16 January 2026
Scottish Budget presented
The Scottish government has presented its proposed Budget for the 2026-27 tax year. On the devolved elements of Scottish income tax applicable to the non-savings, non-dividend income of Scottish-resident taxpayers, the same six rates of income tax as applicable in 2025-26 are proposed for 2026-27. The government proposes increases to the 19% Starter rate band and the Basic rate band, to increase the effective income thresholds for paying both the Basic (20%) and Intermediate (21%) rates of tax by 7.4% each, to £16,537 and £29,526 respectively. There were no proposals to change the Higher (42%), Advanced (45%) and Top (48%) rates. A government factsheet on the 2026-27 income tax proposals is available here.
No changes are proposed to standard residential and non-residential land and buildings transaction tax (LBTT) rates or bands. Two new high value council tax bands, for properties valued between £1 million and £2 million, and for properties valued above £2 million, are proposed from 1 April 2028.
Spring Forecast date announced
HM Treasury has announced that a ‘Spring Forecast’ event will take place on Tuesday 3 March 2026.
Finance Bill and National Insurance Contributions Bill: progress update
Finance Bill (No. 2) Bill 2024-26, the Finance Bill introduced to enact many of the Budget’s tax announcements, began its Committee Stages this week. Selected provisions of the Bill were considered by MPs sitting in a Committee of the whole House. Six government amendments relating to inheritance tax agricultural property relief and business property relief were approved. The Bill’s other clauses and schedules will be considered by a separate Public Bill Committee, to be concluded by 26 February 2026 at the latest.
Separately, the Committee of the whole House stage for the National Insurance Contributions (Employer Pensions Contributions) Bill, which will create a power for the Treasury to apply NICs to salary-sacrificed pension contributions that exceed £2,000 per annum from April 2029, has been scheduled for 21 January 2026. The Bill’s remaining Commons stages (Report stage and Third Reading) have been scheduled for the same date.
OECD publishes Pillar Two ‘Side-by-Side package’
The G20/OECD Inclusive Framework has published details of a ‘side-by-side package' in relation to the Pillar Two global minimum tax rules. The package covers a number of new or extended safe harbours, and the side-by-side system, which will allow the US tax regime to sit alongside Pillar Two. For further details, see our alert. UK Exchequer Secretary to the Treasury, Dan Tomlinson MP, issued a written statement confirming that measures to implement the side-by-side agreement with the US in UK legislation will be subject to technical consultation and then brought forward in the next Finance Bill, to be applied for accounting periods beginning on or after 1 January 2026.
HMRC publish draft guidance on transfer pricing, permanent establishments and diverted profits tax reforms
HMRC have updated their International Manual with draft guidance relating to reforms to the UK’s transfer pricing, permanent establishments, and diverted profits tax legislation, included in Finance (No. 2) Bill 2024-26. The changes are, in most cases, due to take effect for accounting periods commencing on or after 1 January 2026. For further details please see our alert. A new chapter, INTM414000, covers the reforms to the UK’s transfer pricing legislation. A separate new chapter, INTM489100, covers the repeal of diverted profits tax as a separate tax and creation of new unassessed transfer pricing profits (UTPP) rules within corporation tax. In addition, updates have been made to existing manual pages within INTM260000, regarding reforms to the UK’s permanent establishments legislation.
UK tax treaties update: Andorra, Portugal, Peru and Romania
HMRC have updated their pages Andorra: tax treaties and Romania: tax treaties to confirm that the 2025 UK-Andorra Double Taxation Convention and the 2024 UK-Romania Double Taxation Agreement and Protocol entered into force on 22 December 2025. HMRC have also updated their page Portugal: tax treaties to confirm that the 2025 UK-Portugal Double Taxation Convention and Protocol entered into force on 29 December 2025. The provisions of each treaty have effect in line with the provisions in the relevant entry into force article.
It has been reported that the 2025 UK-Peru Double Taxation Convention and Protocol will enter into force on 21 January 2026. It is expected that HMRC will update their page Peru: tax treaties accordingly, once the treaty has entered into force.
HMRC update guidance on withholding tax on payments of interest overseas
HMRC have added a page to their International Manual (see INTM413205) setting out that they are reviewing their processes and guidance in respect of withholding tax on payments of interest overseas. At present, where certain criteria are met, HMRC allow settlement of disclosures on the basis of charging only late payment interest (see INTM413230). However, HMRC have signalled in the guidance update that this concessionary approach could be changed following the review.
Hotel La Tour Limited – VAT recovery on fundraising share sale
To fund the development of a new hotel in Milton Keynes, Hotel La Tour Ltd (HLT) sold its existing hotel in Birmingham by way of the sale of shares in a subsidiary which owned the hotel. HLT sought to recover the VAT incurred on the marketing and legal costs associated with the sale on the basis that the relevant services were directly and immediately linked to its downstream taxable activities, namely developing and operating the new hotel. HMRC denied VAT recovery on the basis that the costs related to the exempt share sale. The First-tier Tribunal (FTT) and the Upper Tribunal (UT) found in HLT’s favour, and the Court of Appeal (CoA) found in favour of HMRC. The Supreme Court (SC) has upheld the CoA’s judgment.
The SC found that there was a direct and immediate link between the inputs and the sale of the shares, rather than the overall business, and since that share sale was exempt, the VAT was not deductible. The SC agreed with the CoA that the FTT and UT erred in their application of case law, by relying on the way in which the price of the shares was set (the ‘costs component’ concept) to reject the possibility of a direct and immediate link between the inputs and the share sale. The SC also rejected HLT’s argument that recent CJEU jurisprudence has erased the distinction between exempt and out of scope share sales. Further, the SC confirmed that recent CJEU cases had not modified the direct and immediate link as it applies to share sales to focus on the purpose of the transaction, i.e., what the funds were to be used for. Finally, the SC dismissed HLT’s argument that, as HLT’s supplies of management services to its subsidiary were “disregarded” as intra-VAT group, the share sale was outside the scope of VAT and that the fees were directly and immediately linked to the overall business. The SC dismissed HLT’s appeal.
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast will take place on Wednesday 11 February 2026 at 12.00 GMT/13.00 CET. In UK tax update – February, our panel will discuss topical tax developments of relevance to UK businesses in relation to corporate taxes, employment taxes and indirect taxes. Please visit our Dbriefs website for more information, and to view any other recent webcasts on demand.