In personal and family companies, director shareholders often borrow money from the company. Where a company is close, as most personal and family companies are, if a loan to a director or other participator remains outstanding on the corporation tax due date for the period in which the loan was taken out, the company must pay tax on the outstanding amount of the loan. Corporation tax is due nine months and one day from the end of the accounting period.

The tax that is due on the outstanding loan balance is known as section 455 tax. While it is payable with the corporation tax for the period, it is not corporation tax. Unlike most taxes, it is a temporary tax as it is repayable nine months and one day after the end of the period in which the loan is repaid.

The rate of section 455 tax is linked to the dividend upper rate. This is set at 33.75% for 2025/26 and will rise to 35.75% for 2026/27.

Where a director is thinking of taking a loan from a company and is unlikely to repay it within nine months of the company year end, taking the loan in 2025/26 rather than in 2026/27 will reduce the section 455 tax paid by the company on the outstanding loan by 2%.

As the rate of section 455 tax paid on a loan depends on the dividend upper rate at the time the loan is made, when clearing loans, it makes sense to clear those that will generate the highest repayment first (i.e. those on which the rate of section 455 tax is the highest).

Example

A Ltd is Andrew’s personal company. The company prepares accounts to 30 June each year.

Andrew, the sole director shareholder is planning on taking a £30,000 loan from the company in April 2026. He is planning on repaying it in 2028 when a savings policy matures. The loan will remain outstanding on 1 April 2027 when the corporation tax for the period is due.

If Andrew takes the loan on 30 April 2026 as planned, the company will need to pay section 455 tax of £10,725 (£30,000 @ 35.75%) on 1 April 2027. However, if instead Andrew takes the loan a month earlier on 31 March 2026, the company’s section 455 tax bill will be £10,125 (£30,000 @ 33.75%). Taking the loan before 6 April 2026 saves the company £600. in tax.

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Where first year allowances, such as the Annual Investment Allowance or full expensing, are not claimed in respect of capital expenditure on plant and machinery, or not claimed in full, relief is instead given by way of writing down allowances (WDAs). The rate at which the allowance is given depends on whether the expenditure is main rate expenditure of special rate expenditure.

Special rate pool

Expenditure is allocated to the special rate pool where it relates to integral features, items with a long life, solar panels, thermal insulation or cars with CO2 emissions above a certain threshold. For cars purchased on or after 6 April 2021, cars with CO2 emissions of 50g/km or above are added to the special rate pool. Special rate expenditure attracts WDAs at the rate of 6% per annum on a reducing balance basis. As for all capital allowances, there is no requirement to claim them or claim the full amount.

Main rate pool

Expenditure not relieved by first year allowances on plant and machinery that was not allocated to the special rate pool is allocated to the main rate pool. The rate of main rate WDAs fell to 14% from 1 April 2026 for companies and from 6 April 2026 for individuals. Previously, the rate was 18%. The allowance is given on a reducing balance basis.

Where the accounting period spans the date on which the rate changed, a hybrid rate applies for that accounting period which is based on the proportion of the period falling before the rate change and the proportion falling on or after the rate change.

Example

A Ltd prepares accounts to 30 June each year. At the start of the accounting period, the brought forward balance on the main rate pool was £150,000. During the year, the company purchases two new cars with CO2 emissions of 20g/km, costing £35,000 each. The expenditure is added to the main rate pool.

The rate of main rate WDAs is 18% prior to 1 April 2026 and 14% on or after that date. As the year to 30 June 2026 spans the date on which the rate changed, it is necessary to calculate a hybrid rate for that period.

In the year to 30 June 2026, 274 days fell before 1 April 2026 when the rate was 18% and 91 days fell on or after 1 April 2026 when the rate was 14%. The hybrid rate is therefore 17% ((274/365 x 18%) + (91/365 x 14%)).

The company can claim main rate WDAs for the year to 30 June 2026 of £37,400 (17% (£150,000 + £35,000 + £35,000)).

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The 2025/26 Self-Assessment tax return must be filed online by midnight on 31 January 2027. However, you do not have to wait until the deadline is approaching to file your return and there can be advantages in filing early.

Before filing your return, it is important to check that you have all the information you need. If you have employment or pension income to include on your return, you may need to wait until you have your P60. You should have that by 31 May 2026. Likewise, you may also need details of payrolled benefits and those reported on your P11D.

Here are seven reasons why filing your tax return early may be a good idea:

1. You will get it out of the way and avoid the stress of having to file it at the last minute.

2. If you have trading and/or property income, you will know whether you will need to start complying with MTD for ITSA from 6 April 2027 if you are not already in it. This will be the case if your combined trading and property income before deduction of expenses is £30,000 or more in 2025/26 The earlier you know, the longer you have to prepare.

3. You will know what tax you have to pay in advance and can ensure that you have the funds available to meet the tax bills, rather than being caught out at the last minute.

4. If you are owed a tax refund, you can claim the money back sooner.

5. If you make payments on account, once you know your 2025/26 tax liability you can check whether you need to reduce them.

6. If you file your return before 30 December 2026 and owe £3,000 or less, you can opt to have the tax that you owe collected through your 2027/28 tax code. This is equivalent to an interest-free instalment option.

