Family Investment Companies: Are They Still Worth It in 2026?

family-investment-company-fic-tax-inheritance-tax

How FICs Can Help Families Hold Property and Investments, Pass Wealth to Future Generations and Plan for Inheritance Tax

By Steve Bicknell FCMA, CGMA

A Family Investment Company can be a powerful way of holding family wealth, investing for the long term and passing future growth to children and grandchildren while the older generation retains control.

But a FIC is not a magic tax-saving company.

There is no special statutory definition of a Family Investment Company (FIC). It is normally a private limited company specifically structured to hold family investments, with different family members or trusts owning different classes of shares.

Those shares can have different rights to:

voting and control;
dividends;
capital;
and future growth.

HMRC itself investigated Family Investment Companies through a specialist unit established in 2019. Its conclusion was significant: HMRC found no evidence that people establishing FICs were more inclined towards avoidance or non-compliance. HMRC subsequently closed the dedicated unit and moved FICs into “business as usual” compliance activity.

So what exactly is a Family Investment Company, how does it work, and is a FIC still worth considering in 2026?

Family Investment Company – Quick Answer

A FIC can be particularly useful where a family has substantial wealth to invest and wants to:

RETAIN CONTROL

while allowing:

CHILDREN OR GRANDCHILDREN TO BENEFIT FROM FUTURE GROWTH

and potentially:

REDUCE FUTURE INHERITANCE TAX EXPOSURE.

A typical FIC might have:

Control or founder shares
held by parents or grandparents

and:

Growth shares
held by adult children, other family members or possibly trusts.

The company might invest in:

property;
shares and investment portfolios;
cash and fixed-interest investments;
loans;
or a combination of assets.

But there is an important point:

A FIC IS GENERALLY MORE ATTRACTIVE FOR LONG-TERM WEALTH ACCUMULATION THAN FOR REGULARLY EXTRACTING ALL THE PROFITS.

Once profits are extracted from the company, a second layer of personal taxation may arise.

What Is a Family Investment Company?

A FIC is normally a UK private company whose shareholders are members of the same family, sometimes across several generations.

Interestingly, HMRC does not have a statutory definition of a FIC.

During its own research, however, HMRC identified several common characteristics:

shareholders are usually members of the same family;
there are often at least two generations involved;
shares can be held directly or through trusts;
there are commonly several classes of shares;
different generations may have different rights;
older generations often retain voting control;
younger generations may have rights to income or capital;
and the company generally holds investments such as shares or property rather than carrying on a trade.

That is a useful description of how many FICs work in practice.

What Does HMRC Think About Family Investment Companies?

This is particularly interesting because HMRC actually set up a dedicated unit to investigate them.

HMRC’s Family Investment Company Unit

HMRC established a specialist Family Investment Company team in April 2019.

Its purpose was to improve HMRC’s understanding of FICs, establish their common characteristics, examine the wealth profile of the families using them and identify potential tax risks.

HMRC carried out detailed reviews of FICs together with their:

shareholders;
associated trusts;
investment structures;
and other information available to HMRC.

Some FICs were also contacted directly as part of the research.

HMRC published its findings in the minutes of its Wealthy External Stakeholders Forum on 13 May 2021.

And its conclusion was particularly important.

HMRC said:

“there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours.”

It also reported no evidence suggesting that people using FICs were more inclined towards avoidance.

That does not mean HMRC has formally “approved” FICs.

It does mean HMRC’s dedicated investigation did not conclude that using a Family Investment Company was, in itself, indicative of tax avoidance or non-compliance.

What Did HMRC Find FICs Were Being Used For?

HMRC found that FICs appeared primarily to be used as a:

GENERATIONAL WEALTH TRANSFER STRATEGY

often with the objective of mitigating future Inheritance Tax.

HMRC also recognised that there was considerable diversity in the way FICs were structured.

And that creates potential tax issues across several taxes, including:

INHERITANCE TAX

CAPITAL GAINS TAX

STAMP DUTY LAND TAX

CORPORATION TAX.

So HMRC’s conclusion wasn’t:

“There are no tax risks with FICs.”

It was much more nuanced.

The structure itself isn’t inherently avoidance, but the individual transactions within the structure still have to comply with the tax rules.

What Happened to HMRC’s Specialist FIC Unit?

Having completed its research, HMRC closed the dedicated FIC team.

Its work was absorbed into HMRC’s wider Wealthy and Mid-sized Business Compliance activity.

