The Finance (No. 2) Bill 2025 to 2026 received Royal Assent on 18 March 2026, becoming the Finance Act 2026. The Act gives legal effect to a range of measures announced at the Autumn Budget 2025 and introduces changes affecting tax compliance, business investment and inheritance tax planning.
Not all measures are taking immediate effect, with the Act establishing the legal framework for several changes that will shape tax planning over the coming years.
Tax rates and allowances
The Finance Act 2026 sets income tax rates and confirms allowances for the 2026 to 2027 tax year and beyond, including changes affecting dividend income and related income tax treatment.
Although the structure of income tax remains unchanged, the adjustments to rates and thresholds will affect owner-managed businesses that extract profits through dividends, as well as individuals with investment or property income.
For SMEs, this reinforces the importance of reviewing profit extraction strategies and ensuring that remuneration planning remains aligned with current tax rates.
Mandatory registration of tax advisers
The Act includes provisions intended to support the introduction of a mandatory registration regime for tax advisers. The policy reflects HMRC’s focus on improving standards within the tax advice market and reducing non compliant behaviour.
Under the proposed framework, tax advisers may be required to register with HMRC or an approved professional body, with registration linked to meeting defined standards of competence and conduct. Further detail on how the regime will operate in practice is expected through secondary legislation and accompanying HMRC guidance.
Businesses will need to ensure that any adviser they engage meets the relevant standards once the regime is implemented. Over time, this is likely to lead to closer scrutiny of adviser credentials, clearer engagement terms and greater emphasis on accountability in tax advice.
Inheritance Tax reform: APR and BPR
The Finance Act 2026 introduces reforms to inheritance tax reliefs, including Agricultural Property Relief and Business Property Relief. These reliefs have historically played a central role in succession planning for family businesses and rural enterprises. Changes to eligibility criteria, valuation or qualifying conditions can materially affect whether relief is available and the extent to which business assets are protected from inheritance tax.
For business owners, this increases the need to review existing succession plans and ownership structures. Arrangements that previously qualified for relief may need reassessment in light of the updated rules.
New 40% First Year Allowance
A new 40% First Year Allowance has been introduced for certain qualifying expenditure. This sits alongside existing capital allowances regimes and provides an additional incentive for business investment.
The allowance enables businesses to accelerate tax relief on qualifying capital expenditure, reducing taxable profits earlier in the investment cycle and supporting short term cash flow. At the same time, the benefit of the relief will depend on how and when expenditure is incurred, meaning that timing and eligibility need to be considered carefully to ensure the correct treatment.
For SMEs planning capital investment, this creates an opportunity to bring forward expenditure where commercially viable, while ensuring that claims are aligned with the detailed conditions of the regime.
Changes to company reconstruction rules
The Act makes amendments to company reconstruction provisions, which govern how reorganisations and restructuring transactions are treated for tax purposes.
These changes are likely to affect transactions involving share exchanges, group reorganisations and the movement of assets within corporate structures. The intention is to refine the operation of the rules and address areas where outcomes may not align with policy objectives.
Businesses considering restructuring activity should review the updated rules to ensure that transactions achieve the intended tax treatment.
Incorporation Relief now subject to claim
The Finance Act 2026 introduces a requirement to actively claim Incorporation Relief, rather than relying on it applying automatically where conditions are met.
Business owners transferring a sole trade or partnership into a company will need to ensure that the relief is properly claimed within the relevant time limits.
Failure to do so could result in unintended capital gains tax liabilities, even where the substantive conditions for relief are satisfied.
Abolition of notional tax credit for non-UK residents
The Act abolishes the remaining notional tax credit on certain distributions received by non UK residents. This reflects a continued move towards simplifying the tax treatment of cross border income.
For UK based SMEs, the impact is most relevant where there are overseas shareholders. The change may affect how distributions are taxed in the hands of non resident recipients and could influence decisions on profit repatriation and group structuring.
Practical implications
Taken together, the Finance Act 2026 continues the move towards more formalised tax compliance and targeted reform of reliefs. There is a clear increase in the importance of documentation and procedural accuracy, alongside a need for business owners to revisit succession planning where assets may previously have qualified for relief. At the same time, the changes introduce opportunities for more tax efficient investment through capital allowances, while also placing greater focus on the standards and accountability of tax advisers.
For most SMEs, the immediate priority is to identify which measures take effect now and which will follow over time. Early engagement with advisers, combined with a review of existing tax positions, will help reduce the risk of unexpected liabilities and ensure that available reliefs are used appropriately.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