7. If you are looking to get a mortgage and need proof of your income, filing your tax return will provide this.

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As for unincorporated trading businesses, the cash basis is the default basis of accounts preparation for landlords running an unincorporated property business. However, unlike traders, landlords can only use the cash basis if their rental receipts

calculated under the cash basis are £150,000 or less for the tax year. Landlords who are not eligible for the cash basis must prepare their accounts using the accruals basis (also known as traditional accounting). Landlords who are eligible to use the cash basis but who would prefer to use the accruals basis must elect to do so.

Nature of the cash basis

The cash basis is a simple basis of accounts preparation under which income is only recognised when received and expenses are only recognised when paid. There is no need to match income and expenses to the period to which they relate, as under the accruals basis. Consequently, there is no need to determine debtors and creditors or to calculate accruals and prepayments. Further, as income is only taken into account when received, the cash basis provides automatic relief for bad debts.

Under the cash basis, it is also possible to deduct capital expenditure in calculating taxable rental profits unless the item is of a type for which a deduction is specifically prohibited, as is the case for land and buildings and cars. Where a deduction is not allowed, relief may be available under the capital allowances system.

Eligibility

Not all unincorporated landlords can use the cash basis. It is only available where none of the following apply:

· The business is run by a company, limited liability partnership, trustees or a partnership with at least one corporate partner.

· Receipts brought into account under the cash basis for the tax year exceed £150,000.

· The property business is carried on jointly by spouses or civil partners and the other spouse/civil partner is taxed under the accruals basis and a Form 17 election has not been made.

· Business premises renovation allowance has been claimed and there is a balancing charge in the tax year.

If any of the above apply, the landlord must use the accruals basis.

Moving between the cash and the accruals basis

If the landlord changes the basis used to prepare their accounts, they will need to make adjustments to ensure that items are not taken into account twice or not at all.

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Utilising the property allowance

The property allowance is essentially an additional personal allowance for income from property. It allows individuals to enjoy property income of up to £1,000 each tax year free of tax and without the need to report it to HMRC. Where income from property is more than £1,000, the allowance can be deducted instead of actual expenses. However, there are some exclusions.

Property income of less than £1,000

Where income from property is less than £1,000, it falls wholly within the allowance and as such does not need to be reported to HMRC. This is handy where a small amount of rental income is received in the tax year, for example, from letting out a drive for parking during Wimbledon, as it removes the administrative burden associated with reporting the income to HMRC.

However, if the income is less than £1,000 but expenses are greater than the income, it can be useful to report the loss so it can be set against future rental profits.

Property income of more than £1,000

Where property income is more than £1,000, the landlord has the option of deducting actual expenses in calculating the rental profit or deducting the £1,000 property allowance. Where actual expenses are less than £1,000, deducting the property allowance will provide a more favourable result.

Exclusions

Where a personal or family business is run from home, it is common for the company to pay rent for the use of the home office. However, the property allowance is not available where an individual receives a payment of rent made by or on behalf of a close company at a time when the individual is a participator in the close company or an associate of the participator. This means that where a person has a personal company, the property allowance is not available if rent is paid by the company to that person or to their spouse or civil partner.

Where a person or a person connected to them is a partner in a partnership, the allowance cannot be used against rent paid by (or on behalf) of the partnership.

The allowance is similarly not available if an employer pays rent an employee or their spouse or civil partner.

Further, the allowance cannot be used in addition to rent-a-room relief.

Looking ahead

Last year, the government stated that they planned to increase the property allowance to £3,000 before the end of the current Parliament. This has yet to be introduced and no date has been set.

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Employers must make statutory payments to employees who meet the eligibility criteria. This includes statutory maternity pay (SMP), statutory paternity pay (SPP), statutory adoption pay (SAP), statutory shared parental pay (SSPP), statutory parental bereavement pay (SPBP), and statutory neonatal care pay (SNCP). From 6 April2026 onwards, all employees are entitled to statutory sick pay (SSP) from the first day of their sickness absence.

For all statutory payments other than SSP, employers can claim some or all of the cost back from HMRC. The amount which can be claimed depends on the size of the employer.

From 6 April 2026 onwards, employers who qualify for Small Employers’ Relief can reclaim 109% of the cost of the statutory payments (other than SSP) that they make. For 2025/26, the amount was 108.5%. An employer is small if they paid £45,000 or less in Class 1 National Insurance (before deducting the Employment Allowance) in the last tax year before:

· the ‘qualifying week’, i.e. the 15^th week before the due date;

· the ‘matching week’ when an employee was told by the adoption agency they had been matched with a child;

· the date of the official notification where a child is adopted from another country;

· the ‘qualifying week’ before the death of a child; or

· the ‘relevant week’ before the child started to receive neonatal care unless the employee is entitled to SMP, SPP or SAP.

For these purposes a week runs from Sunday to Saturday.

Employers cannot recover the cost of SSP – they must meet it in full.

Making a claim

The employer should make their claim through their payroll software. The claim should be made in the Employer Payments Summary. Effect is given to the claim by deducting it from the amount of PAYE and National Insurance that the employer has to pay to HMRC.

