APRIL - ISSUE 27
L 2
A
C O N T E N T S
2 6 -14-13-10-09-06-16-19-20-22-
HOLIDAY LETS AND BUSINESS RATES
SDLT AND EXCHANGING THE MAIN RESIDENCE
FIVE YEAR-END TAX PLANNING TIPS
TAKING A DIVIDEND BEFORE 6 APRIL 2026
USING THE BUSINESS TO PAY SCHOOL OR UNIVERSITY FEES
APR AND BPR AND THE £2.5M ALLOWANCE
CHARGING INTEREST WHERE A DIRECTOR’S LOAN ACCOUNT IS IN CREDIT
SECTION 455 TAX AND THE CHANGE IN THE DIVIDEND UPPER TAX RATE
TAKING DIVIDENDS FROM A PROPERTY COMPANY
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
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 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
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.
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
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
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
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.
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
As the end of the 2025/26 tax year approaches, it is a good idea to undertake a financial review and assess whether there is any action you can take to cut your tax bill
Tip 1 – Don’t waste your personal allowance
If you have not used your 2025/26 personal allowance, it will be lost – you cannot carry it forward to 2026/27. To prevent wasting it, consider whether you can advance income so that you receive it in 2025/26 rather than in 2026/27 If you are claiming capital allowances, consider tailoring your allowances so you do not waste your personal allowance If you have a family company, consider paying a dividend to mop up your dividend allowance and any unused personal allowance If you cannot use your personal allowance and you are married or in a civil partnership and your spouse/civil partner pays tax at the basic rate, consider making a marriage allowance claim to transfer £1,260 of your allowance to them – this can cut your joint tax bill by £252.
Tip 2 – Reduce your income to protect your personal allowance
Once adjusted net income reaches £100,000, your personal allowance is reduced by £1 for every £2 by which your income exceeds this level Once adjusted net income reaches £125,140, the personal allowance is lost However, consideration could be given to making pension contributions or Gift Aid donations to charity to reduce your income and claw back some or all of your personal allowance.
If you have not already invested the full £20,000 in an ISA in 2025/26, consider using the full allowance before 6 April 2026. Interest and dividends within an ISA are tax-free.
From 6 April 2027, the tax rates on savings income will rise by two percentage points From the same date, under 65s will only be able to invest £12,000 of their £20,000 ISA allowance in a cash ISA
From 6 April 2026, the dividend ordinary rate (which applies to dividends falling in the basic rate band) and the dividend upper rate (which applies to dividends falling in the higher rate band) increase by two percentage points The dividend ordinary rate rises from 8 75% to 10 75% and the dividend upper rate rises from 33 75% to 35 75% There is no change in the dividend additional rate which remains at 39 35%
If you have a personal or family company which has retained profits, consider paying a dividend before 6 April 2026 to beat the dividend tax rises
Tax-relieved contributions can be made to a registered pension scheme up to 100% of earnings (or £3,600 if lower) subject to having sufficient available annual allowance The annual allowance is set at £60,000 for 2025/26 However, where threshold income exceeds £200,000 and adjusted net income exceeds £260,000, it is reduced by £1 for every £2 by which adjusted net income is more than £260,000 until the allowance is reduced to £10,000 Unused allowances can be carried forward for up to three years. Any allowance from 2022/23 will be lost if not used by 5 April 2026; however, you must use up all your 2025/26 allowance before using allowances from earlier years. Once a pension has been flexibly accessed, the annual allowance is reduced to £10,000
As the tax year draws to a close, directors of personal and family companies should consider whether it is worthwhile paying a dividend before 6 April 2026 However, it is only possible to pay a dividend where the company has sufficient retained profits from which to pay it Also, where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings
Where a shareholder has not used their dividend allowance (set at £500 for 2025/26) or their personal allowance in full, consideration should be given to paying a dividend before the end of the tax year to mop up unused dividend and personal allowances This allows profits to be extracted from the company without an additional tax liability Where the company has an alphabet share structure, dividends can be tailored to the shareholder’s circumstances.
