trusts
• Foreign property holdings
• Family wealth structures spanning several jurisdictions

The regime is not simply a “claim and forget” exercise. Ongoing review is likely to become increasingly important as HMRC guidance and international reporting standards continue to develop.

Which clients are most likely to be affected?

The FIG regime is particularly relevant for:

• Non-doms previously using the remittance basis
• Returning UK residents
• Internationally mobile executives
• Entrepreneurs relocating to the UK
• Offshore investors
• Clients with overseas property portfolios
• Beneficiaries of offshore trusts

Even relatively straightforward offshore arrangements may now involve a much greater degree of reporting analysis and disclosure than under the previous system. For some clients, the compliance burden may ultimately outweigh the immediate UK tax exposure.

Conclusion

Foreign income and gains relief still offers potentially valuable opportunities for qualifying new residents arriving in the UK. However, the reporting framework surrounding offshore income and gains has changed considerably since the abolition of the remittance basis.

The days of relatively limited offshore disclosure have largely disappeared. Transparency, reporting accuracy and international information sharing now sit much closer to the centre of the UK international tax system.

For internationally mobile individuals, effective planning increasingly involves not only managing tax exposure, but also ensuring offshore reporting is complete, consistent and properly documented.

At Wilkins Southworth, we advise internationally mobile individuals and families on offshore reporting, residence issues and wider international tax planning. If you would like to discuss how the FIG regime may affect your circumstances, please feel free to contact our team.

HMRC has suffered another defeat in one of the UK’s longest-running employment status disputes.

In May 2026, the tribunal again ruled that football referees engaged by Professional Game Match Officials Limited (PGMOL) were self-employed rather than employees for tax purposes. The dispute, involving around £584,000 in tax liabilities, has now been running for almost a decade.

Although the case centres on professional football referees, the underlying issues affect thousands of UK businesses. Construction firms, consultants, IT companies and property businesses all rely heavily on contractors and self-employed workers. The same employment status rules apply across all of them.

That is what makes the PGMOL case so significant. Even after years of litigation, HMRC and the courts still reached very different conclusions on how the arrangements should be treated.

Background to the Employment Status Dispute

The case involved referees engaged by PGMOL between 2014 and 2016. HMRC argued the officials should have been treated as employees, meaning PAYE and National Insurance should have been deducted.

PGMOL maintained that the referees were self-employed because appointments were accepted individually, with no obligation to provide or accept ongoing work.

This type of dispute is far from unusual. Employment status remains one of the most heavily contested areas of UK tax law, particularly since the IR35 reforms increased scrutiny of contractor arrangements.

The financial consequences can be severe. Businesses found to have incorrectly treated workers as self-employed may face liabilities for unpaid PAYE, National Insurance, interest and penalties stretching back several years.

Timeline of the employment status case

The dispute has moved through several courts and tribunals:-

• August 2018 – The First-tier Tribunal ruled the referees were self-employed.
• May 2020 – The Upper Tribunal dismissed HMRC’s appeal.
• September 2021 – The Court of Appeal referred the matter back for reconsideration.
• September 2024 – The Supreme Court clarified aspects of the legal framework surrounding employment status assessments.
• May 2026 – The tribunal again ruled the referees were self-employed.

HMRC is reportedly considering whether to appeal again.

The length of the case highlights the wider problem facing businesses. Employment status disputes can take years to resolve, creating prolonged uncertainty and significant professional costs.

Why HMRC lost the employment status case

Employment status cases are rarely decided on a single factor. Courts normally assess the overall working relationship rather than relying solely on contractual wording.

Several key tests are usually considered:-

• the degree of control
• mutuality of obligation
• personal service requirements
• financial risk
• independence

In the PGMOL case, the tribunal focused heavily on the absence of guaranteed ongoing work. Referees accepted individual appointments rather than operating under continuous employment arrangements.

Professional standards and oversight existed, but the tribunal found them insufficient to create a traditional employment relationship.

That distinction matters because many businesses mistakenly assume that supervision or compliance requirements automatically point towards employment. In reality, self-employed contractors often operate within structured and regulated environments.

The courts continue to focus on practical working arrangements rather than labels alone.

A business may describe someone as self-employed in a contract. However, if they work fixed hours under close supervision with little independence, HMRC may still argue the relationship resembles employment.

Criticism of HMRC’s CEST employment status tool

The recent ruling has also reignited criticism of HMRC’s Check Employment Status for Tax (CEST) tool.

Critics argue the tool oversimplifies a highly complex area of law and struggles to reflect how tribunals assess real-world working arrangements. That criticism has existed since CEST was introduced in 2017.

The underlying issue is that employment status rarely depends on one single factor. Tribunals examine multiple aspects of the relationship together, often placing different weight on individual elements depending on the circumstances.

This creates obvious challenges for businesses seeking certainty.

A company may complete a CEST assessment in good faith and still face an HMRC challenge years later. Different advisers can also review the same arrangement and reach different conclusions.

The PGMOL case demonstrates just how subjective employment status disputes can become.

What businesses should learn about employment status

This case contains several important lessons for businesses using contractors and freelance workers.

First, contracts alone are not enough. If day-to-day working practices differ from the written agreement, tribunals will usually place greater weight on the practical reality of the relationship.

Second, employment status reviews should not be treated as one-off exercises. Contractor relationships often evolve over time, particularly where workers become integrated into the business.

Third, consistency matters. HMRC increasingly uses data analysis and cross-checking systems to identify discrepancies involving payroll, invoices and contractor payments.

Sectors heavily reliant on contractors remain particularly exposed, including:-

• construction
• consultancy
• IT services
• logistics
• healthcare
• property services

For many businesses, the uncomfortable reality is that employment status reviews are no longer something that can be postponed indefinitely.

Why employment status rules remain so difficult

The broader issue exposed by the PGMOL case is the continuing complexity of UK employment status law.

After years of litigation and multiple appeals, the courts still needed to reconsider the same arrangements under revised legal guidance. That alone demonstrates how difficult it is to apply these rules consistently.

Modern working patterns have only added to the uncertainty. Flexible contracting, consultancy arrangements and freelance work have blurred many of the traditional boundaries between employment and self-employment.

At the same time, HMRC continues to focus heavily on compliance in this area because of the tax revenues at stake. The result is a system where many businesses struggle to apply the rules confidently, even with professional advice.

Conclusion

HMRC’s latest defeat in the PGMOL case is another reminder that employment status remains one of the most difficult areas of UK tax law.

The ruling reinforces a point the courts have repeatedly made: employment status depends on the practical reality of the working relationship, not simply the wording of a contract or the result of an online assessment tool.

