Newswire: March 2026

Welcome to the latest edition of Newswire – we hope you find it interesting and informative. We do everything we can to ensure all content is correct at the time of writing, but we do suggest you speak with us for professional advice, before acting upon anything that you read here.

Pensions come under Inheritance Tax rules from April 2027

Pensions are set to be drawn into the Inheritance Tax (IHT) net from April 2027, in a major change to the current rules, which means you need to know what to expect so you can prepare accordingly.

Currently, you can pass your pension onto your beneficiaries in its entirety without it being caught in the IHT net as part of your overall estate on death. But from April next year, this is set to change, and your pension may be subject to IHT if the value of your estate is high enough. The beneficiary who receives your pension may also face an income tax charge on any income they draw from it.

Pensions passed directly to spouses or civil partners will continue to be free of IHT. But any other beneficiary may face IHT on the pension that is passed on when you die, depending on the value of your estate.

 

What changes can we expect if passing on a pension fund?

The biggest change is that any pension passed onto a beneficiary other than a spouse or civil partner may be subject to IHT at 40% if the total value of your estate breaches the IHT threshold. This is currently made up of a nil rate band of £325,000, with an additional £175,000 residence nil rate band, which can be applied if you pass your home on to direct descendants. This means you have up to £500,000 each, if you have children that you can pass your family home onto.

If one spouse or civil partner dies before the other, and doesn’t use all their IHT allowances, then the surviving spouse or civil partner can use the remaining amount. This gives a total of up to £1m before IHT is applied, depending on the remaining allowance available.

Once these limits are exceeded, any amount above this level is subject to IHT at 40%. Given the average UK house price in January 2026 was £300,077, according to data from Halifax, and that the pension pot will be included in the estate from April 2027 onwards, it will be easier to breach. This means more estates are likely to be affected.

What happens to any death-in-service benefits?

Death-in-service benefits – which are paid from the pension scheme if you die while still working – will be outside of IHT. But any other death benefits paid, such as a lump sum from the pension fund, or any remaining pension to be passed on, will generally be included in the estate for IHT.

If you die before you reach 75, then anyone who you pass your remaining pension pot to, can usually draw money from the pension without income tax, but it may still be subject to IHT, unless it is passed directly to a spouse or civil partner or your overall estate is below the threshold.

If you die after age 75, then as well as IHT, any income drawn from the pension by the beneficiary will also be subject to income tax. If it is passed to your spouse or civil partner, it won’t be subject to IHT, but he or she will still pay income tax on withdrawals in this case.

How can you reduce the impact of rule changes next year?

The best way to reduce the impact of these changes when you’re passing on your pension fund, could be to start drawing down more of your pension and ‘gifting’ money to those you want to receive it. But there are rules you need to consider before you do this.

For example, you are allowed to make regular gifts of any amount of money to someone, providing it doesn’t affect your standard of living. You can also make a larger, one-off gift, but you must survive the gift by seven years for it to be fully outside of the IHT net. This is known as a Potentially Exempt Transfer. Taper relief may reduce the IHT payable if the death occurs between three and seven years after the gift is made, until it is excluded from IHT entirely.

You can also gift up to £3,000 a year in total without it being subject to IHT, even if your estate exceeds the threshold on death. If you missed gifting £3,000 in one year, you could double up in the next year. But this allowance can only be carried forward for one year.

Outside of this, you can gift up to £250 per person per year to as many people as you want, but you can’t combine this with the £3,000 gift. If you have a child getting married, you can gift up to £5,000 without the spectre of IHT, or £2,500 for a grandchild, or £1,000 to anyone else.

These rules can be helpful, but you should only do this if you are able to live comfortably on the income you have remaining from your pension, or from other sources. It is always best to take advice before you make any of these decisions, to ensure you’re doing the right thing and not breaching any rules or creating problems for those left behind.

Are your employees paid the minimum wage for all hours worked?

Employees must be paid the minimum wage for all the hours they work, and while you may think you pay the right amount, it is important to check you have paid everything due.

The basic calculation to determine you have met your obligations in relation to the National Minimum Wage (NMW) can be done by dividing total pay by the number of hours worked in the reference period – which could be a week or a month – and the amount paid per hour must be at least the NMW. The levels for the NMW currently are £12.21 an hour for those over 21, £10 an hour for those 18 to 20, and £7.55 for those aged 16 to 17 and apprentices.

From April 2026, these rise to £12.71 an hour for anyone aged 21 or above, £10.85 for anyone aged 18 to 20, and £8 an hour for those aged 16 and 17 or apprentices.

When calculating if your staff have received the NMW for all their hours, you need to consider every extra hour they may have worked, which is where the calculation can become more complex.

 

How do you identify all hours worked?

This may seem simple to answer, but there are times when you may not realise that employees should be paid for additional time they have worked.

For example, any time they have stayed late to finish a piece of work, even if they volunteered to do so, still counts towards their hours. If they open or close the office or other commercial premises in the morning or evening, that time counts towards their work hours. So does training, if they’re required to do it, and any other time they are on site and required to work.

You can’t exempt yourself from paying for these hours by thinking ‘they’re salaried’, or ‘they volunteered to do it’. No matter why they are at work for longer than the hours they are expected to be, they must be paid the NMW for all of them.

 

Calculating that all hours are paid at the NMW

To make sure each person’s pay is at the right level, you need to consider the employee’s basic pay, any bonuses they may have been paid over and above their basic pay – although some are excluded from the calculation which your accountant can tell you more about – and any commission they may have been paid.

You don’t need to include overtime paid at a premium rate, such as time and a half or double time at Christmas or Easter, for example. You also don’t include expenses, benefits-in-kind, or tips, unless they are paid through payroll. But there are conditions to be aware of, so it would be best to speak to your accountant to make sure you’re including everything you should, and excluding anything that doesn’t need to be considered.