HMRC’s conclusion was that FICs would thereafter be considered:

“AS BUSINESS AS USUAL”

rather than requiring a dedicated specialist unit.

I think that’s probably the best way of understanding HMRC’s position.

A FIC isn’t automatically an avoidance scheme.

But neither does calling something a “Family Investment Company” give it special tax protection.

HMRC LOOKS AT WHAT THE FIC ACTUALLY DOES — NOT SIMPLY WHAT IT IS CALLED.

How Does a Family Investment Company Work?

Let’s use a completely fictional example.

David and Emma Taylor have accumulated substantial savings and investments.

They have two adult children:

Alex and Sophie.

They want to invest for the long term, retain control of the family wealth and allow the next generation to participate in future growth.

They establish:

TAYLOR FAMILY INVESTMENTS LTD

The company might invest in:

residential property;
commercial property;
quoted shares;
investment funds;
cash;
or other investments.

Instead of everyone owning identical ordinary shares, the Articles of Association can create different classes of shares with different rights.

This enables the family to separate:

CONTROL

from:

ECONOMIC OWNERSHIP AND FUTURE GROWTH.

Control Shares and Growth Shares

Suppose Taylor Family Investments Ltd is initially worth:

£100,000.

Its share structure might be designed so that:

A Shares – David and Emma

carry voting rights and control.

Their capital entitlement might broadly reflect or “freeze” the existing value.

B Shares – Alex

participate in future growth.

C Shares – Sophie

also participate in future growth.

Now suppose the company eventually becomes worth:

£1,000,000.

The intention might be for much of the:

£900,000 FUTURE GROWTH

to accrue to the B and C growth shares rather than David and Emma’s shares.

This is the principle behind:

FREEZER SHARES

and:

GROWTH SHARES.

How Can Growth Shares Help With Inheritance Tax?

Suppose instead David and Emma simply own 100% of an investment company throughout their lives.

If the company eventually becomes worth £1 million, they potentially have:

within their estates.

With a carefully structured FIC, the intention may be to fix or restrict the value attributable to the older generation while allowing subsequent growth to accrue to shares owned by the next generation.

The strategy is therefore often not:

GIVE AWAY EVERYTHING TODAY.

It is:

MOVE FUTURE GROWTH AWAY FROM THE OLDER GENERATION.

This can be attractive where parents or grandparents want to retain voting control but do not need all the future economic growth personally.

Valuation Is Critical

Growth shares aren’t simply a matter of creating a new class of shares and giving them a nominal value of £1.

The rights attached to shares have value.

That can include:

voting rights;
dividend rights;
capital rights;
rights on a sale;
rights on liquidation;
restrictions;
and the relationship between the different share classes.

If an existing company is already valuable and its share rights are changed, value may effectively move between shareholders.

That can have consequences for:

CAPITAL GAINS TAX

and:

INHERITANCE TAX.

There can also be Employment Related Securities implications in appropriate circumstances.

This is why it is generally much easier to design the share structure before substantial value has accrued.

Funding a FIC – Loan or Shares?

This is one of the most important decisions when establishing a Family Investment Company.

Suppose David has:

£1,000,000

to invest.

There are two fundamentally different ways he could provide it to the FIC.

Option 1 – Loan £1 Million to the FIC

David lends:

£1,000,000

to Taylor Family Investments Ltd.

Initially the company’s balance sheet might broadly look like:

	£
Cash	1,000,000
Loan due to David	(1,000,000)
Net value before other items	Nil

The company can then invest the £1 million.

An important feature of this approach is that the company owes David the money.

That means it can potentially repay his loan later without the repayment itself being a dividend.

This can provide considerable flexibility.

But there is an important IHT point:

THE £1 MILLION LOAN STILL BELONGS TO DAVID.

Simply replacing £1 million in a bank account with a £1 million loan receivable does not remove £1 million from his estate.

Suppose instead David subscribes:

£1,000,000

for shares.

The company now has £1 million of assets without a corresponding £1 million loan liability.

The shares therefore potentially have substantial value.

If David subsequently gives shares to his children or a trust, their value needs to be considered.

So:

LOAN FUNDING

and:

EQUITY FUNDING

can produce very different:

share values;
CGT consequences;
IHT consequences;
and access to the original capital.

Can the FIC Loan Be Gifted Later?

Potentially.

Suppose David initially lends £1 million to the company because he isn’t certain how much capital he will need in retirement.

