Legislation Day (L-Day) 2025

The Government has proposed amendments to the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) provisions driven by consultation responses from businesses and advisors and ensuring the UK rules remain consistent with administrative guidance released by the OECD. Key changes include:

• Incorporating OECD guidance around cases where an instrument is issued by one member of a group to another, where the accounting treatment differs between the members;
• Updating the provisions around ownership interests to clarify which consolidated financial statements are considered when determining whether such interest is accounted for as equity;
• Revised clauses in relation to the UK implementation of the election to apply consolidation adjustments for entities in the same territory as well as updates to the definition of a tax consolidation group to improve the consistency of the election with the OECD Model Rules;
• Amendments in relation to scenarios where the ultimate parent is a flow through entity;
• New clauses in relation to the exclusion of certain categories of pre-regime deferred tax assets and deferred tax liabilities effectively incorporating the January 2025 Admin Guidance. These changes take effect for accounting periods ending on or after 21 July 2025;
• Clarification of the exchange rate that should be used in the conversion of domestic top-up tax amounts to sterling;
• An amendment which factors in a payment for group relief for the purpose of allocating the DTT charge between members of the group, which is limited to the lower of the amount of the payment and the tax value of the group relief claimed;
• Introduction of the simplified calculations for non-material members safe harbour. To the extent that an election is made, the figures for the non-material members will be taken from the Country-by-Country Report when undertaking the full top-up tax computation for a territory. This is consistent with OECD Guidance and the draft legislation enables it to be applied from the commencement of MTT (i.e. it applies in relation to accounting periods beginning on or after 31 December 2023); and
• Per the policy paper released by HMRC, the changes will mainly take effect for accounting periods beginning on or after 31 December 2025. As with previous changes an election is expected to be available to apply them to earlier periods (albeit it is not specified which changes the election would apply in relation to).

We are analysing the proposals and, if needed, further details will be included in future editions of Tax Matters Digest.

The Government has published draft legislation which clarifies that the overseas restrictions exemptions for companies with a registered office in Northen Ireland only apply to R&D intensive support (ERIS) claimants and do not apply to claimants under the new merged RDEC regime who are subject to the same rules as other UK claimants. In particular, the exemption applies to claimants under the ERIS with a registered office in Northern Ireland for claims made on or after 30 October 2024 where they have not opted out of the Northern Ireland companies’ provisions at section 1112J CTA 2009.

The Government has published a consultation on the effectiveness of Land Remediation Relief (LRR) which applies to give an enhanced corporation tax deduction on the costs of remediating contaminated or long-term derelict land. The Government is seeking views on: to what extent LRR encourages greater development on brownfield land; how LRR compares with other incentives such as grants; any aspects of the current design that act as an impediment to incentivising the development of contaminated or derelict land; and what additional processes could help to reduce error or fraud in LRR claims without introducing disproportionate administrative burdens. The consultation is open until 15 September 2025.

The Government has published the draft legislation and Summary of Responses for the “Better use of new and improved third-party data” consultation which closed in May 2025. The proposed legislation will be of interest to all providers of Bank and Building Society Interest reporting under the current regime, and to Merchant Acquirers who submit reporting to HMRC today. The wider Summary of Reponses will be of interest as well to those that have obligations under the Common Reporting Standard today – although it only indicates that further discussions are needed to determine the broader scope.

Of particular note, the Government will mandate the collection of National Insurance Numbers (NINOs) from all individuals with savings accounts, as well as NINOs, VAT registration numbers or Company Registration Numbers from anyone able to process card payments. This is likely to impose a significant burden on banks and others who provide services in this area. The new rules cannot come into force before April 2027, but financial institutions affected are already managing changes to both ISA reporting and reporting under international regimes (CRS2.0 and Crypto-Assets Reporting) in the same timeline.

The draft legislation published included a number of anti-avoidance measures which were subject to an earlier consultation that only closed on 18 June 2025. The most note-worthy of the changes are:

• The introduction of a strict criminal liability offence where a promoter fails to disclose an arrangement under either the Disclosure of Tax Avoidance Scheme (DOTAS) regime or its VAT equivalent (DASVOIT);
• The introduction of universal stop notices (USNs). A USN would apply to all promoters of marketed tax avoidance and prohibit the promotion of the avoidance arrangements set out in the USN. The original proposals suggested that USNs would also apply to those that ‘enabled’ marketed tax avoidance. In this latest version, whilst the policy paper says that USNs will apply to promoters and enablers, the draft legislation only covers the act of promotion which includes design, making the scheme available, managing the scheme (or arranging for another person to do these things). This will need to be monitored through the Finance Bill process but will be a relief to many businesses such as financial institutions who could have found themselves unknowingly enabling marketed tax avoidance (e.g. through processing payments) and at risk of sanctions including publication, financial penalties and criminal prosecution; 
• The introduction of a promoter financial information notice (PFIN) which would allow HMRC to obtain access to financial or banking data relating to promoters and parties connected to the promotion of avoidance held by financial institutions. This now requires tribunal approval in all cases;
• The introduction of promoter action notices (PANs). A PAN would require businesses to stop providing products or services to promoters where those products or services are connected to the promotion of avoidance and HMRC suspect the promoter is in breach of a USN or Stop Notice. PANs would not apply to legal services where legitimate legal or tax advice is provided, or restrict access to the internet. Failure to comply with a PAN would attract sanctions including publication, financial penalties and reporting businesses to relevant representative bodies or regulators. As an important safeguard, the Summary of Responses to the earlier consultation notes that HMRC should demonstrate that products or services are ‘connected to the promotion of avoidance’ and provide details of the action required by the recipient when issuing a PAN – removing some of the uncertainty that innocent enablers would have faced; and
• HMRC have acknowledged calls as part of this consultation for better regulation of the tax advice market. However, the ‘Modernising and mandating tax adviser registration with HMRC’ proposals currently only apply to those tax advisors who deal with HMRC on behalf of their clients and therefore will not necessarily apply to the promoters targeted under these provisions.