Businesses that use contractors, consultants and self-employed workers should review their arrangements regularly rather than wait for HMRC scrutiny.

At Wilkins Southworth, we advise businesses on employment status reviews, IR35 concerns and HMRC disputes. If you are unsure whether your current arrangements could attract HMRC attention, our team can help you assess the risks and strengthen your position.

Wilkins Southworth were pleased to act for a client in a successful defence of an HM Revenue & Customs (HMRC) enquiry.

Our client approached us after his accountant had filed his 2025 tax return.  The tax return was filed with HMRC incorrectly and our client notified his accountant of the errors.  His accountant then refiled the tax return, but again it was incorrect.

HMRC opened up an enquiry into our client’s tax affairs and he then approached Wilkins Southworth to act for him.

We resolved their questions quite quickly but HM Revenue & Customs then contended that despite our client having paid his full tax liability of £1.6 million in January 2025, his last accountant had incorrectly filed an amended 2024/25 tax return, which our client hadn’t signed, stating a tax liability of a little over £65,000.

The contention from HMRC was that if they had not opened up an enquiry they would have refunded our client around £1.55 million plus interest.  Therefore, they contended that our client was Careless.

HMRC are now being proactive in this area and the First Tier Tribunal case of Douglas Boulton and The Commissioners for His Majesty’s Revenue and Customs reflects this.

HMRC alleged that a penalty of up to 30% under Schedule 24 Finance Act 2007 could be levied, which would have given rise to a maximum liability of around £460,000, for our client.

Schedule 24 Finance Act 2007 states penalties may be chargeable if the errors are found to result from Careless or Deliberate behaviour.  It is the taxpayer’s obligation to ensure their tax return is complete and accurate and by signing the tax return they make a formal declaration to that effect.

HMRC guidance CH82160 explains.

HMRC factsheet CC/FS7a ‘Penalties for inaccuracies in returns and documents’ explains how penalties for inaccuracies in returns and documents are levied.   Penalties will be charged if the behaviour is Careless, Deliberate or Deliberate and Concealed.  HMRC will work out the potential lost revenue (PLR) and this arises as:

• A result of correcting an inaccuracy in a return or document.
• An incorrect repayment.
• An incorrect claim.

Careless prompted disclosures suffer penalties of between 15% to 30%.

Our defence highlighted that the standard of ‘Reasonable Care’ is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt.

When our client appointed a Chartered Accountant and provided that person with the complete facts, you are entitled to rely on their advice (assuming the advisor was sufficiently qualified in the area of tax that the advice was given on) even if it turns out that your advisor was careless.

Needless to say, Wilkins Southworth won the argument.

When HMRC first issued Spotlight 63 in 2023, it sent a clear warning to landlords using hybrid partnership structures. By the time we revisited the topic in 2025, many were already dealing with enquiries, uncertainty and, in some cases, significant tax exposure.

Fast forward to April 2026, and HMRC has gone further.

Spotlight 63A is not a new warning – it is a deliberate escalation. HMRC has now set out, in detail, exactly why these arrangements fail and made it clear that the issue has not gone away. If anything, the position has hardened.

For landlords who believed the risks had settled or were reassured that their structure was compliant, this latest update is a clear signal. HMRC is not revisiting this area; the aim is to significantly restrict its viability.

A quick recap: what Spotlight 63 was really about

At its core, Spotlight 63 targeted hybrid partnership arrangements used by landlords to reduce their tax liabilities.

Typically, these structures involved a Limited Liability Partnership (LLP) with a corporate member. Rental profits could then be allocated to the company, allowing landlords to benefit from lower corporation tax rates rather than higher or additional income tax rates.

The growth in these arrangements followed the restriction of mortgage interest relief. For many leveraged landlords, the increase in tax liabilities created a strong incentive to find alternative structures.

As we highlighted previously, the issue was never simply the use of an LLP or a company. It was the disconnect between the legal form and the economic reality. Where profits were redirected without any genuine shift in control or risk, HMRC made it clear it would look through the structure.

What’s changed with Spotlight 63A

The key difference with Spotlight 63A is precision.

HMRC is no longer describing a risk in general terms. It is setting out how these arrangements are being marketed today and why they fail under multiple, overlapping pieces of legislation.

A common variation now involves indemnities. This is where the corporate member is said to assume responsibility for mortgage liabilities, creating what is presented as a capital contribution to the LLP, then used to justify allocating profits to the company.

HMRC’s position is that this is not a genuine capital contribution. As a result, the foundation for allocating profits to the corporate member falls away.

More importantly, HMRC is not relying on a single argument. It has identified several independent routes to challenge these structures:

• The mixed-member partnership rules (ITA 2005, ss.850C–850D) can reallocate excess profits back to the individual landlord
• Transferred income rules (ITA 2007, s.809AAZA) can treat income as still belonging to the landlord, regardless of the structure
• CGT transparency rules (TCGA 1992, s.59A) mean there is no effective transfer of the underlying property
• SDLT provisions can trigger charges on transfers and changes in profit shares
• In some cases, ATED may apply to high-value residential property held through corporate structures

The practical implication is clear: even if one argument were challenged, others remain. This is no longer a single-point failure; it is a structure HMRC can attack from multiple directions.

Why has HMRC issued this update now?

Spotlight 63A tells us something simple yet important: these arrangements are still in use.

Despite the original warning, promoters have continued to adapt and market variations of hybrid structures, often adding layers of complexity to address earlier concerns. For landlords under ongoing tax pressure, these solutions can still appear credible.

HMRC’s response is to remove any remaining ambiguity. This isn’t about raising concerns anymore; it’s about dismantling the structure, point by point.

More broadly, this reflects a shift in HMRC’s approach in many areas of taxation and the use of reliefs. Rather than issuing high-level warnings, it is increasingly setting out detailed legislative reasoning. The message is not just that a scheme is risky – it is that HMRC already knows how it will defeat it.

What this means in practice for landlords

For landlords already using these structures, or contemplating a move, the risk profile has changed materially.

Spotlight 63A makes it clear that HMRC has multiple, well-defined routes to challenge the outcome. This increases the likelihood of enquiries and significantly reduces the scope for defending the position if challenged.

In practical terms, this may lead to:

• Reallocation of profits back to the individual landlord
• Additional income tax liabilities
• Interest and penalties
• Unexpected charges, including SDLT
• Potential ongoing liabilities, such as ATED for certain structures

Many landlords entered into these arrangements in good faith, often based on professional advice. However, HMRC’s focus is on the effect of the structure, not the intention behind it.

For those considering similar arrangements today, the position is now clear. This is not an emerging risk – it is an area where HMRC has already formed and published a detailed view.

