Welcome to our February 2026 Tax E-News. As always, we hope you find this update helpful and relevant. If anything below applies to you, or you’d like to explore the opportunities in more detail, please get in touch with your usual Wilson Partners contact.
There’s still time for year-end tax planning
With the tax (and financial) year end fast approaching, now is a good moment to review your position and check you’re making full use of the reliefs and allowances available. A timely conversation now could make a meaningful difference. Below are some areas worth considering.
If you have surplus cash, a simple starting point is to ensure you are maximising your ISA allowances for the 2025/26 tax year. The current allowance is £20,000 per person.
If you’re aged between 18 and 39, a Lifetime ISA may also be worth considering. This can be used to save towards a first home or retirement. You can contribute up to £4,000 per year (until age 50), provided your first contribution is made before your 40th birthday. The government adds a 25% bonus, up to £1,000 per year. The £4,000 Lifetime ISA contribution counts towards the overall £20,000 ISA limit.
You may also wish to review your pension contributions ahead of 6 April 2026.
Under current rules, pension contributions benefit from tax relief at the basic rate. For example, a £4,000 personal pension contribution is topped up by the government to £5,000. Higher-rate taxpayers can claim a further £1,000 through their tax return, reducing the net cost of the contribution to £3,000.
Additional pension contributions can be particularly effective where income falls between £100,000 and £125,140. In this range, pension contributions reduce “adjusted net income” for personal allowance purposes. As the personal allowance is withdrawn at a rate of £1 for every £2 of income over £100,000, this can create an effective tax saving of up to 60%.
The timing of contributions is important, and there are annual limits on how much can be paid tax-efficiently. Please speak to us to understand how these rules apply to your specific circumstances.
From 6 April 2026, the basic and higher rates of income tax on dividends will increase by two percentage points. The basic rate will rise from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%.
The higher rate increase will also apply to the ‘penalty tax’ charged on certain loans made by companies to their shareholders on or after 6 April 2026.
With this in mind, it may be worth reviewing the timing of dividend payments and company loans before the end of the 2025/26 tax year, where this is commercially appropriate.
As always, we recommend speaking to us before taking any action so that your wider tax position can be fully considered.
For businesses with a 31 March or 5 April year end, the tax year end is a key date for capital allowances. To qualify for relief, expenditure on equipment must be incurred on or before the end of the accounting period. This means the timing of planned investment can be critical.
Limited companies and unincorporated businesses can currently claim a 100% deduction on the first £1 million spent on new and used equipment in any 12-month period under the Annual Investment Allowance (AIA). The AIA does not apply to cars, although a separate 100% relief is available for new zero-emissions cars.
In addition to the AIA, limited companies purchasing new (not second-hand) equipment can fully expense the cost against taxable profits, with no financial cap on qualifying expenditure.
For expenditure incurred on or after 1 January 2026, a new 40% first-year allowance is available to both limited companies and unincorporated businesses for qualifying assets (excluding cars and second-hand assets). This will be particularly helpful where the £1 million AIA limit has already been used.
Where assets are acquired under hire purchase, capital allowances can be claimed on the full cost, provided the asset is brought into use by the end of the accounting period, even though payments may be spread over time. The date the asset comes into use is therefore important.
If you have not yet used your £3,000 Capital Gains Tax annual exemption for 2025/26, you may wish to consider whether gains can be realised before 6 April 2026.
It is also worth noting the upcoming increase in CGT rates for gains qualifying for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR). These rates increased from 10% to 14% on 6 April 2025 and are due to rise again to 18% from 6 April 2026. This provides a further incentive to accelerate qualifying disposals where possible.
Paying voluntary National Insurance Contributions
To qualify for the full State Pension, an individual generally needs 35 qualifying years of National Insurance Contributions. Where there are gaps, these can often be filled by paying Class 3 voluntary Contributions.
Class 3 Contributions currently cost £17.75 per week (£18.40 from 2026/27). Voluntary Contributions can usually only be paid for the previous six tax years, meaning gaps for 2019/20 must generally be filled by 5 April 2026.
Inheritance Tax reliefs – a welcome U-turn
The government has announced an increase to the proposed cap on the 100% rates of Agricultural Property Relief (APR) and Business Property Relief (BPR), which are due to apply from 6 April 2026. The cap has been raised from £1 million to £2.5 million.
As a result, individuals will be able to pass on up to £2.5 million of qualifying agricultural and business assets free from Inheritance Tax.
This follows another significant amendment announced in the 2025 Autumn Budget, which confirmed that any unused allowance can be transferred between spouses or civil partners. Taken together, these changes mean that spouses and civil partners could potentially pass on up to £5 million of qualifying assets free of IHT.
MTD for Income Tax – nearly there
Making Tax Digital (MTD) for Income Tax will become mandatory for a large number of self-assessment taxpayers from 6 April 2026, with further groups being brought in during 2027 and 2028.
If your combined turnover from a sole trade or property business exceeded £50,000 in the 2024/25 tax year, you are likely to fall within the MTD regime from April 2026.
Over the past year, we have helped many clients prepare for MTD. If you would like to discuss what this means for you and how to get ready, please speak to us.
From 6 April 2026, employees will no longer be able to claim tax relief on employment income for the costs of working from home. This change has been introduced due to widespread incorrect claims.
The relief (currently £6 per week, or actual costs if higher) remains available for 2025/26, but only where the employee is contractually required to work from home.
The withdrawal of the relief will result in an annual Income Tax increase of £62 for basic rate taxpayers and £124 for higher rate taxpayers.
From 2026/27, where an employer reimburses home-working costs and the employee is contractually required to work from home, those payments will be free of tax and NICs.
Supreme Court rules against Hotel La Tour
In a recent decision, the Supreme Court dismissed Hotel La Tour Ltd’s appeal regarding the recovery of input VAT on professional fees incurred during the sale of shares in the company owning its Birmingham hotel.
HMRC argued that the share sale was a VAT-exempt transaction and that input tax could not be reclaimed where there was a direct and immediate link between the costs incurred and an exempt supply.
Hotel La Tour contended that the fees related to the wider taxable activities of the hotel group, as the sale proceeds were intended to fund a new hotel in Milton Keynes. Although both the First-tier and Upper Tribunals initially agreed with this position, the Court of Appeal disagreed, concluding that the professional fees were cost components of the share sale itself.
The Supreme Court upheld the Court of Appeal’s decision, confirming that there was a direct and immediate link between the professional fees and the exempt share sale. The appeal was therefore dismissed.
DIARY OF MAIN TAX EVENTS
FEBRUARY / MARCH 2026
| Date | What’s Due |
| 01/02/26 | Corporation tax for year to 30/04/2025, unless quarterly instalments apply. |
| 19/02/26 | PAYE & NIC deductions, and CIS return and tax, for month to 5/2/26 (due 22/2 if you pay electronically). |
| 01/03/26 | Corporation tax for year to 31/05/2025, unless quarterly instalments apply. |
| 19/03/26 | PAYE & NIC deductions, and CIS return and tax, for month to 5/3/26 (due 22/3 if you pay electronically). |