Once the dividend and personal allowances have been used up, dividends are currently taxed at 8.75% where they fall in the basic rate band, at 33 75% where they fall in the higher rate band and at 39 35% where they fall in the additional rate band From 6 April 2026, the dividend ordinary rate is increased from 8 75% to 10 75% and the dividend upper rate is increased from 33 75% to 35 75% There is no change in the dividend additional rate which remains at 39 35%
Where dividends fall in the basic or higher rate band, an additional 2% will be payable in tax if the dividend is paid on or after 6 April 2026 compared to a dividend paid before that date Where retained profits allow, consideration could be given to accelerating a dividend payment so that it is made before 6 April 2026 rather than on or after that date This will save £20 in tax for every £1,000 paid as a dividend
However, if a dividend will be taxed at the ordinary dividend rate if paid in 2026/27 and at the upper dividend rate if paid in 2025/26, there is no point accelerating the dividend – 10 75% is a lot less than 33 75% Where dividends fall in the basic or higher rate band, an additional 2% will be payable in tax if the dividend is paid on or after 6 April 2026 compared to a dividend paid before that date Where retained profits allow, consideration could be given to accelerating a dividend payment so that it is made before 6 April 2026 rather than on or after that date. This will save £20 in tax for every £1,000 paid as a dividend. However, if a dividend will be taxed at the ordinary dividend rate if paid in 2026/27 and at the upper dividend rate if paid in 2025/26, there is no point accelerating the dividend – 10.75% is a lot less than 33.75%.
For owner-managed businesses, paying school or university fees through the company can appear attractive, especially if the company has surplus cash. However, tax consequences may arise for the individual Should the company reimburse the individual, the amount counts as earnings subject to PAYE income tax as well as employee and employer Class 1 NIC Therefore, reimbursement is generally the least efficient method of funding.
Where a company pays for a course undertaken by an employee or director, the expense is only tax deductible if it is incurred ‘wholly and exclusively’ for business purposes Direct payments to an educational establishment will generally fail this business purpose requirement and are therefore not tax deductible
The most straightforward method is for the company to contract directly with the school or university The employee will be charged a benefit in kind (BIK) on the payment made, the company pays tax Class 1A NIC, but no employee NIC arises As Class 1A NIC is corporation tax deductible, this route is typically marginally more efficient than paying additional salary. For higher rate taxpayers, the corporation tax deduction rarely offsets the combined income tax and NIC exposure for the employee
An employer may lend funds to an employee to cover tuition fees A formal loan agreement should be drawn up, including interest and repayment terms
Provided the total outstanding loans do not exceed £10,000 at any point in the tax year, no taxable benefit arises on an interest-free or low-interest beneficial loan. The employee’s only cost is any interest charged under the agreement
If the loan exceeds £10,000, a taxable benefit arises based on the difference between the interest charged and HMRC’s official rate (currently 3 75%) The rate can change year on year.
This approach does not eliminate tax but alters the timing of the tax payment If the loan is later released or written off, the amount is treated as earnings subject to income tax and Class 1 NIC. The NIC is collected through PAYE, however the income tax is reported on the employee’s Form P11D The employee is then required to file a SelfAssessment tax return
Dividend planning and the settlements constraint
A child can own shares at any age (although dividends are typically held in a bare trust until the child reaches 18 years), therefore another possible route that avoids employment income is through share ownership However, the settlements legislation remains the principal obstacle. If a parent provides shares or funds to their child and the income from those investments exceeds £100 per year, the income is taxed as if it were the parent's Therefore, to have dividends taxed on the child, funds need to be provided by someone other than a parent (e.g. a grandparent).