A familiar pattern in the property sector

For landlords and property investors, there is a broader pattern here that is worth recognising.

Since the restriction of mortgage interest relief, landlords have been presented with a range of strategies designed to reduce their tax exposure. Some are entirely appropriate when aligned with a genuine commercial structure. Others rely on recharacterising income without any meaningful change in how the business operates.

HMRC’s response has been consistent. Where the structure does not reflect the underlying reality, it will be challenged.

The cycle is familiar: a solution is marketed, it gains traction, HMRC reviews it, and eventually publishes its position. By that point, many landlords are already committed.

The way forward: taking control early

If any of this feels familiar, the most important step is to review your position early and take the appropriate action.

Structures involving LLPs with corporate members, particularly those established in response to mortgage interest relief changes, remain a clear area of focus. The addition of indemnity-based arrangements only increases the need for a detailed review.

Acting early preserves options and, depending on the circumstances, this may involve restructuring, engaging with HMRC proactively, or planning an orderly exit from the arrangement.

Waiting reduces those options – often significantly – and can increase both the financial and administrative cost of resolving the position.

How can we help

At Wilkins Southworth, we have supported a growing number of landlords affected by Spotlight 63 and similar arrangements.

Our focus is on how the structure operates in practice, not just how it was intended to work. This allows us to assess the level of exposure and identify the most effective route forward.

Where HMRC engagement is required, we assist with managing enquiries, negotiating outcomes and, where possible, reducing penalties. In other cases, the priority is restructuring and ensuring future arrangements are aligned with both commercial objectives and current tax rules.

Each situation is different, but early engagement typically leads to more flexibility and better outcomes.

Final thoughts

Spotlight 63A is not a standalone update. It is the continuation of a process that has been developing over several years and is now becoming more definitive.

HMRC has moved beyond general warnings and is now setting out in detail why these arrangements fail and how they will be challenged.

For landlords, this is no longer a question of interpretation, but more one of understanding your position and deciding what to do next. If you are unsure about your current structure or concerned about potential exposure, now is the time to get in touch so we can assess your current situation.

For most people, a tax refund doesn’t attract much attention. It tends to be the result of something relatively minor: an adjustment through PAYE, an allowance that wasn’t claimed, or a timing difference that has now been corrected. 

The system reconciles, and the money comes back – and that is still the case, the vast majority of the time.

What has changed, however, is how some of these refunds are being generated.

Increasingly, they are not the result of a taxpayer identifying an issue or working through their position with an adviser, but of being approached by an unknown third-party, often online, with the suggestion that a repayment is waiting to be claimed.

The process is usually presented as quick and uncomplicated. Authority is granted, a claim is submitted, and a refund follows, but only later does the detail begin to matter.

A familiar service, approached differently

At one level, none of this is new; advisers have always helped clients recover overpaid tax, and there is nothing unusual about charging a fee based on the outcome.

Where the distinction begins to emerge is in how the claims themselves are prepared.

In a traditional setting, a refund would follow a review of records, a discussion of the individual’s circumstances, and a clear understanding of what is – and is not – allowable. That process takes time, and the outcome is usually grounded in evidence.

However, some of the newer business models take a different approach. 

Rather than working through the details, they rely more heavily on standard categories, assumptions, or broadly applied percentages. From the outside, the figures appear reasonable enough. For the taxpayer, the experience is often straightforward – little involvement, and a quick result.

The difficulty is that what appears reasonable at a glance does not always reflect the underlying position.

Not all advisers are subject to the same standards

It is also worth recognising that not everyone offering tax services operates under the same level of oversight.

In the UK, anyone can describe themselves as an “accountant”, regardless of qualifications or regulatory status. By contrast, “chartered accountant” is a protected term, reserved for members of recognised professional bodies.

That distinction is not always clear in practice.

You may find some firms present themselves in a way that suggests a level of expertise or oversight that may not exist, while others provide little transparency around who is preparing the work or what standards are being applied.

This does not necessarily mean the advice is incorrect, but it does affect the level of assurance behind it, particularly where claims are prepared quickly and with limited explanation.

In some cases, potential issues only come to light once HMRC opens an enquiry, or, more rarely, when matters reach a Tribunal. A recent Tribunal case involving Welcome Accountancy Services highlighted how tax refund claims had been submitted on a basis that could not be supported when examined in detail, raising wider questions around oversight and the standards being applied.

Where claims start to come under pressure

Employment expenses are often where this approach becomes most visible.

The rules themselves are well established, but they leave less room for interpretation than many expect. For an expense to be deductible, it must be incurred wholly, exclusively and necessarily in the performance of employment duties. That wording is deliberate, and it sets a high threshold.

In practice, many everyday costs fall outside it.

Travel provides the clearest example: the journey between home and a permanent workplace, regardless of distance, is generally not allowable. Nor are the broader costs of maintaining employment, even where they feel closely connected to the role.

Despite this, some claims include substantial deductions for travel, professional fees, or other general categories of expense. When viewed in isolation, the numbers may not immediately appear unusual, but when considered in the context of the rules, they can be difficult to support.

One problem is that this distinction is not always obvious at the time the claim is made.

Why the issue doesn’t always surface immediately

The way HMRC processes returns plays a part in how these situations develop.

Given the volume of submissions received each year, there is a practical need to issue repayments efficiently. In many cases, refunds are processed before a detailed review takes place. For genuine claims, this is clearly beneficial as delays would serve little purpose.

However, it also means that not every claim is tested at the outset.

Where figures appear broadly credible, they may pass through the system without challenge. More detailed scrutiny often occurs later, when information is reviewed alongside other data or inconsistencies start to emerge over time.

By that stage, the repayment has already been received, and the question is no longer whether the claim should be made, but whether it can be justified.

Responsibility does not transfer with the work

One of the more uncomfortable aspects of these situations is where responsibility ultimately sits.

Even where a third party prepares and submits a return, the legal responsibility for its accuracy remains with the taxpayer. That position does not change based on who calculated the figures, their qualifications or how the claim was presented.

For many, this runs counter to expectation. If an adviser has been engaged, particularly one who presents themselves as experienced or qualified, it is natural to assume that accountability lies with them. In practice, HMRC will usually look to the individual first.

If questions are raised, it is the taxpayer who is expected to explain the position, provide evidence, and support the figures submitted on their behalf. Many of you will know that an HMRC investigation can prove costly, even if ultimately your figures are found to be in order.

When enquiries begin, the detail matters

An enquiry may start as a routine request for clarification, but it quickly becomes a question of evidence:

• How were the figures calculated?
• What do they relate to?
• What records support them?