MTD for income tax is due to become mandatory for in scope landlords and sole-traders from April 2026. Draft legislation and updated draft regulations were published to cover most of the outstanding points including streamlining of the end of year process, details of deferrals and exemptions, changes to ensure MTD and penalty reform work as intended, and confirmation that the threshold will reduce to £20,000 from April 2028. As reminder, this means that sole traders and landlords with income above £50,000 will join from April 2026, and those with income above £30,000 will join from April 2027 and income above £20,000 from April 2028. In relation to deferrals and exemptions, at the Spring Statement the Government confirmed that there will be a welcome deferral until April 2027 for individuals who “have information that they would need to submit using the SA109 schedule”. The SA109 supplementary pages are used to record a taxpayer’s residence and domicile status and claim personal allowances as a non-UK resident. The draft legislation for this was not included in the package published on L-Day as the details are still being worked on.

As expected, the new draft legislation provides that where unused pension scheme assets are currently excluded from the member’s ‘death estate’ for IHT purposes, this exemption is to cease to apply as from 6 April 2027. This includes both UK registered pension schemes (RPSs) and certain non-UK pension schemes, called qualifying non-UK pension schemes (QNUPSs) - plus ‘section 615(3) schemes’ that sometimes used to be established in the UK for persons working abroad. However, the IHT exemption enjoyed by employer-financed retirement benefits schemes funded entirely by contributions made before 6 April 2006 is unaffected. Nor will the exemption enjoyed by RPSs, QNUPSs and section 615(3) schemes from the IHT ‘10-year anniversary’ and ‘exit’ charges be removed (certain IHT reliefs may, depending on the precise circumstances, also otherwise be available in relation to particular pension schemes). It also appears that lump sum ‘death in service’ benefits (along with dependants’ pensions where provided by defined benefit pension schemes) will continue to be exempted from IHT – although it is not completely clear from the wording that ‘death in service only’ pension schemes are to be protected.

The administrative burden of calculating and paying any IHT due is normally to fall on the deceased member’s personal representatives with the scheme administrators only being liable to pay the IHT if specifically requested by the relevant beneficiary and if the amount due is at least £4,000.

Any farmland/business assets held by the pension scheme are not to be eligible for IHT agricultural property relief or business property relief. However, in calculating any income tax due on post-death distributions from the pension scheme (a RPS post-death distribution is especially likely to be subject to income tax where the deceased member had reached age 75 - a QNUPS post-death distribution may also, depending on the precise circumstances, be subject to income tax), an amount equal to any IHT due can normally be excluded from the taxable amount.

The Government has confirmed that “technical amendments to residence-based tax regime” will be set out in due course. These are “technical fixes to legislation contained in Finance Act 2025 that replaced the special tax rules relating to domicile” to ensure the legislation works as intended. For further information see our Non-Dom Regime Reform page.

At Autumn Budget 2024, the Government published a call for evidence as the first stage in its intention to conduct a review of personal tax offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation. The aim was to modernise the rules and ensure they are fit or purpose in the light of the removal of non-domicile status from 6 April 2025 and the fact that offshore structures could be brought into the scope of these rules. The Government has published the outcome of this call for evidence and a summary of responses which confirm that consultation responses are being evaluated, alongside other evidence, to identify areas for improvement and highlight priority areas for further consultation. To take this forward “the Government will consider further how best to engage with relevant experts in shaping and taking forward further consultation in this area”. This will include a joint discussion with individual firms that responded to the call for evidence, including KPMG, to further explore views. The Government has confirmed that it will then provide an update at the Autumn Budget 2025 and that any changes to legislation that form part of this consultation are not expected to take effect before the 2027/28 tax year, at the earliest.

At Autumn Budget 2024, following a consultation in 2023, the Government announced four changes to charity compliance rules for: (i) tainted donations to charities; (ii) approved charitable investments; (iii) attributable income; and (iv) sanctions for failure to meet tax obligations. Draft income tax legislation was published on the first three of these with a view to the final legislation taking effect from April 2026. Further legislation will be required to amend the rules for corporation tax. It was also confirmed that draft guidance on the fourth measure on the sanctioning of charities will be published ‘later’.

Ports assessed as having insufficient space on-site for customs infrastructure will need to provide equivalent infrastructure at an offsite location which must be approved by HMRC. They will become responsible for providing and funding this infrastructure themselves and will no longer benefit from current government run and funded inland border facilities. The draft legislation only affects a small number of ports and puts those with smaller on-site space on a level playing field with larger ports. Customs infrastructure ensures risk-based checks can be carried out on goods entering or leaving the country.

For further information please contact:

• Tim Sarson
• Sharon Baynham