From 6 April 2026, the 100% rate of agricultural property relief (APR) and business property relief (BPR) is only available on the first £2 5m of qualifying business and agricultural property The allowance was increased to £2 5m from £1m following extensive lobbying by farmers
Agricultural property relief (APR) allowances a person to pass on agricultural property either free of inheritance tax or at a reduced rate either during their lifetime or on their death Agricultural property eligible for relief includes growing crops, stud farms for breeding and rearing horses and grazing, short rotation coppice, land not currently been farmed under the Habitat Scheme or under a crop rotation scheme, the value of milk quotas associated with the land, some agricultural shares and securities, farm buildings, farm cottages and farmhouses
Farm equipment and machinery, derelict buildings, harvested crops, livestock and property subject to a binding contract for sale do not qualify for APR
The relief is now only available where the property is part of a working farm in the UK It can be owner occupied or let Prior to the transfer, the land must have been owned and occupied for agricultural purposes for two years if occupied by the owner, a company controlled by them or by their spouse or civil partner and for seven years if occupied by someone else (such as a tenant)
The 100% rate is available where the person who owned the farm farmed it themselves, the land was used by someone else on a short-term grazing licence or it was let on a tenancy that began on or after 1 September 1995 Some properties owned before 10 March 1981 qualify for 100% relief
Business property relief (BPR) reduces the value of an asset for inheritance tax purposes by 100% or by 50% depending on the nature of the asset Relief is currently available at the 100% rate on a transfer of a business or shares in an unlisted company Relief is available at 50% for: shares controlling more than 50% of the voting rights in a listed company; land, buildings or machinery owned by the deceased and used in a business in which they were a partner or they controlled; and land, buildings or machinery used in a business and held in a trust that the business has the right to benefit from Relief is only available if the deceased owned the business or the asset for at least two years prior to their death Shares in certain companies, such as those dealing mainly in stocks, shares, land and buildings do not qualify Relief is not available if the asset also qualifies for APR, if the asset has not been used in the business in the two years before it was passed on as a gift or it is not needed for use in the business in the future
The £2.5m allowance
The £2 5m allowance is available in addition to the nil rate band (NRB) and the residence nil rate band (RNRB) However, as the RNRB is reduced by £1 for every £2 by which the deceased’s estate exceeds £2m, being lost entirely for estates worth £2.35m and above, where a person uses their £2 5m APR/BPR allowance in full, they will not also be able to benefit from the RNRB
As with the NRB and the RNRB, where an individual’s estate does not use the allowance in full, it can be used by the estate of their surviving spouse or civil partner Once the allowance has been used in full, transfers of assets that would otherwise qualify for 100% APR or BPR will receive relief at 50%
A director’s loan account (DLA) is an accounting record that tracks funds owed by a company and its individual directors.
Usually, a DLA will be in debit (i.e. the director has taken more money out of the company which has not been otherwise repaid in the form of salary, dividends or reimbursement of expenses) However, there may be occasions where the DLA is in credit (i e when the director has put more money into the company than they have taken out). This can arise through loans, unpaid dividends, undrawn remuneration or personally funded expenses
The question is – can the director charge interest on the credit balance and, if so, what are the tax implications?
How much can be charged?
Interest can be charged but the rate should be commercially justifiable as charging an excessive rate could raise questions by HMRC as to whether the loan is used ‘wholly and exclusively’ for the purposes of the trade. Market rates fluctuate but a rate comparable to the rate the company would pay a bank for unsecured borrowing is generally considered reasonable (currently the average is 6 95% per annum but can vary between 6% and 15%)
Interest paid on a DLA is usually treated as a non-trading loan relationship and provided the loan is used ‘wholly and exclusively’ for business purposes then the interest should be deductible for corporation tax purposes For close companies, care is needed to ensure that the payments are not treated as distributions;
however, where the loan is genuine and the interest rate represents a commercial rate of return, this should not be a cause of concern.
In addition, for a close company to claim tax relief on the expense interest must be paid within 12 months of the end of the accounting period in which it has accrued
A close company is a company which is under the control of: five or fewer participators, or any number of participators if those participators are directors
A company may also be deemed ‘close’ if on winding up, five or fewer participators would be entitled to the majority of the assets Where interest is paid, the company will need to withhold income tax at the basic rate from the payment and submit a quarterly CT61 return, detailing the tax withheld and paid The director receives the net amount and a certificate of tax deducted must be issued Failure to undertake this process correctly can lead to penalties and interest.
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
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.