Five years later he concludes that he only needs £400,000 returned.

He could consider gifting part of the remaining loan to adult children.

An outright gift to an individual can potentially be a:

POTENTIALLY EXEMPT TRANSFER

for Inheritance Tax.

If the donor survives seven years, the value of the gift can generally fall outside their estate, subject to the normal IHT rules.

This illustrates one of the attractions of loan funding:

YOU DON’T NECESSARILY HAVE TO MAKE EVERY SUCCESSION DECISION ON DAY ONE.

Can Children Own Shares in a FIC?

Yes, but there is an important distinction between:

ADULT CHILDREN

and:

MINOR CHILDREN.

Giving income-producing shares to minor children does not automatically move the tax liability on the income to them.

The settlements legislation can attribute income back to a parent where income is diverted to their minor child.

So a strategy based simply on:

“We’ll give shares to the children and use their tax allowances.”

needs very careful consideration.

Adult children are generally much more straightforward, although the ownership and rights must still be genuine.

What About Adult Children at University?

This can be interesting.

Suppose an adult child:

is at university;
has little other income;
genuinely owns shares;
and those shares carry dividend rights.

Dividends may potentially be taxed at relatively low personal rates depending on their overall income.

For 2026/27 the dividend rates are:

Band	Dividend rate
Basic	10.75%
Higher	35.75%
Additional	39.35%

The dividend allowance remains £500.

But selective dividends and different share classes need to be supported by genuine legal rights rather than simply changing distributions each year to whichever family member happens to have the lowest tax rate.

Do You Need a Trust as Well as a FIC?

Not necessarily.

Many FICs can operate with family members owning the shares directly.

A trust can, however, add flexibility where the family wants to provide for:

grandchildren;
unborn future generations;
younger beneficiaries;
vulnerable family members;
or circumstances that cannot yet be predicted.

For example, a discretionary trust might own one class of growth shares for the benefit of a wider family group.

But trusts bring another layer of complexity, potentially including:

Trust Registration Service requirements;
tax returns;
higher trust tax rates;
ten-year IHT charges;
exit charges;
trustee responsibilities;
and specialist legal work.

So:

A FIC DOES NOT AUTOMATICALLY NEED A TRUST.

FIC Only or FIC Plus Trust?

	FIC only	FIC + discretionary trust
Retain family control	Yes	Yes
Adult children	Straightforward	Can be beneficiaries
Future generations	Less flexible	Potentially more flexible
Complexity	Moderate	Higher
Trust administration	None	Yes
10-year IHT regime	No	Potentially yes
Specialist legal drafting	Important	Essential

The decision should follow the family’s objectives rather than starting with the assumption that the most complicated structure must produce the best result.

How Is a Family Investment Company Taxed?

A FIC is subject to Corporation Tax.

But there is an important trap.

A FIC DOES NOT AUTOMATICALLY PAY 19% CORPORATION TAX.

A close investment-holding company is subject to the main Corporation Tax rate and cannot benefit from the small-profits rate or marginal relief.

HMRC specifically says that a close company simply holding investments such as a bank deposit can fall within the CIHC rules and be liable at the full Corporation Tax rate.

The main Corporation Tax rate is currently:

25%.

This is an important correction to older FIC illustrations that simply assumed 19% Corporation Tax.

The Close Investment-Holding Company Trap

Broadly, a close company is treated as a close investment-holding company unless it exists wholly or mainly for certain qualifying purposes, including:

carrying on a commercial trade;
commercial investment in land let to unconnected persons;
or certain qualifying holding/service company activities.

A FIC principally holding:

cash;
quoted securities;
investment funds;
or similar passive investments

may therefore be within the CIHC regime.

That needs to be included when comparing personal investment with investment through a FIC.

Property Family Investment Companies Can Be Different

There is an important exception for property investors.

A close company can fall outside the CIHC definition where it exists wholly or mainly to invest commercially in land which is, or is intended to be, let to unconnected persons.

That means a genuine commercial property investment FIC may potentially benefit from the normal Corporation Tax small-profits and marginal-relief rules, depending on its profits and associated companies.

But be careful with connected-party lettings.

If the property is let to connected family members or certain connected entities, the exclusion may not apply.

Already Own Other Companies? Watch Associated Companies

Many people considering a FIC already own:

trading companies;
property companies;
management companies;
or other investment companies.

The Corporation Tax thresholds can be divided according to the number of associated companies.

So adding a FIC can potentially affect the Corporation Tax position of companies you already own.