Where the claim cannot be satisfied by offset against the current year’s PAYE and National Insurance liability, the employer can write to HMRC to ask for a repayment. The claim cannot be made until the start of the next tax year. The letter should be sent to:

National Insurance Contributions and Employers Office
HM Revenue and Customs
BX9 1BX.

Financial help

Employers who are struggling financially and cannot afford to make statutory payments to employees can apply in advance for help with paying statutory payments. An application for advance funding to pay SMP, SPP, SAP and SHPP can be made online up to four weeks before the employer needs to make the first payment. Applications for advance funding to pay SPBP or SNCP can also be made online through a separate system.

Employers must still send an EPS for each period that they reclaim statutory payments, even if they receive advanced funding. The advance funding will be reduced by any amount owing to HMRC.

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In a personal or family company, there are often transactions between the company and the director(s). For example, the company may meet personal expenses on the director’s behalf, or the director may loan money to the company to help cash flow.

It is important to keep track of transactions between the director and the company. This is done by means of a director’s loan account. Where the director’s loan account is overdrawn there may be tax consequences for the director and the company.

If the outstanding loan balance exceeds £10,000 at any point in the tax year, the director may face a tax charge under the benefit in kind provisions. The company must also pay Class 1A National Insurance contributions at 15% on the taxable amount.

If the account is overdrawn at the year end and remains so at the corporation tax due date nine months and one day after the year end, the company must pay section 455 tax on the outstanding loan balance. The rate of section 455 tax is aligned with the dividend upper rate – 35.75% for 2026/27.

Writing off the loan

At first sight, writing off the loan may seem a simple solution to avoiding the section 455 tax. However, this too has tax consequences.

Where a director’s loan is waived, released or written off, the director is treated as if they have received a distribution equal to the amount written off. The director is taxed at the dividend tax rates. Where the write-off takes place on or after 6 April 2026, the deemed distribution will be taxed at 10.75% where it falls within the basic rate band, at 35.75% where it falls within the higher rate band and at 39.35% where it falls in the additional rate band. The director must declare the loan write-off on their Self-Assessment tax return.

Where the director is also an employee, a tax charge could also arise in respect of the written off loan under the employment income rules. However, the distribution rules take precedence, so the director does not suffer a double tax charge.

From the company’s perspective, as the write-off is treated as a distribution, the amount written off is not deductible in computing the company’s profits chargeable to corporation tax. If the loan was one in respect of which the company had previously paid section 455 tax, that tax would become repayable nine months and one day after the end of the tax period in which the loan was written off. The repayment must be claimed.

National Insurance

There is also a National Insurance cost for both the director and the company in writing off a director’s loan. Although for income tax purposes, the loan write-off is treated as a distribution, for National Insurance purposes, it is treated as a payment of earnings on which Class 1 National Insurance contributions are payable by both the director and the company (as the employer).

It may be possible to argue that the write-off is shareholders’ funds rather than earnings and is not related to the director’s work for the company. If HMRC accept this to be the case, there will be no National Insurance to pay.

A better solution

If the director is taxed at the dividend upper or additional rates on the deemed distribution, it may be preferable to leave the loan outstanding and pay the section 455 tax. Unlike a loan write-off, there will be no National Insurance to pay. If the director is able to pay off the loan at a later date, the section 455 tax will be repaid.

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Where a business is run through a personal or family company, the directors/shareholders will need to extract profits if they are to be used personally. There are various ways in which this can be done, and popular options include paying a small salary and extracting further profits as dividends.

However, where the business is run from home or from property owned by the directors/shareholders, a further option is for the company to pay rent. This can be advantageous.

Company’s position

The rent paid by the company is deductible in computing the company’s taxable profits, unlike dividends which are paid from post-tax profits. However, unlike salary payments, there is no National Insurance to pay on rental payments. Consequently, paying rent can be a tax-efficient way to extract profits.

Individual’s position

The rental income received by the individual is taken into account in computing the profits of their property rental business for the year. However, as the company will usually be close and the individual is a participator in the company, the £1,000 property income allowance is not available.

The rental profits are included in the individual’s taxable income on which their tax liability for the year is calculated. For 2026/27 and earlier tax years, rental income is taxed at the normal income tax rates if it is not sheltered by the personal allowance – 20% where it falls in the basic rate band, 40% where it falls in the higher rate band and 45% where it falls in the additional rate band. However, this is to change from 6 April 2027. From that date, new property income tax rates apply which are two percentage points higher than the standard income tax rates. For 2027/28, the basic property rate is 22%, the higher property rate is 42% and the additional property rate is 47%. In a further twist, the ordering rules are changed from the same date so that the personal allowance is set against employment, trading and pension income before property and savings income.

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The special tax regime for furnished holiday lettings came to an end on 6 April 2025. From that date, furnished holiday lettings are treated in the same way as other residential lets and form part of the same property rental business.

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Where an employee works at home, they may incur additional household expenses as a result, such as additional heating and lighting costs, the cost of business phone calls on a home phone, additional insurance costs and additional cleaning costs.

Reimbursed by the employer

The tax legislation contains a dedicated exemption which allows the employer to reimburse these costs without the employee being taxed on the amount reimbursed.

