Monthly Newsletter April 2026

Welcome to the April 2026 edition of the ASWATAX newsletter.

Welcome to the April edition of the ASWATAX newsletter. The new tax year is underway. This month we cover three topics that sit outside the usual April conversation: a specific legislative change that took effect quietly on 6 April and that many business owners have already missed, the pension IHT reform that is now exactly twelve months away, and a short reflection on something we see in our practice every week.

As always, if any of the topics covered raise questions for your own position, please do not hesitate to contact us.

1. Incorporation Relief: The Change That Happened Quietly on 6 April

If you have incorporated a business or a property portfolio since 6 April 2026, or are planning to do so, there is one change from this tax year that you cannot afford to overlook. Incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 is no longer automatic. From 6 April 2026, it must be actively claimed.

Incorporation relief is the mechanism that allows a sole trader, partnership, or property business to transfer its assets into a limited company without triggering an immediate capital gains tax charge on the difference between the market value of the assets and their original acquisition cost. For a property portfolio with significant appreciation since purchase, or a business with goodwill built over years, that deferred gain can be very large. Under the old rules, relief applied automatically provided the conditions were met. Under the new rules, the taxpayer must make an election to claim it, within two years of the end of the tax year in which the incorporation takes place.

To understand why this matters in practice, consider a straightforward example. A property investor and their spouse have built a portfolio of six residential properties over fifteen years. The combined market value is £2.4 million. Their aggregate acquisition cost was £900,000. The latent gain across the portfolio is therefore £1.5 million. On incorporation, without s.162 relief, CGT arises on that entire gain at rates of up to 24%, producing a charge of up to £360,000 before any reliefs. With s.162 relief properly claimed, that gain is deferred into the base cost of the shares received in the new company and CGT is only triggered on a future disposal. Under the old rules, the relief applied automatically. Under the new rules, the taxpayer who incorporates without making the election will receive a CGT assessment and have no grounds to challenge it.

For an incorporation completing in 2026/27, the deadline to claim is 5 April 2029. That sounds distant. But the claim must be based on accurate valuations, complete documentation of the transferred assets, and a detailed analysis of whether the conditions are met. Leaving it to the last moment is a risk not worth taking, and two years passes faster than most people expect.

The conditions for the relief itself have not changed and they are not trivial. The business must be transferred as a going concern. The whole business and all of its assets must transfer to the company, not just selected properties or assets. And the consideration received by the transferor must be wholly or partly in shares in the acquiring company. The cash extraction question that follows incorporation is therefore important: extracting cash from the company too quickly after the transfer can be treated by HMRC as part of the consideration, undermining the conditions for relief.

For property businesses specifically, the question of whether the portfolio constitutes a business rather than a passive investment remains the most contested point of risk. HMRC's position is that a portfolio of residential properties managed at arm's length through a letting agent, without active day-to-day involvement by the owner, may not meet the business test. The more the owner can demonstrate active management, the stronger the position. Professional advice before any transfer is essential, and the earlier that advice is taken the more options are available.

What has changed is simply that silence is no longer enough. A taxpayer who incorporates, meets all the conditions, and does nothing will not receive the relief. The gain will crystallise and a CGT charge will arise. This is a material departure from the position that applied for decades and it has received almost no coverage outside specialist tax publications. If you are planning an incorporation, or if you have incorporated since 6 April and nobody has yet raised the election with you, please contact us.

2. Pension IHT: Twelve Months to Go

From 6 April 2027, unused pension funds will be brought within the scope of inheritance tax for the first time. This is the single most significant change to pension planning in a generation, and with twelve months now remaining, the window to act is open. It will not stay open indefinitely, and many of the planning routes available today require time to implement properly.

Under the current rules, a pension fund sits entirely outside the estate for IHT purposes. On death, unused funds pass to nominated beneficiaries free of any IHT charge. Depending on the age of the deceased at death, the inherited funds may also pass free of income tax, or be subject to income tax on drawdown at the beneficiary's marginal rate. In either case, the pension has historically been one of the most IHT-efficient ways to hold and pass on wealth, and many clients have deliberately left pensions untouched as part of an estate planning strategy, drawing on other assets first.