This needs modelling as part of the structure rather than looking at the FIC in isolation.

Dividends Received by a FIC

One potential attraction of a corporate investment structure is that many dividends received by UK companies fall within the corporate dividend exemption rules.

This can make a FIC attractive where investment income is going to be:

RETAINED

and:

REINVESTED

for many years.

That brings us to perhaps the most important tax issue with FICs.

The Double-Tax Problem – Getting Money Out

Suppose a FIC makes:

£100,000

of taxable investment profit.

The company may first pay Corporation Tax.

If the remaining profit is then distributed to an individual shareholder, there may also be:

DIVIDEND TAX.

So it is misleading to compare:

25% Corporation Tax

with:

40% or 45% personal Income Tax

and conclude that the company must be better.

The proper comparison may involve:

CORPORATION TAX + TAX ON EXTRACTION.

This is why FICs can work particularly well where investment returns can be:

COMPOUNDED WITHIN THE COMPANY FOR THE LONG TERM.

If the shareholders intend to withdraw virtually all the profits every year, the result can look very different.

Dividend Tax Increased From April 2026

Extraction became slightly more expensive from 6 April 2026.

The ordinary dividend rate increased to:

10.75%

and the higher dividend rate to:

35.75%.

The additional rate remains:

39.35%.

This makes modelling the eventual extraction strategy even more important.

Property Income Tax Is Changing From April 2027

There is another reason property investors may increasingly compare personal ownership with companies.

From 6 April 2027, the government is introducing separate rates for property income in England, Wales and Northern Ireland:

Property income band	Rate from April 2027
Basic	22%
Higher	42%
Additional	47%

Residential finance-cost relief will also use the new 22% property basic rate.

That doesn’t mean:

“Everyone should put property into a FIC.”

The Corporation Tax and extraction consequences still need comparing.

But it makes the personal-versus-company calculation increasingly important.

Property FICs and Mortgage Interest

Individual landlords of residential property are subject to the Section 24 finance-cost restriction.

Companies are not subject to Section 24 in the same way.

A property FIC can therefore generally obtain a Corporation Tax deduction for qualifying finance costs, subject to the normal corporate rules.

For highly geared residential property investors, this can be an important distinction.

Should You Transfer Existing Properties Into a FIC?

This is where a potentially useful structure can become extremely expensive if implemented without first doing the calculations.

Suppose David and Emma already personally own a rental portfolio worth:

£1.5 MILLION.

They decide to establish a FIC and transfer all the properties into it.

The transfer isn’t automatically tax-free simply because they own the company.

Potential taxes include:

CAPITAL GAINS TAX

for the individual owners

and:

STAMP DUTY LAND TAX

for the company.

The SDLT position can also be affected by connected-party market-value rules and residential-property surcharges.

So there is a fundamental difference between:

USING A FIC TO BUY FUTURE INVESTMENTS

and:

TRANSFERRING AN EXISTING PORTFOLIO INTO A FIC.

Calculate the entry taxes before moving anything.

Don’t Forget ATED

If a FIC owns UK residential property worth more than:

£500,000

the Annual Tax on Enveloped Dwellings (ATED) rules need considering.

A property commercially let to an unconnected third party may qualify for relief so that no ATED charge is ultimately payable.

But a relief declaration return may still be required.

This is particularly relevant with the 1 April 2027 ATED revaluation, which may bring more company-owned residential properties within the regime.

Gifts of FIC Shares

Giving shares to a family member isn’t necessarily tax-free.

For Capital Gains Tax purposes, a gift to a connected person will normally involve market value.

That means a gain can arise even though:

NO MONEY CHANGES HANDS.

For Inheritance Tax, an outright gift to an individual is generally a Potentially Exempt Transfer.

If the donor survives seven years, the gift can generally fall outside their estate.

A transfer to a discretionary trust is different and can be an immediately chargeable lifetime transfer.

Again:

VALUATION MATTERS.

Gift With Reservation of Benefit

A common objective is to transfer economic value to the next generation while the older generation retains control.

But there is an important distinction between:

CONTROL

and:

CONTINUING TO ENJOY THE VALUE YOU SUPPOSEDLY GAVE AWAY.

If a parent gives away shares or value but continues to benefit from what was gifted, the Gift With Reservation of Benefit rules may potentially apply.

This is another reason why the rights attached to the various share classes and the actual payment of dividends need to match the intended structure.

Another specialist area is the Employment Related Securities legislation.

