Tax Bites - February 2026

Welcome to the latest edition of RPC's Tax Bites – providing monthly bite-sized updates from the tax world.

News

HMRC updates its International Manual to reflect changes introduced in the Finance Bill 2026

HMRC has updated its International Manual to reflect changes introduced in the Finance Bill 2026.

For example, HMRC has added a new section (INTM414000) to provide guidance on transfer pricing reform. It clarifies when HMRC will consider issuing a transfer pricing notice and provides examples of the application of the anti-avoidance provision which was implemented to tackle arrangements where the main purpose (or one of the main purposes) is to prevent the participation condition.

HMRC has also published revised guidance for non-residents trading in the UK (INTM261030).

OECD/G20 Inclusive Framework agrees Pillar Two package

The 147 jurisdictions in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting have agreed a global minimum tax package setting out a plan for the operation of Pillar Two in a digitalised and globalised economy.

The package, often referred to as the “side-by-side” framework, introduces targeted simplifications and safe harbours to support co-existence between the global minimum tax and domestic minimum tax regimes, and to facilitate implementation.

The UK has confirmed that the measures will apply from 1 January 2026 and be legislated in a future Finance Bill.

The OECD's press release can be viewed here.

HMRC consults on CIS simplifications

HMRC has published a consultation and draft legislation proposing administrative simplifications to the Construction Industry Scheme (CIS).

The proposals include reinstating nil CIS returns (subject to notification requirements) and excluding payments to local authorities and certain public bodies from the CIS. The consultation closed on 3 February 2026, with the regulations expected to come into force on 6 April 2026.

The consultation can be viewed here and the draft legislation here.

HMRC targets cryptoassets in IHT reporting

HMRC has issued letters to agents who submit IHT400 returns, reminding them that it considers cryptoassets to be property for inheritance tax purposes and that they must be declared where relevant.

Agents are asked to confirm whether estates hold cryptoassets, to report them in Box 76 of the IHT400 with supporting detail in the Additional information section, and to amend prior returns using a Corrective Account, where necessary. The letters refer to HMRC’s Cryptoassets Manual and IHT Manual, and note that unprompted disclosures may still be available in appropriate cases.

HMRC's template letter can be viewed here.

Case reports

Share buy-back satisfied 'trade benefit' test and was taxable as a capital gain rather than a distribution

In Boulting v HMRC [2025] UKFTT 1272 (TC), the First-tier Tribunal (FTT) allowed the taxpayer’s appeal, finding that the purchase of shares met the 'trade benefit' test in section 1033, Corporation Tax Act 2010 and was therefore taxable as a capital gain and not as a distribution.

This decision confirms that the 'trade benefit' test in section 1033, requires a purposive enquiry focused on the company’s commercial objectives, rather than on valuation issues, or the seller’s personal motivation.

The FTT has demonstrated in this decision that where a share buy-back is part of a genuine and commercially necessary exit to resolve management dysfunction, it is prepared to recognise a trade benefit even if the business appears profitable at the time, or if valuation is imperfect.

The decision also strengthens the position of family companies and owner-managed businesses undertaking purchase of own share transactions for succession or governance reasons, especially where management conflict threatens commercial performance.

You can read our commentary on the decision here.

Tribunal confirms MDR relief in SDLT appeal

In Michelle Jacqueline Berrell & Anor v HMRC [2025] UKFTT 1067 (TC), the FTT allowed the taxpayers' appeal and confirmed their claim for Multiple Dwellings Relief (MDR).

This decision confirms that the test for 'dwelling', under Schedule 6B, Finance Act 2003, is fact-specific and multi-factorial. Shared access or utilities will not automatically disqualify a unit from being a 'dwelling'. The FTT's willingness to envisage realistic occupancy terms, including shared common areas and garden access restrictions, provides a more nuanced approach than a rigid 'fully self-contained' test.

For property purchasers considering MDR when acquiring a property with an annexe (or sub-unit), this case highlights the importance of establishing as many self-contained features as possible at completion, such as: independent entrance, bathroom, kitchen capability, heating, and stop-tap/fuse box. Equally, it demonstrates that some shared elements, such as driveway, utility meters and garden access, will not necessarily prevent MDR if, overall, the sub-unit is suitable for separate occupation and privacy/security can be managed under realistic terms.

The decision also serves as a reminder that planning permission wording, for example, labelling an annexe as 'ancillary' and marketing a property as a single dwelling, whilst factors to be taken into consideration, are not determinative.

You can read our commentary on the decision here.

Tribunal orders HMRC to disclose documents to taxpayers in offshore trust case

In Evans & Ors v HMRC [2025] UKFTT 1112 (TC), the FTT allowed the taxpayers' disclosure application in part, ordering HMRC to provide most of the documents sought by the taxpayers (other than in relation to confidential correspondence between HMRC and foreign tax authorities).

In appeals before the FTT, the standard disclosure position is that a party only has to disclose documents they intend to rely upon. However, this decision illustrates that, in appropriate circumstances, the FTT will order HMRC to disclose relevant documents to appellant taxpayers, even where HMRC does not intend to rely on those documents and/or they are prejudicial to HMRC's case.

The issue of disclosure is topical at the moment, and another notable recent case is United Wholesale Grocers Ltd v HMRC [2025] UKFTT 1066 (TC), in which the FTT allowed the appellant taxpayer's application for specific disclosure, requiring HMRC to disclose documents concerning supply chains and related matters, mirroring the higher standard of disclosure provided for in the High Court under the Civil Procedure Rules.

The judge's comments in Evans on his use of AI in producing his decision are also worthy of note (see [42]-[49]). There can be little doubt that the use of AI by tax tribunal judges is likely to increase substantially as the technology develops.

You can read our commentary on the decision here.

And finally …

Adam Craggs and Liam McKay published an article in Tax Journal commenting on the key developments in the contentious tax arena in 2025. In particular, the article focuses on the procedural frameworks in tax litigation, case law on issues such as late appeals and the burden of proof, and HMRC’s intensified focus on avoidance and criminal compliance activity that is likely to shape the disputes landscape in 2026.

You can read the article here.