From April 2027, that strategy changes. The unused pension fund will be included in the estate and taxed at 40% in the normal way. For a beneficiary who then draws down from an inherited pension and pays income tax on top of the IHT already borne on the fund, the combined effective rate can reach be higher than the additional rate of 45%. This is the double tax problem that has been widely discussed since the announcement, and it is real.

The interaction with the nil rate band is also important. Where the pension fund forms part of a larger estate already above the IHT threshold, the entire fund is taxed at 40% with no nil rate band available to absorb it. Where the estate is close to but not yet above the threshold, the pension fund may push it over, triggering IHT on assets that would previously have been exempt. The cascading effect on previously clean estate plans is something every client with a meaningful pension fund and a taxable estate should be modelling now.

What can be done? The options depend on the individual's age, health, income needs, and estate composition, but the conversation typically covers several areas. Drawing down from the pension now and making gifts, whether outright or into trust, starts the seven-year clock and progressively removes value from the estate. Reviewing the nomination form is essential: in some family structures, nominating a spouse or civil partner may defer rather than eliminate the IHT charge, and the optimal nomination strategy post-April 2027 may look different from what was appropriate before. For clients with very large pension funds, the question of whether to continue making contributions purely for wealth accumulation purposes, or to redirect that capital into other structures such as a Family Investment Company, is also worth examining.

None of these conversations is straightforward and none of them should be rushed. The clients who are best placed when April 2027 arrives will be the ones who reviewed their position in 2026 with time to model the options, take decisions carefully, and implement whatever changes are appropriate. If you have a pension fund with a material value, or your estate is already close to or above the IHT threshold, please contact us to arrange a review.

3. The Cost of Doing Nothing

We want to use part of this newsletter to say something that sits slightly outside our usual format. It is not about a specific piece of legislation or a deadline. It is about something we have observed consistently across our practice over the last two or three years, and that we think is worth saying plainly to the clients and contacts who read this newsletter.

The most common issue we encounter is not a complicated structure, a poorly drafted document, or a missed technical point. It is something much simpler. It is the gap between knowing something needs attention and actually getting around to addressing it. We see it in almost every area of our work, and the consequences, when they eventually surface, are almost always more significant than they would have been had the matter been dealt with when it first arose.

The landlord who knew he should review his portfolio structure after Section 24 was introduced but assumed it could wait another year. The business owner who always intended to put a shareholder agreement in place but never found the right moment, until a co-director became ill and the question became urgent. The couple who knew their overseas assets were probably caught by UK IHT but assumed the rules must contain some protection they had not yet been told about. The director with a growing overdrawn loan account who told himself he would deal with it at year end, and then at the next year end, and then the one after that, until the bill arrived and the options had narrowed considerably.

These are not careless people. They are busy people, running businesses and managing their affairs as best they can alongside everything else. The issue is rarely a lack of concern. It is a lack of time, or a reluctance to open a conversation that might reveal a problem larger than expected, or simply the natural human tendency to defer something that has no immediate deadline attached to it.

What we have found, consistently, is that the problems are almost always more manageable when they are addressed early. The director's loan account that would have cost a relatively modest amount to restructure cleanly three years ago has compounded into a much larger issue. The estate that would have had several good planning options available five years ago now has fewer, because the seven-year clock on gifts was never started and health has changed. The incorporation that should have happened while the portfolio values were lower now carries a much larger latent gain and the CGT cost of getting it wrong is correspondingly higher.

The cost of a proper tax review is a fraction of the cost of not having one. And unlike most costs, the cost of inaction tends to fall at exactly the moment when it is too late to do anything about it.

We are not suggesting that every client needs to be in constant contact with their advisers, or that every financial decision requires a formal engagement. We are saying that if there is something sitting at the back of your mind, a structure that has not been reviewed, a will that has not been updated, a business you have been meaning to plan around, a property portfolio that has grown in value and complexity since anyone last looked at it properly, April is a reasonable moment to act on it. The new tax year is underway. The rules are more complex than they were. And time, in tax planning, is almost always the most valuable resource you have.

If there is something we can help with, please get in touch.