This may need considering where shares are acquired by:

employees;
directors;
family members who work in the business;
or people whose shareholding may be connected with their employment.

This is particularly relevant with growth shares and restricted share rights.

Family relationships can affect the analysis, but the point shouldn’t simply be ignored because everybody involved is related.

Advantages of a Family Investment Company

A properly structured FIC can potentially offer several advantages.

1. Retaining Control

Parents or grandparents can potentially retain voting control.

2. Passing Future Growth Down the Family

Growth shares can allow younger generations to participate in future increases in value.

3. Inheritance Tax Planning

Future growth may potentially accrue outside the older generation’s estates.

Voting, income and capital rights can be separated.

5. Long-Term Corporate Reinvestment

Profits can be retained and reinvested rather than necessarily being distributed every year.

6. Loan Account Flexibility

Initial funding provided by loan can potentially be repaid without the repayment itself being a dividend.

7. Property Finance Costs

A company is not subject to the residential Section 24 restriction in the same way as an individual landlord.

8. Succession

A FIC can potentially provide a structure capable of continuing across several generations.

Disadvantages of a Family Investment Company

There are equally important drawbacks.

1. Double Tax on Extraction

Corporation Tax can be followed by personal tax when profits are distributed.

2. 25% Corporation Tax Can Apply

A securities/cash FIC may be a close investment-holding company.

3. Complexity

Different share classes require careful legal drafting.

4. Valuations

Growth shares, gifts and restructuring can require specialist valuation.

5. Annual Compliance

The company requires accounts, Corporation Tax returns, Companies House filings and bookkeeping.

6. Investment Companies Generally Don’t Qualify for Business Relief

So don’t assume the shares themselves automatically receive IHT Business Relief.

7. Trusts Add Another Layer

Trust tax, IHT and administration may all arise.

8. Moving Existing Property Can Be Expensive

CGT and SDLT can make transferring an established portfolio unattractive.

9. ATED

Higher-value residential property can create additional annual compliance.

10. Family Members Become Genuine Shareholders

Once shares have been given away, the recipients have real legal and economic rights.

A FIC should therefore be viewed as long-term succession planning rather than something that can simply be undone whenever circumstances change.

Worked Example – £1 Million Family Investment Company

Let’s return to our fictional family.

David and Emma have:

£1 MILLION CASH

available for long-term investment.

They don’t need all of the capital for their normal living costs.

They want to benefit Alex, Sophie and eventually future grandchildren.

They establish:

TAYLOR FAMILY INVESTMENTS LTD.

David lends the company:

£1,000,000.

The company invests the money.

Because the £1 million asset is matched by the £1 million loan liability, the company’s shares may initially have relatively little value.

The share rights are structured at an early stage so that Alex and Sophie have genuine rights to future growth.

Twenty years later, suppose the investments are worth:

£3,000,000.

The original:

£1,000,000 LOAN

still belongs to David to the extent it hasn’t been repaid or gifted.

But much of the:

£2,000,000 FUTURE GROWTH

may potentially have accrued to the growth shares.

That illustrates one of the central principles of FIC planning:

THE FIC HASN’T MAGICALLY REMOVED £1 MILLION FROM DAVID’S ESTATE.

Instead, it may have:

REDIRECTED THE FUTURE GROWTH.

That distinction is crucial.

10 Questions to Ask Before Setting Up a FIC

1. What are we trying to achieve?

IHT planning, succession, property investment, investment compounding or a combination?

2. How much are we investing?

The setup and ongoing costs need to be proportionate to the wealth involved.

3. Loan or equity?

This can completely change the initial share values and future access to capital.

4. Who needs control?

Parents, grandparents, children or trustees?

5. Who should benefit from future growth?

Children, grandchildren or a trust?

6. Do the founders need investment income personally?

If most profits need extracting annually, the FIC may be less attractive.

7. What will the FIC invest in?

Property, shares and cash can have very different Corporation Tax consequences.

8. Will it be a close investment-holding company?

Don’t automatically assume 19% Corporation Tax.

9. Are existing properties or investments being transferred?

Calculate CGT and SDLT before doing it.

10. What happens in 10, 20 or 30 years?

Think about succession, death, divorce, family disagreements, grandchildren and eventual extraction before choosing the share rights.

Frequently Asked Questions

What is a Family Investment Company?

A FIC is normally a private company owned by members of the same family and used to hold investments such as property, shares and cash. Different share classes can separate voting control, income and capital growth. HMRC itself identified these as common FIC characteristics.