For the exemption to apply, the employee must be working at home under homeworking arrangements with the employer, rather than out of choice. Further, the costs must be reasonable and must be incurred in carrying out the duties of the employment; the exemption does not apply if the employer meets costs which would be the same regardless of whether the employee worked at home or not, such as mortgage interest or rent.

To make life easier, rather than reimbursing actual costs, which can be tricky and time-consuming to work out, the employer can make a tax-free payment of £6 per week (£26 per month) to cover the additional costs of working from home. The amount is the same whether the employee works at home one day a week or five days a week.

Costs met by the employee

Prior to 6 April 2026, the employee was able to claim a fixed deduction of £6 per week (£26 per month) to cover the additional costs of working at home under a homeworking arrangement. Employees could also claim a deduction based on the actual additional costs of working from home.

However, from 6 April 2026, this all changed. From that date, a deduction for additional household expenses is expressly prohibited regardless of whether they are wholly, exclusively and necessarily incurred in the performance of the duties.

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Stamp duty land tax (SDLT) applies where a property in England or Northern Ireland is sold for valuable consideration. There are different rates for residential properties and non-residential properties. Non-residential properties include:

· commercial property;

· property that is not suitable to be lived in and cannot be made suitable (for example, where there is a high risk that the property will collapse);

· forests;

· agricultural land that is part of a working farm or used for agricultural reasons;

· any other land or property that is not part of a dwelling house or garden; and

· six or more residential properties purchased in a single transaction.

A property may comprise both residential and non-residential elements. This would be the case, for example, for a shop with a flat above it. Where a mixed-use property is purchased, it is not necessary to value the different parts and apply the residential and non-residential rates accordingly. Instead, the non-residential rates apply to the whole purchase. This can be beneficial as the non-residential rates are considerably lower. Further, there is no second-property supplement.

The residential and non-residential rates are shown in the tables below.

Residential rates:

A supplement of 5% applies to second and subsequent homes where the consideration is £40,000 or above (other than an exchange of the main residence).

Non-residential rates:

Case study

Bill and Jane buy an equestrian property comprising a house, stables and paddocks of three acres from which they run their business providing riding lessons and liveries. The property cost £1.2 million. As the equine facilities are used commercially, the property is a mixed-use property and the commercial SDLT rates apply. Therefore, SDLT of £49,500 is payable.

Had they not used the equine facilities commercially, HMRC would treat the property as a residential property. Assuming that it is their main residence, the SDLT payable at the residential rates would be £63,750 – £14,250 more than for a mixed-use property costing the same.

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The High Income Child Benefit Charge (HICBC) is a tax which claws back child benefit where the recipient or their partner has adjusted net income of £60,000 or more in the tax year. The charge is equal to 1% of the child benefit for the year for every £200 by which adjusted net income exceeds £60,000. Once adjusted net income reaches £80,000, the charge is equal to the child benefit for the year. Where this is the case, rather than receiving the child benefit only to pay it back later, the recipient may elect to not receive the child benefit. However, it is important to register for child benefit to secure the National Insurance credit it provides, particularly if the individual will not otherwise secure a qualifying year for state pension purposes.

Where both partners have adjusted net income in excess of £60,000, the charge is levied on the one with the highest income. It does not matter who receives the child benefit – a person may be liable for the charge when the benefit is paid to their partner.

For 2026/27, child benefit is set at £27.05 per week for the first child and at £17.90 per week for each additional child.

Example

Jade and Liam have two children. For 2026/27, they receive child benefit of £44.95 per week (£2,337.40 a year). Jade is a stay-at-home parent. Liam has adjusted net income of £70,000 for 2026/27. Jade claims child benefit.

As Liam’s income exceeds the £60,000 threshold, he is liable for the HICBC. His income exceeds the threshold by £10,000. The charge is 50% of the child benefit paid to Jade (1% x (£10,000/£200)), i.e. £1,168.70.

Adjusted net income

The measure of income used to determine whether the HICBC applies is adjusted net income. This is taxable income before personal allowances, less trading losses, pension contributions and Gift Aid donations.

The charge only applies if the recipient or their partner has adjusted net income of £60,000 or more.

Keeping the child benefit

There are various steps that can be taken to eliminate or reduce the charge.

Option 1: equalise income

The charge is triggered by an individual’s income, rather than household income. A household where both parents have adjusted net income of £60,000 – household income of £120,000 – will be able to keep their child benefit in full. By contrast, a household where one parent earns £80,000 and the other does not work will pay back all their child benefit in the form of the HICBC. Consideration could be given to reducing hours or to both parents working part-time in order to prevent the HICBC applying.

Option 2: make pension contributions

Pension contributions are deducted in working out adjusted net income. Therefore, an individual can consider making pension contributions in order to reduce or eliminate the HICBC. The individual will benefit later from the pension contributions.

Example

Lucy and Olly have four children. They receive £4,199 in child benefit in 2026/27. Lucy has adjusted net income of £50,000 and Olly has adjusted net income of £75,000. The HICBC would claw back £3,149.25 of their child benefit. Olly decides to make a pension contribution of £15,000. This reduces his income to £60,000 and removes him from the scope of the HICBC.

Option 3: make Gift Aid contributions

Charitable donations made under Gift Aid are deducted in calculating adjusted net income. Consequently, it is possible to reduce or eliminate the HICBC by making Gift Aid donations to reduce adjusted net income.

