In brief
Whilst no tax rises or policy changes were announced in the Spring Statement, proposed amendments to the Finance Bill (which is currently making its way through Parliament following the Autumn Budget) were published, featuring significant changes regarding the tax treatment of offshore income gains (OIGs) (gains arising on the disposal of an interest in a non-reporting offshore fund). There are implementation provisions in relation to inheritance tax and business property relief. An Economic and Fiscal Outlook report was published by the Office for Budget Responsibility.
In more detail
On Tuesday 3 March, Chancellor Rachel Reeves delivered her 2026 Spring Statement. The Statement was designed to project steadiness rather than to launch new policy initiatives. There were therefore no announcements of new tax rises or headline policy shifts for private clients, with the Statement being predominantly made up of data reports and forecasts.
However, this does not mean that this was a fiscally uneventful spring. Tax reforms that were announced at the 2024 and 2025 Autumn Budgets are due to come into force soon, on 6 April 2026. Further, proposed amendments to the Finance Bill included several small but potentially significant changes, including to how OIGs are to be taxed in certain cases. Taking a broader view, the Economic and Fiscal Outlook report from the Office for Budget Responsibility (OBR) points to a still fragile economic outlook and warns that the unfolding political tensions could force further fiscal decisions later in the year.
Key takeaways
Key measures of which taxpayers should already be aware that are coming into force on 6 April 2026 include:
- Significant changes to business property relief and agricultural property relief for inheritance tax will come into force, applying 100% relief up to a combined GBP 2.5 million cap across both reliefs, with 50% relief on the excess. This cap was an increase to the GBP 1 million amount that the Labour Government had initially proposed. Where the spousal exemption applies, there is a combined cap of up to GBP 5 million on the second death.
- Dividends relating to post-departure trade profits will be within the scope of the temporary non-residence rules.
- The capital gains tax rate that applies when claiming Business Asset Disposal Relief or Investors' Relief on disposals will increase from 14% to 18%.
- Basic and higher dividend tax rates are set to increase by 2% from 6 April 2026. However, the additional rate for dividends remains unchanged at 39.35%.
- The inheritance tax exemption for charitable gifts made on death will be narrowed. Gifts left to trusts for charitable purposes will no longer qualify for the exemption unless the trust meets a broader definition of charity, including specific requirements for jurisdiction, registration, and management. This change has applied to lifetime charitable gifts since 26 November 2025, following its announcement in the 2025 Autumn Budget.
- The scope of inheritance tax will be expanded so that UK agricultural land will always be subject to inheritance tax, even if it is held through a non-UK entity. This mirrors the existing approach for UK residential property, which is already liable to inheritance tax regardless of whether it is owned indirectly via a non-UK entity by someone who is not a UK long-term resident.
To see our previous Client Alert on the 2025 Autumn Budget in November (discussing the APR/BPR changes and changes to the settled property regime in further detail) please use this link: United Kingdom Autumn Budget 2025.
Key takeaways from the Spring Statement and OBR report include:
- Expected Gross Domestic Product (GDP) growth for 2026 is 1.1%, down from 1.5% in 2025.
- Income tax and National Insurance Contributions (NICs) are forecast to increase significantly, reaching GBP 480 billion in 2025/26 and GBP 600 billion by 2030/31, mainly due to frozen tax thresholds and strong earnings growth.
- A temporary boost to income tax receipts between 2026/27 and 2027/28 is expected, due to the Temporary Repatriation Facility (TRF) and its special tax rates for former non-UK domiciled individuals.
- The overall "tax take", comprised mainly of income tax, NICs, VAT, and corporation tax, is expected to rise from 34.5% of GDP in 2024/25 to 38.5% in 2030/31, marking a post-1945 high.
- The fiscal headroom has increased by GBP 1.9 billion since the Autumn Budget. However, this is still slim by historic standards. It appears slimmer still in the face of recent global developments, especially as the OBR's analysis was prepared before the acceleration of aggression in the Middle East. The fiscal headroom could be rapidly eroded if the conflict continues or escalates, both outcomes that may necessitate further tax increases.
Key takeaways from the amendment paper to the Finance Bill (which is currently making its way through Parliament) include:
- The treatment of OIGs will be revised by altering the application to some trusts of certain UK tax anti-avoidance provisions, including provisions of the Taxation of Chargeable Gains Act 1992. These changes are part of the reforms following the end of the former non dom tax regime and the introduction of the new inpatriate regime (known as the "FIG regime"). The justification given for the proposed amendment is to ensure that the TRF works as intended in relation to OIGs.
- Unused pension funds and most lump sum death benefits will be treated as located in the country or territory where the pension scheme is set up. As a result, foreign pensions will not be subject to inheritance tax if the deceased was not a long-term UK resident (LTR, defined as someone who has been UK tax resident for at least 10 out of the previous 20 tax years). This clarification is helpful for individuals who are not currently LTR in the UK, or who plan to cease being LTR in the future, and who wish to establish, or who already have, pension schemes outside the UK.
Ultimately, while the 2026 Spring Statement did not contain any major tax surprises itself, it does little to dispel the sense that the fiscal landscape remains in transition. With economic pressures still evolving, the Government's scope for further intervention and the possibility of additional tax measures emerging before the year-end remains very much alive.
If you have any questions or would like further information, please contact your usual Baker McKenzie contact or any member of the Wealth Management team.
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Alfie Turner, Senior Tax Adviser, Christopher Cook, Senior Associate, Pippa Goodfellow, Senior Associate, and Oliver Stephens, Associate, have contributed to this legal update.