Is a FIC a tax avoidance scheme?

No. HMRC’s own specialist FIC research found no evidence that people establishing FICs were more inclined towards avoidance or non-compliant behaviour. Normal tax and anti-avoidance legislation nevertheless applies to every transaction undertaken by the company and its shareholders.

Does HMRC still have a Family Investment Company Unit?

No dedicated FIC research unit remains. HMRC completed its specialist work and moved FICs into its normal compliance activity — described in its 2021 minutes as “business as usual.”

Can parents retain control of a FIC?

Potentially. Different share classes can allow one generation to retain voting rights while other classes participate in income or future capital growth.

Can a FIC reduce Inheritance Tax?

Potentially. One strategy is to retain the older generation’s existing value while directing future growth to younger generations. The actual IHT result depends on the share rights, valuations, gifts and retained benefits.

Should I fund a FIC with a loan?

Loan funding can provide considerable flexibility because the company may later repay the loan without that repayment being a dividend. However, the loan remains an asset of the lender’s estate until it is repaid, spent or validly given away.

Can my children own FIC shares?

Yes, but arrangements involving minor children need particular care because of the settlements legislation. Adult children are generally more straightforward.

Does a FIC pay 19% Corporation Tax?

Not necessarily. A close investment-holding company is subject to the main Corporation Tax rate and cannot use the small-profits rate or marginal relief.

Is a property FIC a close investment-holding company?

Not necessarily. Commercial investment in land let to unconnected persons is specifically within an exception to the CIHC rules.

Can a FIC claim mortgage interest on residential property?

Companies aren’t subject to the Section 24 residential finance-cost restriction in the same way as individual landlords, although the normal corporate interest rules still apply.

Can I transfer my existing rental properties into a FIC?

You can, but that doesn’t mean the transfer is tax-free. CGT and SDLT can arise, so the entry cost should be calculated before proceeding.

Should a trust own FIC shares?

Sometimes. A discretionary trust can provide flexibility for future generations, but it brings additional IHT, tax, legal and compliance considerations.

Are Family Investment Companies Still Worth It in 2026?

For the right family:

YES, THEY CAN BE.

But the strongest case for a FIC isn’t simply:

“Companies pay less tax.”

Sometimes they don’t.

The real attraction is often the ability to combine:

CONTROL

with:

SUCCESSION

and:

LONG-TERM WEALTH COMPOUNDING.

A FIC can potentially allow parents or grandparents to retain control while directing future economic growth towards children and grandchildren.

Loan funding can provide access to the original capital.

Growth shares can move future value between generations.

Trusts can provide further flexibility where appropriate.

And for property investors, corporate ownership can have particular advantages around residential finance costs, especially as personal property-income tax rates are scheduled to rise to 22%, 42% and 47% from April 2027.

But these advantages need to be considered alongside:

Corporation Tax;
dividend tax;
Inheritance Tax;
CGT;
SDLT;
ATED;
associated-company rules;
share valuation;
trusts;
legal costs;
and long-term extraction.

The key is to design the structure around:

WHAT THE FAMILY WANTS THE WEALTH TO DO OVER THE NEXT 10, 20 OR 30 YEARS.

That is much more important than simply setting up a company and calling it a Family Investment Company.

How Bicknell Business Advisers Can Help

At Bicknell Business Advisers, we can help families explore whether a Family Investment Company is appropriate, including:

FIC feasibility and tax modelling;
property investment structures;
loan versus equity funding;
growth and freezer shares;
share valuation requirements;
Corporation Tax;
Inheritance Tax planning;
family shareholdings;
trusts and coordination with specialist solicitors;
CGT and SDLT on existing investments and property;
ATED;
associated companies;
and long-term extraction planning.

Where bespoke Articles of Association, trusts, wills or other legal documentation are required, appropriate specialist legal input should form part of the process.

A FIC can be a powerful structure.

But it should start with the family’s long-term objectives — not with the company formation form.

About the Author

Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, landlord tax planning, SDLT, Capital Gains Tax and property company structures throughout the UK.

Landlord Repairs, Improvements or Replacements? What Can You Claim for Tax?

Is property work a repair, improvement or replacement? Learn what landlords can deduct, how RDI works and what changed for holiday lets after April 2025.

Repairs, Capital Improvements, Replacement of Domestic Items and the New Rules for Holiday Lets After April 2025

By Steve Bicknell FCMA, CGMA

You spend £15,000 on a new kitchen in a rental property.