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The first indication a taxpayer may receive that they are the subject of a tax enquiry or investigation is a letter from HMRC, often headed ‘Notice of enquiry under Section 9A TMA 1970’ and including an initial request for information or supporting documentation.

HMRC generally has 12 months from the filing date of a self-assessment return to open an enquiry. However, investigations may extend to earlier tax years where HMRC suspects loss of tax. The applicable assessment time limits depend on the behaviour involved, described as innocent error, careless behaviour or deliberate conduct.

Alternative dispute resolution

Tax disputes can escalate quickly. Formal appeals are often time-consuming, expensive and adversarial for both the taxpayer and HMRC. To address this, HMRC introduced an alternative dispute resolution (ADR) process designed to provide a more practical and collaborative route to resolution.

Under ADR, a trained HMRC mediator, independent of the initial case team assists both parties in working towards a resolution without formal litigation. ADR is intended to operate alongside, rather than replace, the statutory appeal process and is most suitable for disputes involving misunderstandings, factual disagreements or communication breakdowns.

ADR meetings are generally conducted on a confidential basis and may take place remotely, making the process more flexible and accessible for smaller businesses and individual taxpayers. However, ADR is not intended to force a compromise where there is a fundamental disagreement over the interpretation of tax law, and taxpayers should still ensure that statutory appeal deadlines are carefully protected throughout the process.

Cases excluded from ADR

HMRC states that ADR is generally not available for:

· debt recovery or payment disputes, including Time to Pay arrangements;

· automatic late filing or late payment penalties;

· disputes concerning default surcharges;

· cases categorised by the tribunal as ‘paper’ or ‘basic’; or

· disputes based entirely on legal interpretation where there is no factual disagreement.

In such circumstances, the appropriate route is usually via an HMRC statutory review or a direct appeal to the First-tier Tribunal (FTT).

‘Paper’ or ‘basic’ cases are cases where a detailed and thorough review of the documents delivered can be undertaken. The FTT generally makes a decision based on the documents supplied so a formal hearing is not required.

Method of application

A taxpayer seeking ADR at an early stage should also lodge an appeal or request a statutory review in order to preserve their legal rights. Where proceedings have already commenced before the FTT, ADR remains available provided that a stay of proceedings is requested at the same time.

Applications are made online through HMRC’s ADR application process on GOV.UK and require the consent of both parties. HMRC’s ADR team will then assess whether the dispute is suitable for mediation, typically within 14 to 28 days.

Timing is important. An application submitted before the issues are clearly defined is unlikely to result in productive mediation. Conversely, if ADR is sought too late, HMRC may already have committed to a firm legal position, reducing the scope for compromise. ADR is generally most effective once the relevant facts and points of disagreement have been identified, but before either party becomes fully committed to litigation.

Effectiveness of ADR

HMRC reported that 84% of cases entering ADR during 2023/24 were resolved successfully. However, approximately 61% of ADR applications were rejected during the same period. One reason for rejection is that appeals before the FTT must generally be acknowledged and categorised before ADR can proceed.

If no agreement is reached

Not every ADR process results in settlement. Where mediation is unsuccessful, taxpayers may still:

· continue with their appeal before the FTT;

· request a statutory review by an HMRC officer not previously involved in the matter (usually within 30 days of the decision); or

· reapply for ADR later if circumstances change or earlier procedural issues are resolved.

Practical point – Potential expansion of ADR

Last year the government ran a consultation requesting comments on modernising and improving HMRC’s approach to dispute resolution, including the possible expansion of ADR procedures. The intention is to encourage earlier resolution of disputes, reduce costs for both taxpayers and HMRC, and ease pressure on the tribunal system. The results of the consultation are still being analysed.

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A chargeable gain may arise on the disposal of a residential property which has not been the owner’s only or main residence throughout. This may be the case where the property is a second home or an investment property which has been let out.

Unlike other capital gains, residential property gains are not reported in the capital gains tax pages of the Self-Assessment return which must be submitted no later than 31 January after the end of the tax year. Instead, separate rules apply which govern how and when the gain is reported and the associated capital gains tax is paid.

Reporting the gain

A capital gains tax liability arising on the disposal of a UK residential property must be reported to HMRC within 60 days of the completion date. Where the property is jointly owned, each co-owner must report their own gain.

There is a dedicated online service for reporting residential property gains, and the seller will need to set up an account to report the gain and pay the tax. This can be done online at www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020.

The following information is required:

· address and postcode of the property;

· date of acquisition;

· date of exchange of contracts on the sale;

· date of completion of the sale;

· purchase price (or market value where relevant);

· sale price (or market value where relevant);

· costs of purchase and sale;

· cost of any improvements; and

· details of any available tax reliefs or exemptions.

In the event that the seller is unable to use the online service to report the gain, they can instead contact HMRC and request a paper form.

Paying the tax

The capital gains tax due on the residential property gain must also be paid within 60 days of completion. This is the best estimate of the capital gains tax due at the time, taking account of any available annual exemption or capital losses. Capital gains on residential property gains are taxed at 18% to the extent that the seller’s income and gains do not exceed the basic rate band (£37,700 for 2026/27) and at 24% thereafter. The rates are now the same as for other gains.

