Tax update August 2026
The latest tax developments and VAT round-up for the month.
Our monthly tax update covers the developments most likely to affect individuals, trusts, estates and businesses. If you would like to discuss anything here in more detail, please get in touch with your usual contact.
1. Private client
1.1 Court of Appeal confirms a 2003 home loan scheme worked
The Court of Appeal has dismissed all ten of HMRC’s grounds of appeal and confirmed that an inheritance tax (IHT) home loan scheme removed the value of the taxpayer’s home from her estate.
In 2003 the taxpayer sold her house at market value to a trust in which she had a life interest, in return for a promissory note. She then gave the note to a second trust for her children and carried on living in the house rent-free until she died more than seven years later. On death the house formed part of her estate, but the debt under the note was set against it, and the gift of the note had dropped out of charge after seven years.
The court held that the debt was not one “incurred” by her for the purposes of the FA 1986 rules that can disallow such deductions, and it rejected HMRC’s gift with reservation arguments. The scheme relied on interest in possession rules that changed in 2006, and it pre-dated the disclosure regime and the GAAR. Its main relevance now is to estates where similar arrangements are still in place.
Executors of Elborne & Ors v HMRC [2026] EWCA Civ 894
www.bailii.org/ew/cases/EWCA/Civ/2026/894.html
1.2 No business property relief for serviced offices
The Upper Tribunal has refused business property relief (BPR) on shares in a company providing serviced offices, finding its business was mainly holding investments.
The UT found one error in the FTT’s decision: heating, electricity and air conditioning were services to clients, not investment management. However, on remaking the decision it reached the same result. The core of what clients paid for was the right to occupy a specific office, and the services were not significant enough to change that. A reasonable business person would see the fees as investment income.
Owners of property-based businesses, including serviced offices, holiday lets and storage, should not assume BPR is available. The services provided must be substantial enough to change the nature of the business.
Executors of Beresford v HMRC [2026] UKUT 285 (TCC)
caselaw.nationalarchives.gov.uk/ukut/tcc/2026/285
1.3 ATT calls for reform of IHT gift exemptions
The Association of Taxation Technicians has called for the IHT gift exemptions to be updated, pointing out that the £5,000 exemption for gifts from parents on marriage has not changed since 1975.
Adjusted for inflation, the exemption would now be worth just over £40,000. The £3,000 annual exemption and £250 small gifts exemption have also lost much of their value over the decades. No changes have been announced, but the call is timely ahead of the Autumn Budget.
2. PAYE and employment
2.1 Low earner’s pension payment: HMRC to contact around one million people
HMRC is starting to pay the low earner’s pension payment, which tops up pension savers who missed out on tax relief because of how their scheme collects contributions.
The issue affects low earners in net pay arrangement schemes. HMRC expects to contact around a million eligible people directly. After a short delay, payments for 2024/25 contributions will be phased in over the rest of 2026 and into early 2027. Employers and payroll teams do not need to do anything. If employees ask, they can be told that HMRC will contact those who qualify.
2.2 Multi-year tax refunds no longer paid by cheque
Employees who claim a tax refund covering more than one year must now request the repayment online, rather than waiting for a cheque.
Once a claim is agreed, HMRC issues a P800 calculation and the employee requests the money through the HMRC app, their personal tax account or the online overpayments page using the P800 reference. Digital requests are normally paid by bank transfer within a week. Cheques are still available on request but take longer.
2.3 Child Benefit for 16 to 19-year-olds: extend by 31 August
Parents whose children are staying in full-time non-advanced education or approved training must extend their Child Benefit claim by 31 August or payments will stop.
Claims can be extended in a few minutes through the HMRC app or online. Where either parent has income above £60,000, the High Income Child Benefit Charge still applies. It can now be collected through the employee’s PAYE tax code instead of a Self Assessment return.
HMRC Employer Bulletin, August 2026
3. Business tax
3.1 Bermuda company found to be UK resident
The FTT has held that a Bermuda company holding investments for a family trust was resident in the UK, because its real decisions were made by a UK-based individual rather than its Bermudian directors.
The company had professional directors in Bermuda, but the trust’s economic settlor and beneficiary, who lived in the UK, proposed its investments and major transactions. The tribunal found that the directors treated his proposals as instructions, carried out administrative tasks and at most did a sense check. Strategic management and control was therefore exercised in the UK.
Offshore boards, local directors and board minutes do not settle residence on their own. What counts is where the strategic decisions are actually made.
Cogefin (Bermuda) Ltd & Anor v HMRC [2026] UKFTT 1108 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/1108
3.2 Capital allowances allowed despite a pre-arranged onward sale
The FTT has allowed capital allowances on plant and machinery that a company bought in an oil and gas deal and sold shortly afterwards under an agreement already in place.
HMRC argued that the onward sale had been agreed before the purchase, so the spending did not qualify and the deal was driven by a tax advantage. The tribunal found that the company had genuinely acquired and owned the assets, and that a planned sale did not change the nature of the expenditure. Although the structure produced a good capital allowances result, securing that advantage was not a main purpose. The arrangements had commercial reasons.