These are not unreasonable questions, but they can be difficult to answer when the original claim was not supported by detailed documentation.

In some cases, records are incomplete; in others, they may not exist at all. There are also situations where the figures cannot realistically be reconciled with the taxpayer’s actual circumstances.

At that point, the position becomes more complex and can raise red flags with HMRC, potentially leading to:

• Return of refunds
• Interest charges 
• Additional penalties

Depending on how HMRC views the behaviour behind the claim, what may have started as a relatively straightforward refund can evolve into a much more involved process.

Why this is becoming more visible

This is happening against the backdrop of a broader shift within the tax system, resulting in more complexity and a record tax take.

HMRC now has access to increasing amounts of data from third parties, including employers, financial institutions and digital platforms. At the same time, initiatives such as Making Tax Digital are moving reporting toward more frequent and structured submissions.

Taken together, these changes make inconsistencies easier to identify.

Claims that might previously have gone unnoticed are more likely to be picked up, particularly where patterns emerge across multiple returns or over several years. The direction of travel is clear: greater visibility, more data, and closer alignment between reported figures and underlying activity.

Recognising the warning signs

It is important to recognise that not all refund services present a risk. Many legitimate advisers provide valuable assistance in recovering overpaid tax.

However, certain features tend to appear more frequently in problematic cases:

1. Promises of guaranteed or unusually large refunds are one example
2. Claims based on fixed percentages, rather than individual circumstances, are another
3. Limited discussion of the underlying position or a lack of clarity about how figures have been calculated
4. Requests to use personal HMRC login details should be approached with particular caution

Individually, none of these points are conclusive. However, taken together, they usually indicate the claim hasn’t been prepared with the level of care required.

Taking a more considered approach

Where a refund is genuinely due, the process should be able to withstand scrutiny.

That typically involves understanding the taxpayer’s circumstances, reviewing supporting records, and applying the rules to the facts as they actually are. It is not always the quickest route, but it is the one that provides certainty.

In some cases, the outcome will be a repayment; in others, it may simply confirm that the original position was already correct. Both outcomes are valid.

The key point is that the position can be supported if it is ever questioned.

Conclusion

Tax refunds are a normal and necessary part of the system. They ensure that taxpayers do not pay more than they owe, and in most cases, they arise without issue.

The risk lies not in the refund itself, but in how it has been calculated.

A claim that appears straightforward at the outset may look very different when examined in detail. Where the underlying figures cannot be supported, the consequences tend to fall back on the taxpayer, regardless of who submitted the return.

If you have submitted a claim recently, or are unsure whether a refund you have received would stand up to scrutiny, it is worth reviewing the position now rather than waiting for HMRC to ask questions.

At Wilkins Southworth, we regularly help clients assess claims, correct positions where needed, and manage HMRC enquiries when they arise. Addressing these points early is almost always more straightforward than revisiting them later. In tax, as in most areas of life and business, certainty is rarely found in shortcuts.

For many small business owners, moving money between themselves and their company is simply part of day-to-day financial management.

A dividend declared at year-end, a director’s loan to smooth cash flow, reimbursed expenses or the occasional transfer of assets. These are not unusual transactions – they are often essential to how owner-managed businesses operate.

But under new proposals from HMRC, these routine movements could soon face far greater scrutiny.

A recent consultation suggests that “close companies” – broadly defined as businesses controlled by five or fewer individuals – may be required to report detailed information on all transactions between the company and its participators. This includes cash withdrawals, loans, debts, dividends, distributions and asset transfers.

On the surface, this may seem like a logical step toward greater transparency. In practice, however, it raises a more complex question: is this a proportionate response to tax risk, or an additional layer of compliance for already stretched business owners?

What are the changes in HMRC April 2026?

The core of the proposal is relatively straightforward.

HMRC is seeking greater granularity into how money flows between small companies and their owners. Under the new rules, close companies could be required to disclose a wide range of financial interactions, including:

• Cash withdrawals by directors or shareholders
• Loans to and from participators
• Outstanding debts
• Dividend payments and other distributions
• Transfers of assets between the company and individuals

In effect, HMRC would move closer to a position where most, if not all, financial relationships between a company and its owners are routinely reported.

For businesses already maintaining detailed records, this may seem like an extension of existing obligations. For many others, it represents a shift toward far more structured and formalised reporting.

HMRC’s rationale: Tackling the tax gap

HMRC’s justification for these proposals is clear: reducing tax avoidance (or the “tax gap” as it is commonly referred to).

According to its estimates, up to 60% of the UK’s tax gap – the difference between expected and actual tax receipts – is attributed to small businesses. Close companies, in particular, are seen as having the flexibility to structure financial arrangements in ways that reduce tax liabilities, ranging from entirely legitimate planning to more aggressive avoidance.

From a policy perspective, the argument is simple. If the perceived risk sits within smaller, owner-managed businesses, then increasing transparency in that area should, in theory, improve compliance and reduce lost revenue.

However, the headline figure – that small businesses account for the majority of the tax gap – warrants closer examination.

Where does the tax gap really arise?

The concept of the tax gap is often presented as a single figure, but in reality, it comprises several distinct components.

These include:

• Income that is never declared (the so-called “hidden economy”)
• Errors in tax returns (often unintentional)
• Deliberate evasion
• Legal but complex tax structuring

While small businesses undoubtedly feature within this mix, many would question whether compliant, owner-managed companies – those already engaging with accountants and submitting returns – represent the core of the issue.

A significant proportion of the gap is widely understood to arise from income that is never reported, rather than from businesses operating within the system. At the other end of the spectrum, large multinational structures, including transfer pricing arrangements, have historically attracted scrutiny due to their ability to shift profits across jurisdictions.

This raises a broader question of focus. If the objective is to reduce the tax gap, is increasing reporting requirements for compliant small businesses the most effective route, or simply the most administratively accessible one?

Strip away the headline figures, and there is a legitimate question as to whether small businesses are simply an easy target.

A growing concern among small businesses

Unsurprisingly, the reaction from the small business community has been cautious.

The Federation of Small Businesses (FSB) has already warned that the proposals risk increasing compliance costs and further complicating an already challenging system. For many business owners, the concern is not about paying the correct amount of tax; it is about the cumulative burden of navigating the rules.

Unlike larger organisations, small companies do not have internal tax departments or dedicated compliance teams. The owner often handles financial management alongside running the business, with periodic support from external advisers.

In this context, even relatively modest increases in reporting requirements can have a disproportionate impact.

There is also a wider frustration that will be familiar to many: dealing with HMRC is rarely straightforward.