Payment can be made online through the online account using a debit or corporate credit card or by approving a payment through an online bank account. Payments can also be made by bank transfer or by cheque. The 14-character capital gains tax payment reference should be quoted.

There may be an adjustment once the overall capital gains tax position for the year is known. For example, the realisation of losses later in the tax year may give rise to a repayment. The position will be finalised in the Self-Assessment tax return.

Interest and penalties

Interest and penalties will be charged where a taxpayer fails to report and pay capital gains tax on a residential property gain within the required 60-day window.

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The non-resident landlords scheme (NRLS) is a tax deduction scheme for taxing UK rental income of non-resident landlords. Where the let is managed by a letting agent, the letting agent must deduct tax from the landlord’s UK rental income and pay it over to HMRC. Where there is no letting agent, the obligation to deduct tax and pay it over to HMRC falls on the tenant if the tenant pays rent of more than £100 per week to a non-resident landlord.

In certain circumstances, the non-resident landlord can apply to HMRC to receive the rental income gross.

A non-resident landlord is a person whose usual place of abode is outside the UK and who receives UK rental income.

Letting agents’ obligations

The NRLS imposes various obligations on letting agents who manage the let on behalf of a non-resident landlord. For the purposes of the scheme, a letting agent is someone whose usual place of abode is in the UK and who acts on behalf of the landlord in connection with the management or administration of the landlord’s UK rental business and who has the power to receive rental income from that rental business or to control the direction of that income. This may include a professional such as an estate agent or a solicitor; however, if they only act in a legal capacity or provide legal services, they do not need to operate the scheme. The letting agent could also be a friend of the landlord.

A letting agent who is required to operate the scheme must register with HMRC within 30 days of the date on which they are first required to operate the scheme. Form NRL4 (available to download from the Gov.uk website) can be used for this purpose. Letting agents who fail to register within the required time frame may be charged a penalty.

Letting agents who have to operate the scheme must calculate the tax due to HMRC for each quarter and pay it over to HMRC’s Accounts Office Shipley within 30 days of the end of the quarter. They must also send a quarterly return (form NRLQ) within the same time frame. The quarters run to 30 June, 30 September, 31 December and 31 March.

Tax is calculated at the basic rate (20%) on the amount of rental income for the quarter less deductible expenses.

The letting agent must also complete an annual return each year (form NRLY) and send it to HMRC PTI division by 5 July following the end of the year. The year runs from 1 April to 31 March for the purposes of the NRLS. Form NRLY is available to download from the Gov.uk website. Penalties may be charged for a failure to make a return or for an incorrect return.

The letting agent must also provide the non-resident landlord with a certificate of the tax liability under the scheme. This too must be provided by 5 July. The tax paid under deduction is set against the landlord’s actual liability.

Tenants’ obligations

If there is no letting agent operating the scheme, the obligation to deduct tax and pay it over to HMRC falls on the tenant if the rent paid by the tenant is more than £100 per week. As for a letting agent, tenants required to operate the scheme must register with HMRC, deduct tax each quarter and pay it over to HMRC, together with a quarterly return, complete an annual return and send it to HMRC, and provide the non-resident landlord with a certificate of tax liability under the scheme.

Rental income paid without deduction of tax

Non-resident landlords can apply to HMRC to receive their rental income gross if:

· their tax affairs are up to date;

· they have never had any obligations to UK tax; or

· they do not expect to be liable to UK tax for the tax year for which the application is made.

The application is made on form NRL1 where the landlord is an individual, form NRL2 where the landlord is a company and on NRL3 where the landlord is a trustee. The forms are available to download from the Gov.uk website.

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Where a landlord lets a residential property (including from 6 April 2025 onwards, a furnished holiday let), they are not entitled to tax relief when they purchase domestic items, such as furniture, furnishings, household appliances, and kitchenware. Instead, relief is given for the cost of replacing the item.

For the relief to be available, four conditions must be met.

Condition A is that the individual or company seeking to claim the relief is carrying on a property business that includes the letting of a dwelling house.

Condition B is that an old domestic item that has been provided for use in the dwelling house is replaced with the purchase of a new domestic item. The new item must be provided for the exclusive use of the lessee in the let property, and the old item must no longer be available for use by the lessee.

Condition C is that the expenditure is incurred wholly and exclusively for the purposes of the trade, but a deduction would be prohibited as the expenditure is capital.

Condition D is that capital allowances must not have been claimed in respect of the item.

Where the property in question is a furnished holiday let, it is important to check whether capital allowances were claimed where the old item was purchased before 6 April 2025. Under the former regime for furnished holiday lets applying before that date, landlords were able to claim capital allowances on the purchase of domestic items for furnished holiday lets.

Relief for replacement of domestic items is not available where Rent-a-Room relief has been claimed.

The relief

Under the relief, a deduction is allowed for the cost of a like-for-like replacement and any incidental costs, such as delivery or the cost of disposing of the old item or installing the new one. Where the old item is sold, the deduction is reduced by the sale proceeds.

Where the replacement is superior to the old item, the deduction is capped at the cost of a like-for-like replacement. For example, if a fridge was replaced with a fridge-freezer, the deduction would be capped at the amount of an equivalent fridge.