Once you have all this information, you can do the calculation to determine that all the hours worked have been paid at the NMW or above. But employers can be caught out if an employee is paid, say, a £100 day rate, and they work a 12-hour day. Or they are salaried to work 40 hours a week, but end up doing 50 hours overall. It isn’t always a simple calculation. So, if you need assistance, please speak to your accountant for advice to ensure you’re complying with all relevant regulations around the NMW.

 

We can help you

If you are unsure about how to do these calculations, or simply want reassurance that you’re doing everything right, then please contact us and we will do everything we can to assist you.

 

Rewards for anyone reporting tax avoidance or evasion

Whistleblowers reporting on serious tax avoidance or evasion are set to get a significant boost to their rewards from April, thanks to a change in the way HMRC pays for intelligence.

Under the Strengthened Reward Scheme, people reporting on tax evasion or avoidance where HMRC collects more than £1.5m in tax, may get a significant financial reward.

This kind of high-value avoidance or evasion usually involves large companies, wealthy individuals, or offshore or avoidance schemes, and reporting this to HMRC could lead to a big payout.

What can you expect to receive?

If the information you provide to HMRC leads to it recouping at least £1.5m in tax, you could receive between 15% and 30% of the tax collected, not including penalties and interest. However, the rewards are not guaranteed, they are still paid at the discretion of HMRC.

Some people won’t qualify for an award, including if: 

·         You are or were a civil servant (or contracted to work in the government) and got the information while you were employed.

·         You are the taxpayer involved in the tax evasion or avoidance, or you planned and started the actions that led to the tax evasion or avoidance. 

·         The information you provide may already be known to HMRC or could have been identified through routine processes. 

·         The reward might directly or indirectly lead to funding illegal activity.

·         You are required by law to disclose, or not disclose, the information. 

·         You are acting on behalf of someone else.

·         You got the information from someone who would not have been eligible for a reward themselves.

·         You are providing the information anonymously (anonymous submissions will be accepted but no payment will be made).

 

Source: Gov.uk

 

HMRC is asking anyone who knows about tax avoidance or evasion to send a report, even if they’re not eligible for a reward.

 

How do you send a report?

You can send a report to HMRC via this link if you think a person or a business is avoiding or evading tax payments. You can make the report anonymously if you wish, but you would not be eligible for a reward. To be eligible, you must provide contact details.

Any information you do provide will be confidential, and you will be asked to include:

·         What type of activity you are reporting (1,200 character limit).

·         How you know about it.

·         What your relationship is to the individual or business.

·         How long it has been going on for.

·         The total value, or estimation, of the activity.

·         A description of any supporting information you have or know of (500 character limit).

 

Source: Gov.uk

 

You can’t add attachments to the report, but you can let HMRC know you have additional information if necessary. Once the report is sent, you’ll get confirmation of receipt from HMRC, and you are asked not to send another report on the same activity.

 

Also, before you send the report, HMRC asks that you don’t try to find out more information yourself, don’t let anyone know you’re making a report, and don’t encourage anyone to commit a crime to find out more information.

 

If HMRC wants more information or you’re eligible for a reward, it will contact you. Bear in mind it could be years before you receive an award payment, as it can take a very long time to investigate tax evasion or avoidance.

We can help you meet your obligations

If you need information about how this scheme works or have any concerns about this, then please get in touch and we would be happy to give you the guidance you need.

Will it still be sensible to take income in dividends?

Increases in the dividend tax levels from April 6 are set to eat into the income of directors, who will often pay themselves in dividends, but is it still sensible to take payments this way for the coming tax year?

The dividend tax rates are set to rise by 2 percentage points from April 6. This will raise the Basic Rate from 8.75% to 10.75%, and the Higher Rate from 33.75% to 35.75%. But the Additional rate of 39.35% will remain the same.

So, does this rise create a case for paying yourself via a salary rather than dividends going forwards, or are dividends still the best way for directors to pay themselves from their companies?

Dividends still win, but a mix of salary and dividends is best

Even though the increase in dividend tax rates will reduce the benefit of paying yourself in dividends, it still makes more sense financially to take dividends than it would to pay yourself a salary alone in most cases.

By taking a salary, your company would need to pay Employer National Insurance Contributions (NICs) on your salary at 13.8% for any amounts of £9,100 or above. You would also need to pay employee NICs on your salary above £12,570 – which is the level of the personal allowance – at 8% up to £50,270, and at 2% above this level. On top of this, you also pay income tax at 20% as a basic rate taxpayer, 40% as a higher rate taxpayer, or 45% as an additional rate taxpayer.

By taking dividends, assuming your Corporation Tax has already been paid and your profits are high enough for you to do so, you would usually have more in your pocket as they are not subject to NICs like a salary. Your company would pay no NICs, and neither would you, and the dividend tax levels are also below the higher rate and additional rate income tax bands.

If you’re not earning much in dividends, you should check with your accountant whether you’re better off taking your earnings as a salary or in dividends, as there could be a point where the balance tips in favour of salary. But typically, you are still better off taking dividends, even though the benefits are narrowing.

Still, the best way to pay yourself from your company is likely to be via a mix of the two. This would mean taking a small salary, equivalent to the personal allowance of £12,570, and then taking the remainder in dividends. This means you pay some NICs, which will still qualify you for the State pension, but you will pay little or no income tax on the salary, and a salary is also deductible for Corporation Tax.

Let us help you

If you are interested in seeing how you can legitimately reduce your tax burden through dividends, then please get in touch with us and we will do what we can to help you.

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