Queries can take months, sometimes years, to resolve, and guidance is not always clear or accessible to those without specialist knowledge.

Adding further layers of reporting, without addressing these underlying issues, risks compounding the problem rather than solving it.

The practical impact: What this could mean in reality

While the proposals are still at the consultation stage (closing on the 10th June), the potential implications for small businesses are significant.

Increased administrative burden

At a basic level, more reporting means more work and ultimately, higher cost.

Transactions that may previously have been recorded informally, or simply understood between the business and its adviser, could now require detailed documentation and categorisation. This includes ensuring that all movements between the company and its participators are clearly tracked and justified.

For some businesses, this will require changes to internal processes. For others, it may mean introducing entirely new systems.

Higher professional costs

Greater complexity inevitably leads to greater reliance on professional advice. Accountants will need to review additional data, ensure compliance with evolving rules, and potentially spend more time resolving discrepancies. 

For business owners, this translates into higher fees and more frequent engagement with advisers. While this may be manageable for established companies, it is a different proposition for smaller or early-stage businesses operating with tighter margins.

Increased risk of enquiries and disputes

More data does not necessarily mean more clarity. In fact, increased reporting can create more opportunities for inconsistencies, particularly where transactions are complex or span multiple tax periods. Even minor discrepancies between reported figures and HMRC’s interpretation could trigger enquiries.

Given existing delays within HMRC systems, these enquiries can be lengthy and resource-intensive. What might begin as a routine query can quickly turn into a prolonged process, creating uncertainty and additional costs.

A shift in behaviour

Perhaps the most subtle impact is behavioural.

Faced with increased scrutiny, some business owners may choose to simplify their financial interactions with their company. This could mean avoiding director’s loans, altering dividend strategies, or reducing flexibility in managing cash flow.

While this may reduce perceived risk, it can also lead to less efficient financial decision-making – particularly where existing structures are entirely legitimate and appropriate.

Striking the right balance

There is a reasonable argument for improving transparency – there is little disagreement on the principle – but is this the right way, the best way?

Requiring businesses to report certain transactions – predominantly those involving loans or significant cash movements – could help HMRC identify areas of genuine concern. In isolation, this is unlikely to be controversial. The challenge lies in how far the rules extend.

There is a clear distinction between targeted reporting designed to highlight risk and a broad requirement to capture all interactions between a company and its owners. The former may be proportionate. The latter risks becoming overly burdensome, particularly when layered onto an already complex system.

As one tax expert noted in response to the proposals, reporting certain transactions may have minimal impact. Requiring businesses to fully engage with the technical rules governing close companies, however, could be far more demanding.

Part of a wider trend

Those in business today will be well aware that these proposals do not exist in isolation.

Over recent years, HMRC has been steadily moving toward greater data collection and digital reporting. Initiatives such as Making Tax Digital reflect a broader shift toward real-time visibility of taxpayer activity, supported by software and automated systems.

From this perspective, the proposed changes are consistent with a longer-term direction of travel. The expectation is clear: more frequent reporting, greater transparency, and fewer gaps between economic activity and tax reporting.

For business owners, this reinforces the need to adapt systems, processes and habits. All of which may have been sufficient in the past, but are unlikely to remain so in the future.

What should business owners be doing now?

While the rules are not yet finalised and the proposals may be watered down, there are practical steps worth considering:

• Review how funds move between you and your company
• Ensure transactions are clearly documented and supported
• Consider whether existing processes would stand up to increased scrutiny
• Speak with your accountant about potential changes

Preparing early is likely to be far less disruptive than reacting once new requirements are introduced.

Conclusion

HMRC’s objective of reducing tax avoidance and improving transparency is understandable. However, the route to achieving it matters.

For many small businesses, the concern is not the principle of compliance, but the cumulative weight of additional reporting, rising costs and ongoing uncertainty. There is a risk that measures designed to target a minority could impose a broader burden on those already operating within the rules.

The real test will be whether these proposals strike the right balance: addressing genuine areas of risk without turning routine business activity into a disproportionate compliance exercise.

If you are unsure how these potential changes could affect your business, or whether your current structure would withstand increased scrutiny, it may be worth reviewing your position now rather than waiting for the rules to take effect.

For many taxpayers, the first sign of an HMRC compliance check is a letter, a phone call, or a request for information. But HMRC’s information-gathering powers have evolved, and in some cases, HMRC can now obtain relevant financial data quickly and directly from banks and other financial institutions.

One of the most significant tools in that shift is the Financial Institution Notice (FIN). Introduced in 2021, a FIN allows HMRC to require specified information or documents from a financial institution without tribunal approval or the taxpayer’s prior agreement (although HMRC must usually provide the taxpayer with a copy of the notice and a summary of the reasons).

This matters most to people with complex or “multi-stream” finances – business owners, property investors, families using wealth-planning structures, and individuals with significant investments.

We have put together a practical guide to FINs, why they matter in today’s enforcement environment, where they can create issues for wealth structures (property, FICs and pensions), and what you can do now to reduce risk.

What is a Financial Institution Notice?

A Financial Institution Notice is a type of information notice within HMRC’s civil information powers (Schedule 36 Finance Act 2008, as amended). It enables HMRC to require a financial institution to provide information or produce documents about a named taxpayer, provided HMRC meets the statutory conditions.

A “financial institution” can include banks and building societies, investment managers/platforms, insurers and other entities holding relevant financial account information (as defined for these purposes). HMRC’s internal guidance notes that identifying whether an entity is a financial institution is not always straightforward, which is why the definition matters in practice.

A FIN can require, for example:

• account holder details and identifiers
• balances and statements
• transaction histories
• interest and investment income details
• documentation evidencing ownership and beneficial interest (where held)

It’s important to understand what a FIN isn’t: it is not a penalty notice, and it is not (by itself) a finding of wrongdoing. It is a mechanism to obtain information that HMRC says it reasonably requires to check a tax position or collect a tax debt.

The “quiet shift” in enforcement

FINs sit in a broader direction of travel: more data, faster checks, and less friction for HMRC when gathering third-party information.

Historically, if HMRC wanted information from a third party, it often needed tribunal approval and had to navigate additional procedural steps. FINs remove that tribunal step for requests to financial institutions, so HMRC can obtain relevant bank and investment data more quickly. HMRC can then compare that data with what’s reported on tax returns and in accounts, which is why record consistency is so important.

That matters because modern compliance checks increasingly rely on:

• data matching and inconsistencies (rather than “smoking gun” evidence)
• the ability to verify income streams quickly
• cross-checking reported figures against third-party sources

And in a world where more taxpayers have multiple income streams (salary + dividends + rental income + investment income), small inconsistencies can attract attention, even where the underlying tax position is correct.