Perenco UK Ltd v HMRC [2026] UKFTT 1096 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/1096
3.3 Non-statutory clearances: HMRC tightens its approach
HMRC has updated its guidance on the Non-Statutory Clearance Service, making clear it will only respond where there is genuine uncertainty about how the law applies.
The service will not simply confirm a taxpayer’s own reading of the legislation, and HMRC will not rule on questions of fact, such as whether an activity amounts to a business. Where HMRC asks for more information, it must be provided within 30 days or the application may be closed. Applications should set out the genuine point of doubt clearly and be complete when submitted.
HMRC: Non-Statutory Clearance Service guidance
3.4 Group relief surrenders and distributable reserves
There is growing attention, including from auditors, on whether surrendering losses within a group for little or no payment could be an unlawful distribution.
Where a deferred tax asset has been recognised, the losses have a book value. Surrendering them for no payment, or for less than that value, to a parent or sister company may be a distribution, so the surrendering company needs enough distributable reserves to cover it. Groups that routinely surrender losses for nil consideration should review their arrangements, and consider paying for the losses, before year-end accounts are finalised.
4. VAT and indirect taxes
4.1 Capital Goods Scheme simplified from 29 July
The Capital Goods Scheme (CGS) no longer covers computer equipment, and the threshold for land and buildings has risen from £250,000 to £600,000, excluding VAT.
The changes were made by SI 2026/765 and apply from 29 July 2026. Where capital expenditure on a property was first incurred before that date, the old £250,000 threshold still applies to that asset. The higher threshold will take many smaller property projects out of the ten-year adjustment period altogether, which particularly helps businesses with partly exempt activities, such as care, education, financial services and property letting.
HMRC policy paper: simplification of the Capital Goods Scheme
4.2 Options to tax going online
HMRC plans to launch an online portal before the end of 2026 for notifying and revoking options to tax on land and property, including bulk uploads.
This should speed up routine notifications. It will not fix the common problem of older elections where the paperwork has been lost. Property owners should still keep their own complete records of every option to tax, because missing evidence regularly delays sales and lettings.
4.3 E-invoicing: Peppol confirmed for 2029
HMRC has confirmed that Peppol will be the network for the UK’s mandatory electronic invoicing, due in 2029.
Peppol is already widely used in the public sector and across Europe. Businesses can start preparing now by checking the quality of their customer, supplier and VAT data, and by asking their accounting software providers about their plans for Peppol.
4.4 Children’s meals and family attractions: 5% rate ends 1 September
The temporary 5% VAT rate on qualifying children’s meals, tickets and family attractions runs until the end of 1 September 2026.
Affected hospitality and leisure businesses must return to the standard rate from 2 September. Tills, booking systems and menus will need updating.
4.5 VAT cut on domestic electricity announced
The government has announced that qualifying supplies of electricity in Great Britain will be zero-rated from 1 October 2026 to 31 March 2027, down from 5%.
The relief applies to the same domestic and charity supplies that currently get the reduced rate. Gas and other fuels, and electricity in Northern Ireland, are unaffected. HMRC is expected to publish detailed guidance for suppliers before the change.
5. New Chancellor and key dates
5.1 Autumn Budget set for 28 October
The new Chancellor, John Healey, will deliver his first Budget on Wednesday 28 October 2026.
John Healey was appointed on 20 July, following Andy Burnham becoming Prime Minister, and confirmed the Budget date on 31 July. No tax measures have yet been announced. We will keep clients updated as the Budget approaches, and we would encourage anyone with significant transactions planned for the autumn to talk to us about timing.
5.2 Diary dates
| Date | Deadline or event |
|---|---|
| 20 August | Electronic PAYE payments must clear, because 22 August falls on a Saturday |
| 31 August | Extend Child Benefit claims for 16 to 19-year-olds staying in education |
| 1 September | Temporary 5% VAT rate on children’s meals and family attractions ends (applies to 1 September) |
| 1 September | Fuel duty rises by 1p per litre, the first stage of reversing the 5p cut |
| 1 September | Corporation tax due for 30 November 2025 year ends (non-large companies) |
| 30 September | Accounts due at Companies House for private companies with 31 December 2025 year ends |
| 1 October | Zero rate of VAT on domestic electricity in Great Britain begins |
| 28 October | Autumn Budget |
6. And finally
6.1 Chancellors and their red box
On Budget day, the Chancellor traditionally poses outside Number 11 holding up the red despatch box. The original Budget box is said to have been made for William Gladstone in the 1850s. It was used by most of his successors for well over a century, until it became too fragile and was retired.
As the box itself shows, the tax system is a long accumulation of history. Some reliefs, such as the £5,000 marriage gift exemption mentioned above, have outlasted many of the Chancellors who might have updated them. We will see in October whether Mr Healey decides that any are due for a refresh.