Is it:

an allowable repair that reduces your rental profit now;
a capital improvement that may only become relevant when you sell;
a replacement domestic item;
or a mixture of different things?

What about replacing single-glazed windows with double glazing? A new boiler? Rewiring? New carpets? Replacing a fridge? Refurbishing a property immediately after buying it?

These questions matter because repairs and capital improvements are treated very differently for tax.

And there has been another important change.

FROM APRIL 2025, THE SPECIAL FURNISHED HOLIDAY LETTINGS TAX REGIME ENDED

Former Furnished Holiday Lets (FHLs) are now generally part of the same UK or overseas property business as other residential lettings. The special FHL capital allowance treatment for new expenditure has gone, while Replacement of Domestic Items Relief can now apply to former FHLs. Existing pre-repeal capital allowance pools can continue to receive writing-down allowances.

So whether you own a buy-to-let, HMO or holiday let, understanding the difference between:

REPAIR • IMPROVEMENT • REPLACEMENT • CAPITAL

has become more important than ever.

Quick Answer – Repair, Improvement or Replacement?

Here are some common examples.

Landlord expenditure	Possible tax treatment
Painting and decorating	Repair – normally revenue
Replacing broken roof tiles	Repair – normally revenue
Replacing an old roof with a modern equivalent	Can still be a repair
Replacing single glazing with modern double glazing	Can be a repair – modern equivalent
Refurbishing an old kitchen to a similar modern standard	Can be a repair
Building an extension	Capital improvement
Adding an extra bathroom where none existed	Normally capital improvement
Replacing an old fridge with an equivalent fridge	RDI may apply
Buying the first fridge for a previously unfurnished property	Not RDI – there is nothing being replaced
Replacing old carpets with equivalent carpets	RDI may apply
Replacing a boiler	Usually considered under repair rules rather than RDI
Major structural alteration changing the property	Likely capital
Furniture for a former FHL after April 2025	RDI may apply if it replaces an existing item

These are general examples. The precise facts matter.

The size of the bill alone doesn’t decide the tax treatment.

A £30,000 roof replacement can potentially be a repair, while a much smaller expenditure creating something that did not previously exist could be capital.

HMRC’s guidance confirms that common deductible repairs include decorating, damp and rot treatment, repairing windows and doors, repointing and replacing roof slates, flashing and gutters.

Why Does Repair vs Improvement Matter?

For a property business, a qualifying revenue repair can generally be deducted when calculating taxable rental profits.

For example:

Rental income: £30,000
Allowable repairs: £10,000

Subject to the other expenses and tax rules, that £10,000 can reduce the property’s taxable rental profit.

A capital improvement isn’t deducted from rental income in the same way.

It may instead form part of the property’s capital cost and potentially become relevant when calculating a future Capital Gains Tax liability.

So getting the classification wrong can significantly change when — or even whether — tax relief is available.

What Is a Repair?

HMRC describes a repair as broadly restoring an asset by replacing subsidiary parts of the whole.

For example, replacing storm-damaged roof tiles can be a repair.

By contrast, expenditure that significantly improves an asset beyond its original condition is generally capital.

A useful starting question is therefore:

ARE YOU RESTORING WHAT WAS ALREADY THERE OR CREATING SOMETHING NEW OR BETTER?

But even that isn’t the whole story.

The “Entirety” Test – What Are You Actually Replacing?

One of the most important concepts is the entirety.

HMRC’s basic position is:

repairing a worn or dilapidated asset is normally revenue expenditure;
replacing the asset as a whole is normally capital.

But identifying the asset is crucial.

Consider a roof.

If the roof is regarded as a subsidiary part of the house, replacing a worn-out roof does not necessarily mean you’ve replaced the entire asset.

The asset may be:

THE HOUSE

not:

THE ROOF

HMRC similarly gives an example of a fitted kitchen being stripped out and replaced with an equivalent modern kitchen. The kitchen is treated as part of the house rather than a separate entirety, and on those facts HMRC treats the work as a repair.

Contrast that with demolishing an entire separate garage and building a new one. HMRC’s example treats that as replacing the entirety and therefore capital expenditure.

This principle is reflected in the longstanding case-law concept of repair being the renewal or replacement of subsidiary parts of a larger whole.

Does Replacing Something With a Better Modern Version Make It an Improvement?

Not necessarily.

This is particularly important with older properties.