In practice, HMRC guidance says the taxpayer should be sent a copy of the notice and a summary of the reasons when it is issued to the financial institution.

Where FINs bite: property, FICs, and pensions

FINs are most relevant where the financial picture is more complex. Not because complexity implies wrongdoing, but because it increases the likelihood of mismatches, timing differences, and misunderstandings.

1) Property investors: receipts, refinancing and “messy” cash flows

Property income is a common source of compliance friction, with triggers such as:

• rental receipts paid into one account, but expenses paid from another
• refinancing or capital injections that look like “income” in bank statements
• large one-off receipts (insurance, deposits, settlement payments)
• timing differences between receipt and reporting periods

A FIN can provide HMRC with a clear record of inflows and outflows, which may then be compared against rental declarations, capital gains reporting, or loan interest claims. Where bookkeeping is light-touch, or where personal and property finances overlap, the risk isn’t just “tax error”; it’s also the administrative burden of demonstrating the correct position.

2) Family Investment Companies: dividends, loan accounts and beneficial ownership

Family Investment Companies (FICs) can be effective wealth planning vehicles, but they create layered financial activity:

• dividends flowing to different family members
• director loan account movements
• shareholder loans and capital injections
• inter-family transfers that are legitimate but poorly documented

FIN information can highlight patterns that prompt HMRC questions, such as funds moving between connected parties without clear documentation. Or investment income appearing in places that don’t match the narrative in tax returns and company accounts.

It’s not that FICs are “problematic”; they’re just document-heavy. If paperwork (shareholder agreements, loan documentation, minutes, dividend vouchers, beneficial ownership records) doesn’t keep pace with real-world transactions, HMRC can be left filling in the gaps, and that’s rarely comfortable for any taxpayer.

3) Pensions and legacy planning: not the target, but part of the picture

This type of notice is not a pension-specific power, but pension and investment activity often sits alongside broader wealth planning. Large contributions, investment drawdowns, legacy planning and intergenerational transfers can all create transaction patterns that HMRC may want to understand in more depth, particularly where the overall picture includes:

• investment accounts and platforms
• significant interest/dividend flows
• large transfers between accounts
• multiple parties benefiting from the same structures

For families planning succession, the direction of travel is clear: where assets are material, and planning is sophisticated, the supporting records need to be equally strong.

Safeguards and limits: what HMRC can’t do 

FINs are not intended to enable speculative “fishing expeditions”. The legislation and associated guidance emphasise that information must be reasonably required, and the notice must operate within defined conditions.

From a practical standpoint, the limits and safeguards to keep in mind include:

• Scope matters: the notice should specify what is required and (typically) the time period.
• Reasonableness and proportionality: requests should be no wider than needed to check the tax position.
• Taxpayer visibility: HMRC’s internal guidance currently states that a copy of the FIN should be sent to the taxpayer, along with a summary of the reasons for the FIN.
• Tribunal involvement (limited): in some cases, a tribunal may be involved, for example, in relation to whether the taxpayer must be named and whether the institution must avoid disclosing the notice.
• Legal professional privilege: privileged material cannot be required under information powers.

If the notice appears disproportionate, unclear, or asks for material beyond what is reasonably required, that’s usually the moment to take advice, and quickly. How and when you respond can shape the direction of the compliance check.

Practical steps to reduce risk

The best defence against information-driven enquiries is simple: ensure your records tell the same story as your bank and investment data.

Here are the steps that make the biggest difference for business owners, property investors and families with wealth structures.

1) Make your “income map” match your accounts

List your income streams (salary, dividends, rental income, interest, distributions) and confirm:

• where each stream is received
• how it is recorded in bookkeeping/accounts
• how it appears on returns (personal and corporate)

This is particularly important where you have multiple accounts, joint accounts, or accounts used for mixed purposes.

2) Separate personal and investment/property banking where possible

Clean separation doesn’t just improve bookkeeping; it reduces the risk of misunderstandings. If you already have mixed accounts, consider moving to a structure where:

• property receipts and expenses flow through a dedicated account
• investment platform transactions are clearly identifiable
• family transfers are documented (see below)

3) Document inter-family transfers and loan activity properly

A large proportion of “difficult” enquiries aren’t about hidden income; they’re about undocumented transactions.

For FICs and family wealth planning, keep up to date:

• dividend paperwork (vouchers, minutes/resolutions)
• loan agreements and repayment schedules
• director loan account support
• beneficial ownership and control records

If the paperwork exists, an enquiry is usually manageable. If it doesn’t, it becomes a reconstruction exercise.

4) Reconcile early, not when HMRC asks

Quarterly or monthly reconciliations (even for smaller structures) can reveal issues while they’re still easy to fix:

• miscategorised receipts
• missing expense evidence
• timing issues between accounting and tax periods
• unrecognised investment income entries

5) If something is wrong/unclear, deal with it before HMRC does

This development is part of a wider shift towards faster, more data-led compliance. If you suspect historic omissions, reporting mistakes, or gaps in documentation, early advice can help you:

• establish the true position
• quantify exposure
• decide the best route to correction (where needed)
• reduce stress and cost if HMRC later opens a check

How Wilkins Southworth can help

FINs reinforce a wider message: modern compliance is increasingly data-led. For clients with property income, investment structures and wealth planning arrangements, the priority is not just “being correct”; it’s being able to demonstrate correctness quickly and coherently.

Wilkins Southworth can support with:

• structuring and documentation for family wealth planning (including FICs)
• personal and property tax advisory
• corporate tax and owner-managed business planning
• HMRC enquiry support and fee protection for cost certainty if a check escalates

If you’re unsure how exposed you are, a structured review of income streams, record-keeping and ownership documentation can significantly reduce the risk of an enquiry turning into a long, expensive distraction.

If HMRC is already asking questions (or you’re concerned they may), get in touch with us today.

A subtle change in how your personal tax allowance is applied could have an impact on what you pay HMRC. For years, most taxpayers haven’t needed to worry about how HMRC divides up their personal allowance across different types of income. However, that changes from April 2027.

Not because the allowance itself is changing. But because the government is pairing a legal lock on how it’s applied with new, higher tax rates on savings, dividends, and property income. Individually, those changes are easy to overlook, but together, they form a quiet but powerful tax increase that will hit landlords, savers, and investors especially hard.

Let’s unpack what’s changing, why it matters now, and who needs to take action before the new rules arrive.

What’s Changing: A Fixed Order for the Personal Allowance

From the 2027/28 tax year, your personal allowance – currently £12,570 – will be required to apply first to income from employment, self-employment, and pensions. Only once that income has been accounted for will any remaining allowance be used on property income, savings interest, or dividends.