Where the old item is taken in part exchange, the deduction is the excess of the part-exchange value (plus any incidental costs).

Example

George lets a flat fully furnished. He replaces the two-seater sofa with a new sofa of a similar size and standard. The sofa cost £800 and delivery was £50. He also paid £70 for the council to dispose of the old sofa.

Under the rules for replacing domestic items, George is allowed a deduction of £920.

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A supplement applies on top of the residential stamp duty rates where a person has two or more residential properties. The supplement is set at 5% and applies where the consideration for the second or subsequent property is £40,000 or more.

However, special rules apply where a person replaces their main residence and the SDLT supplement is not payable where both of the following conditions are met:

· the new property replaces the main residence; and

· the former main residence is sold within 36 months of the date of completion of the main residence.

However, if the former main residence has not been sold on the day on which the purchase of the new main residence completes, the supplement will initially be payable on the purchase of the new main residence. However, if the former main residence is sold within 36 months of completion of the new main residence, a refund of the supplement can be claimed.

Example 1

Matt and Lucy own two investment properties in addition to their main residence. They sell their main residence and buy a new home which becomes their main residence. The sale of the old main residence and the purchase of the new main residence complete on the same day. SDLT is payable at the residential rates on the purchase of the new main residence. The supplement does not apply as the couple are exchanging their main residence.

Example 2

Alicia has a holiday cottage in addition to her main residence. She buys a new home nearer to her family. The sale of the new home, which costs £500,000, completes on 1 March. However, the sale of her old home is delayed and does not complete until 16 April.

As Alicia has not completed on the sale of her old home when she completes on the purchase of her new home, she must pay SDLT at the residential rates plus the 5% supplement. Her SDLT bill is £40,000 of which £25,000 is the SDLT supplement.

When the sale of her former main residence completes, Alicia can claim a refund of the £25,000 SDLT supplement.

Claiming a refund

Where an SDLT supplement is paid because the sale of the former main residence completes after the purchase of the new main residence, the supplement is refunded. The refund must be claimed – it is not given automatically. To claim the refund, the former main residence must have been sold within three years of the completion of the purchase of the new main residence. In exceptional circumstances, it may be possible to claim a refund if it took more than three years to sell the former main residence.

The refund claim can be made online and HMRC must receive the claim by the later of 12 months after the date of sale of the former main residence and 12 months from the filing date of the SDLT return for the new main residence. An SDLT return must be filed within 14 days of the completion date.

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Where a property business is operated through a company, the profits need to be extracted if they are to be used personally. One of the ways of extracting profits in a tax-efficient manner is to pay dividends, particularly if the shareholder’s personal allowance has been used elsewhere.

All taxpayers regardless of the level at which they pay tax are entitled to a dividend allowance. For 2025/26 this is set at £500 and will remain at this level for 2026/27. There is no personal tax to pay on dividends covered by the allowance. However, as the allowance acts as a zero-rate band, it uses up part of the tax band in which in falls.

If shareholders in the property company have yet to use their 2025/26 dividend allowance in full, it is worthwhile paying a dividend to mop up the unused allowance.

However, before paying a dividend, it is important to check that the company has sufficient retained profits from which to pay the dividend. Where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings. However, if each shareholder has their own class of share (known as an alphabet share structure), dividends can be tailored to the shareholder’s circumstances.

Once the dividend allowance (and any remaining personal allowance) have been used up, dividends, which are treated as the top slice of income, are taxed at the dividend tax rate appropriate to the tax band in which they fall. For 2025/26, the dividend ordinary rate (applying to dividends falling in the basic rate band) is set at 8.75%, the dividend upper rate (applying to dividends falling in the higher rate band) is set at 33.75% and the dividend additional rate (applying to dividends falling in the additional rate band) is set at 39.35%. However, from 6 April 2026, the dividend ordinary rate and the dividend upper rate both increase by two percentage points to, respectively, 10.75% and 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

Where the property company has sufficient retained profits, consideration could be given to paying a dividend prior to 6 April 2026 to beat the tax rises. This will only be worthwhile if less tax is paid if the dividend is paid in 2025/26 rather than in 2026/27. If the policy is to take dividends to use up the basic rate band and dividends of this level have already been paid in 2025/26, there is no point paying a further dividend in 2025/26 which will be taxed at the dividend upper rate if that dividend would be taxed at the dividend ordinary rate if paid in 2026/27.

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The abolition of the furnished holiday lettings regime abolished day counting for tax purposes from 6 April 2025 onwards. However, where a property is let as a holiday let, there is still a need to count the days on which the property is available for letting and actually let to check that the property is within business rates rather than council tax. As many holiday lets will be eligible for small business rate relief, this is a definite bonus, as there will be nothing to pay.

Business rates, like council tax, are paid to help fund local services. Business rates rather than council tax are paid on properties that are used commercially, which includes holiday lets.

The business rates system depends on where the holiday let is located. In England, a holiday let will be within business rates if it is available for short-term letting for at least 140 days and actually let for at least 70 days in a 12-month period. When counting the days, no account is taken of nights when the property is used privately by family or friends free or at a discounted rate, nights where the property is unavailable as it is under repair or future bookings which have yet to happen. Short-term lets are lets of 28 days or less. Stays of more than 28 days are disregarded.