This is the official order:

• Employment income
• Self-employment income
• Pension income
• Property income (including rental)
• Savings income
• Dividend income

So far, so technical, but it ends a long-standing feature of the system: a degree of flexibility in how income streams interact with your allowance. Up until now, the order didn’t really matter unless you had very specific income mixes. That’s because income from work, rent, and savings was generally taxed at the same rate bands: 20%, 40%, and 45%.

From 2027, that parity disappears.

Why the Order Now Matters: New Higher Tax Rates

This section explains why a change in the order of applying allowances suddenly matters. The real sting lies not in the rule itself but in how it will now interact with higher tax rates.

The government is introducing separate, higher tax rates for property and savings income from April 2027:

• Property and savings basic rate: 22%
• Property and savings higher rate: 42%
• Property and savings additional rate: 47%

Dividend income, already taxed differently, also rises from April 2026:

• Dividend ordinary rate: 10.75%
• Dividend upper rate: 35.75%
• Dividend additional rate: 39.35%

So, when your personal allowance is locked to cover employment or pension income first, income taxed at the ‘normal’ 20%/40%/45% rates will push more of your rental or investment income into these harsher tax bands.

It’s not the ordering rule that does the damage. It’s the combination of fixed ordering and higher rates that turns this into a stealth tax hike.

Real-World Examples: How the Rule Change Affects You

To see how this plays out in real life, here are some worked examples relating to the order of taxation and a simple increase in non-employment-related rates. The numbers aren’t theoretical; these are common income mixes among clients we advise.

Example 1: Part-Time Worker with Rental Income

This is a typical scenario for semi-retired individuals or secondary earners who supplement their wages with a buy-to-let property.

• £6,000 salary
• £20,000 rental income
• £12,570 personal allowance

Tax Year 2026/2027:

• £6,000 of salary covered by allowance
• The remaining £6,570 personal allowance shields part of the rental income
• The annual rental allowance of £1,000 removes more income from the tax calculation
• Leaving £12,430 taxed at 20% = £2,486

From Tax Year 2027/2028:

• The same order and allowances apply, but rental income is now taxed at 22%
• Taxable rental income figure adjusted in line with 2025/26 allowance.
• £12,430 taxed at 22% = £2,735

Difference:

• Before: £2,486
• After: £2,735
• Extra tax: £249 (+10%)

Example 2: Retired Investor

This example covers many pensioners living on modest pensions, as well as income from property and investments built up over time.

• £24,000 pension
• £30,000 rental income
• £30,000 dividends

Tax Year 2025/2026:

• £12,570 of pension income will use the personal allowance
• Leaving £11,430 of pension income taxed at 20%
• The annual rental allowance of £1,000 and dividend allowance of £500 remove more income from the tax calculation
• Leaving £29,000 of rental income taxed at 20% and 40%
• And £29,500 dividend income taxed at 33.75% (before the April 2026 increase)
• Tax = £18,588

From Tax Year 2027/2028:

• £12,570 of pension income covered by allowance, £11,430 charged at 20%
• £26,269 of rental income charged at 22%, balance of £2,731 charged at 42%
• Dividends taxed at 35.75%
• Taxable rental and dividend income figures adjusted in line with 2025/26 allowances.
• Tax = £19,758

Difference:

• Before: £18,588
• After: £19,758
• Extra tax: £1,170 (+6%)

These case studies make it clear that this isn’t a hypothetical change. It’s one that will appear directly on people’s tax bills.

Example 3: Company Director on Low Salary with Dividends

This is a classic small business setup, where directors take a minimal salary to reduce National Insurance and top up income through dividends. While not affected by the reordering, it is worth noting the impact of the increased dividend tax rates.

• £9,000 salary
• £50,000 dividends

Tax Year 2025/2026:

• £9,000 salary + £3,570 of dividends covered by allowance
• £500 dividend income annual allowance
• Remaining £45,930 dividends taxed: partly at 8.75%, partly at 33.75%
• Approximate tax: £6,076

From Tax Year 2027/2028:

• £9,000 salary + £3,570 of dividends covered by allowance
• Remaining £45,930 dividends taxed at 10.75% and 35.75%
• Taxable dividend income figure adjusted in line with 2025/26 allowance.
• Approximate tax: £6,995

Difference:

• Before: £6,076
• After: £6,995
• Extra tax: £919 (+15%)

Who’s Most at Risk

This isn’t a blanket rise. It will hit some taxpayers harder than others, depending on how their income is structured.

• Landlords with modest employment income but substantial rental profits
• Small company owners who rely on dividends for income
• Retirees with a mix of pension and investment income
• Spouses or civil partners who previously benefited from income splitting strategies

These groups often used allowances efficiently across income types, but the new rules make this more challenging.

What You Can Do Now

You don’t need to wait until 2027 to prepare. Here are practical steps you can start discussing with your accountant.

1. Revisit Your Income Structure

If you draw dividends from your company, rent property, or rely on savings, look at how your income will line up post-2027. Can you adjust drawdown strategies, ownership splits, or pension timing?

2. Use ISAs More Aggressively

Income inside an ISA remains free of Income Tax. If you can shift investments into ISAs before 2027, you’ll sidestep the new higher rates completely.

3. Spousal Transfers

If one partner has a low/negligible income, moving rental properties, savings accounts, or shareholdings to them could help them use their allowance more effectively.

4. Professional Advice

This isn’t a DIY planning area – minor tweaks in timing or ownership could save thousands. A conversation with your accountant or tax adviser before 2027 is well worth the time.

These actions won’t apply to everyone, but for those affected, the savings can be meaningful.

Stay Vigilant: Tax is Always Moving

The allowance ordering change is a classic example of how tax shifts can creep in quietly but cost you heavily. While the headlines may focus on significant fiscal events, many of the most impactful rules are hidden in the details, making them easy to miss.

That’s why it’s essential to stay in regular contact with your adviser. Tax planning isn’t a one-off job; it’s a moving target. Delayed decisions or unclear communication could mean missing a deadline, misusing an allowance, or paying more than necessary.

HMRC doesn’t wait, and neither should you.

Final Thoughts

This is not a headline-grabbing tax rise. It’s more subtle than that, but no less costly.

By pairing a rigid ordering rule with increased rates on passive income, HMRC is quietly removing one of the few areas where taxpayers had planning flexibility. The losers are people who’ve worked hard to build rental income, investments, or retirement savings outside of pensions.

The sooner you map out how your income will interact with these new rules, the more control you’ll have over what you pay. Do nothing, and you may only discover the cost when your 2027/28 tax bill lands.

If you’re unsure how, or even if, these changes will impact your tax liabilities, why not contact us for an informal chat?  Our team can help you reassess your position and navigate the evolving landscape with confidence.

Just over a year ago, we analysed the October 2024 budget changes that sent shockwaves through the farming and business community. Namely, the introduction of a cap on Agricultural Property Relief (APR) and Business Property Relief (BPR). 

At that time, the government proposed a £1 million cap per individual on 100% inheritance tax (IHT) relief for qualifying agricultural and business assets. Any value above that would only receive 50% relief rather than full exemption, as had previously been the case.

Since then, and perhaps unsurprisingly, the political winds have shifted once again. In a last-minute announcement just before Christmas 2025, the Treasury confirmed that the APR/BPR cap will be increased from £1 million to £2.5 million per individual from 6 April 2026.

This means that, in practice, a married couple could potentially protect up to £5 million of qualifying agricultural or business assets at the full 100% relief rate, provided those assets are appropriately structured and continue to meet the qualifying conditions. 

The Government says it made this change after “listening carefully to feedback” from farmers, family businesses, and professional advisers, with the new limits included in amendments to the forthcoming Finance Bill. 

While this may feel like a win, in the context of ever-changing rules and inconsistent policy signals, it’s also an uneasy one. Many taxpayers are now left wondering whether future changes might undo today’s planning.

So, is it time to breathe easy and postpone estate planning? Not quite.

A pattern of flip-flopping

These changes follow a clear pattern in recent tax policy: bold announcements followed by partial reversals. 

The initial £1 million cap was met with fierce resistance – farming organisations estimated the reforms would impact 75% of commercial farms, far above the Treasury’s broader estimate of 27%. Yet the original measures have already triggered a wave of early restructuring, asset transfers, and succession reviews.

We have many clients who were impacted by the earlier restrictions and had already made significant changes based on the original £1 million cap. Some moved assets earlier than planned, while others started reconsidering the use of trusts, or even contemplated selling land to avoid future tax traps. 

These were not small decisions and involved:

• Complex valuations
• Intergenerational conversations
• Professional time and advisory input

Now, with the revised cap, many are asking whether they acted too soon or if they should undo their planning altogether. 

It has become increasingly clear that reacting emotionally to announcements – instead of building long-term, resilient strategies – can create more problems than it solves. Unfortunately, estate planning based on today’s headlines could be redundant by tomorrow’s ministerial statement.

Planning amid uncertainty

While the increased allowance will reduce IHT exposure for many families, especially those with diversified agricultural or business interests, the principle behind the change remains: reliefs are no longer unlimited. In reality, this signals a long-term shift in policy. 

Even if the thresholds have changed just recently, the message from the Treasury is clear: they are still targeting the most prominent estates and seeking to curtail the extent of reliefs previously taken for granted. 

Add to that the forestalling rules introduced in October 2024, and the situation becomes even more complex. Any lifetime transfers made on or after 30 October 2024 will be subject to the new capped reliefs if the donor dies on or after 6 April 2026. This effectively closes the door on many traditional planning strategies.

We’ve also seen increasing complexity in asset qualification, particularly in mixed-use or diversified operations involving clients. Some of the common problem areas include:

• Differentiating trading assets from investment holdings
• Proving agricultural use versus commercial letting
• Classifying diversified ventures (such as wind farms or events) under existing relief categories

For farming families and business owners who are often asset-rich and cash-poor, this can create a liquidity crisis – particularly if land or equity needs to be sold to meet a tax bill. With rising land values and often static incomes, understanding your exposure and planning accordingly has never been more critical.

Why you still need to act now

Even with the more generous cap, early planning remains essential to your long-term strategy. This is not just about reacting to changes, but getting ahead of them. 

Clients who engage in proactive planning today have a much stronger chance of preserving wealth, avoiding unnecessary disputes, and reducing stress later on.

Here are just a few key areas to review with your adviser:

• Reassess ownership structures: Are assets held in the most tax-efficient way?
• Review and document qualifying use of assets: Can you demonstrate that your land or business meets HMRC criteria?
• Reconsider trust arrangements: Have older trusts been reviewed in light of new thresholds?
• Evaluate succession plans: Are the right people lined up to inherit, and are they ready?
• Address liquidity options: Would your estate be able to fund a tax bill without needing to sell key assets?

These questions aren’t hypothetical; they are the day-to-day discussions we are having with clients who want to ensure their affairs are robust. 

With the revised APR/BPR rules and the likelihood of further change, the earlier you start preparing, the more options you’ll have available.

It’s also critical to understand that not all assets will qualify under APR or BPR. Consequently, diversification has become a common risk area, and we frequently help clients navigate HMRC scrutiny over:

• Commercial activities such as wind farms and solar projects
• Furnished holiday lets
• Contracting and non-core agricultural services

These are precisely the sorts of grey areas that require a deeper, evidence-based review before assuming tax relief is secure.

Don’t wait for another U-turn

There will be a temptation to wait and see what happens next, which is understandable, but that’s a risky approach. While the move to £2.5 million is positive, further potentially detrimental changes could be just around the corner. 

Whatever happens, the direction of travel is clear: restrictions are tightening, complexity is increasing, and assumptions of total relief are no longer safe. This isn’t doom and gloom; it’s about staying prepared.

Tax policy has become more reactive in recent years, with consultations, revisions and late-stage amendments becoming the norm. Against this backdrop, estate planning should be seen less as a one-time event and more as a long-term, evolving strategy. Regular reviews, timely adjustments and transparent family discussions will be more important than ever.

At Wilkins Southworth, we’re already working with clients to:

• Model future tax scenarios
• Review asset qualification under the new guidance
• Prepare supporting documentation for relief claims
• Update governance and succession strategies

Whether it’s taking advantage of current allowances or planning for future changes, the message is clear: don’t leave it too late. A well-timed conversation today could prevent a crisis five years down the line. 

Let’s make sure you’re planning ahead, not playing catch-up.

Talk to us

If you’re unsure how the APR/BPR reforms might affect you – or if you’ve already made planning decisions based on the previous £1 million cap – contact us. Our team can help you reassess your position and navigate the evolving landscape with confidence.

We understand that these are emotional and practical issues, not simply technical or regulatory challenges. Preserving your legacy, protecting family harmony, and securing long-term business continuity are all part of the conversation. That’s why our approach is tailored, forward-thinking, and designed to offer clarity in uncertain times.

For more background on the original reforms, see our December 2024 article: Navigating the 2024 Reforms: Understanding Agricultural and Business Property Reliefs.