Where these tests are not met, council tax will be payable instead.

Valuation

Single properties and complexes of up to four properties are valued by bed space. Complexes with five or more properties are valued as a percentage of the fair maintainable trade.

New valuations apply from 1 April 2026.

Small business rate relief

Small business rate relief applies where the rateable value of the property is £15,000 or less. Properties with a rateable value of £12,000 or less pay no business rates. Where the rateable value is between £12,001 and £15,000, the rate of relief reduces gradually from 100% to nil.

Multiplier – retail, hospitality and leisure

Where small business rate relief is not available, the business rates that are payable are calculated using the relevant multiplier. From April 2026, a new lower multiplier is introduced for businesses in the retail, hospitality and leisure (RHL) sector. The lower multiplier replaces the relief previously available to this sector. The RHL multiplier is set at 43p where the rateable value is £51,000 or more and less than £500,000 and 38.2p if the rateable value is below £51,000.

Transitional reliefs

Following the 2026 revaluation, transitional relief is available to limit the amount by which business rates can increase as a result of the revaluation. In addition, supporting small business relief is available where the rateable value increases as a result of the 2026 revaluation and the business has lost some of its small business rate relief, rural rate relief, RHL relief or 2023 supporting small business relief.

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While the rules regarding VAT compliance may appear straightforward at first glance, there are several common pitfalls that can lead to problems which, if not rectified, can lead to penalties. Some of the more frequent VAT traps that small businesses face are detailed below:

Late registration

One of the more common ‘traps’ is failing to register for VAT on time. Registration is required once taxable turnover exceeds the VAT threshold (£90,000) within a rolling 12-month period, not just at the end of the financial year. Many small business owners misunderstand this rule and only review their turnover annually, which can result in late registration.

The consequences of late registration can be significant. To rectify the error, a business may be required to pay VAT on sales made after the date they should have registered, even if they did not charge customers VAT at the time. This effectively means absorbing the VAT cost themselves, which can severely impact profit margins and cash flow.

Penalties (which automatically expire after two years, provided the filer has not yet reached their threshold), will be calculated as a percentage of VAT that should have been paid (with the percentage depending on whether the failure was prompted or unprompted, and whether behaviour was non-deliberate, deliberate or deliberate and concealed). Interest charges will be levied on unpaid VAT from the date it should have been remitted, and there may be the potential loss of input tax recovery on purchases made before registration, all of which could add up to a considerable amount of money. Note that businesses can generally reclaim input tax on goods and services purchased before registration (subject to time limits: four years for goods still on hand; six months for services).

Exceeding the limit temporarily

In some cases, a business that temporarily exceeds the VAT registration threshold can apply for an exception from registration. To qualify, it must demonstrate that its taxable turnover will not exceed the £88,000 deregistration threshold within the following 12 months. However, HMRC is increasingly refusing exceptions, particularly where businesses have not adequately monitored turnover on an ongoing basis.

To avoid late registration, businesses should regularly monitor their turnover (ideally on a monthly basis) and keep accurate records.

Incorrect zero-rating or partial exemption claims

Another frequent ‘trap’ involves misunderstanding as to which goods or services qualify for zero-rating or fall under the partial exemption rules. Zero-rated supplies are taxable at 0%, but they still count as taxable turnover and must be reported correctly and included in the 12-month registration calculation.

Businesses making both taxable and exempt supplies (partial exemption) must be careful in calculating how much input VAT they can reclaim. Undercharging VAT by applying reduced or zero rates to supplies that should be standard rated creates liability for the underpaid VAT plus potential penalties if HMRC determines the error resulted from carelessness or deliberate attempt to underpay. To manage this risk, business owners should ensure they fully understand the VAT treatment of their products and services and consider seeking professional advice when dealing with mixed supplies.

Reverse charge obligations

The reverse charge mechanism is another area where small businesses often make mistakes. This rule shifts the responsibility for accounting for VAT from the supplier to the customer in certain transactions, particularly in sectors such as construction or when dealing with overseas suppliers.

Under the domestic reverse charge, suppliers do not charge VAT; rather, the customer accounts for the VAT on their own return. Similarly, when purchasing services from overseas, businesses may need to account for VAT, even if no VAT is charged on the invoice. Failing to apply the reverse charge correctly can lead to incorrect invoicing and reporting errors.

Late submissions

Submitting VAT returns late or with inaccuracies is another common compliance problem. VAT returns are typically filed quarterly (although annual submissions are possible), and deadlines are strictly adhered to. Late submission penalties work on a points-based system where a penalty point is applied for each return submitted late. The penalty point threshold differs by filing frequency: annual filers reach the threshold at two points, quarterly filers at four points and monthly filers at five points. Once the applicable penalty point has been reached, a penalty of £200 is levied. A further £200 penalty is levied for each subsequent late submission.

Practical point

By being aware of these common VAT traps, businesses can take proactive steps to stay compliant. These include keeping accurate and up-to-date records, reconciling accounts regularly and reviewing VAT returns carefully before submission. Bank streaming used in conjunction with accounting software can be useful, and seeking professional support can also help ensure compliance.

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