Suppose you replace:

single-glazed windows

with:

modern double-glazed windows.

The new windows are clearly technically superior.

But double glazing is now a normal modern replacement.

HMRC accepts that using modern materials does not automatically turn a repair into an improvement.

The important question is whether, broadly, the asset continues to perform the same function or has been substantially enhanced or changed.

The same principle can apply to replacing:

lead pipes with modern pipework;
outdated electrical equipment;
old heating systems;
obsolete building materials;
or equipment that is no longer legally or practically available.

Your existing repair guidance also highlights modern-equivalent replacements, including replacing single-glazed windows with double glazing and old lead pipes with modern materials.

So:

NEWER DOES NOT AUTOMATICALLY MEAN CAPITAL

HMRC even acknowledges that changing technology can mean a replacement lasts longer or performs more efficiently without necessarily changing a repair into an improvement.

Kitchens – Repair or Improvement?

Kitchen refurbishments are a classic problem.

Suppose a landlord removes:

old kitchen units;
worktops;
sink;
fitted hob;
tiles;
and worn flooring,

and replaces them with modern equivalents of broadly similar quality.

That can potentially be a repair to the property, despite the fact that virtually the entire fitted kitchen has been replaced.

HMRC has an example where the fitted kitchen is completely renewed with equivalent-quality units in a different layout. HMRC treats the house as the entirety and the kitchen refurbishment as a repair.

But now suppose the landlord:

substantially enlarges the kitchen;
knocks down walls;
creates a large kitchen/diner;
adds an island and facilities that did not previously exist;
installs materially superior fittings as part of a major upgrade.

Now there may be a significant capital improvement element.

The facts matter.

One Refurbishment Can Contain Both Repairs and Improvements

This is particularly important.

Imagine a landlord spends £60,000 refurbishing a rental property.

The project includes:

Work	Possible treatment
Redecoration	Revenue repair
Roof repairs	Revenue repair
Equivalent replacement kitchen	Potentially revenue repair
Repairing existing wiring	Potentially revenue
New extension	Capital
Creating second bathroom	Capital
New fridge replacing old fridge	Potential RDI
First dishwasher where none existed	Not RDI; consider capital treatment

It would be wrong simply to say:

“The refurbishment cost £60,000, therefore it must all be capital.”

Equally, it would be wrong to assume that because builders describe everything as “refurbishment”, the whole £60,000 is deductible.

HMRC acknowledges that a programme of works can contain some repairs and some alterations or improvements.

That makes detailed invoices and cost breakdowns extremely important.

Ask your builder to itemise the work rather than issuing an invoice simply saying:

“Property refurbishment – £60,000.”

That description isn’t very helpful when somebody has to determine the tax treatment two years later.

Beware: Repairs Can Sometimes Become Part of a Capital Project

There is an important qualification.

If apparently repair-type expenditure is incidental to a wider capital renovation or conversion, its treatment may be affected.

HMRC notes that certain repair expenditure incidental to the renovation or conversion of part of a building can be treated as part of the capital cost of that project.

So you cannot necessarily split a fundamental capital transformation into artificial pieces and claim the decorating, plastering and similar consequential work as standalone repairs.

Again, the purpose and character of the overall work matter.

Bought a Run-Down Property? Repairs Aren’t Automatically Capital

This is another area where landlords frequently get confused.

Suppose you buy a property and immediately spend £40,000 repairing it.

Is the £40,000 automatically capital because the work happened immediately after acquisition?

NO – NOT AUTOMATICALLY

Timing alone does not decide the issue.

However, HMRC will consider the condition of the property when acquired.

If you buy a derelict or seriously run-down property that cannot sensibly be used or let without major works, expenditure putting it into usable condition may be capital. HMRC specifically lists refurbishment or repair of a property bought in a derelict or run-down state among circumstances that can represent capital expenditure.

But the position can be different where:

the property was already capable of being let;
you paid a normal market price;
defects subsequently became apparent;
and the work restores rather than fundamentally improves the property.

The source material similarly identifies whether the property was lettable when purchased, whether the purchase price reflected the defects, and whether the works formed part of an improvement project as relevant factors.

Worked Example – £50,000 Refurbishment After Purchase

Consider an illustrative example based on the type of case we see in practice.

A landlord purchases a residential investment property.

It is not bought at a substantial discount because of serious disrepair and is capable of being occupied.

After purchase, problems emerge and approximately £50,000 is spent on:

electrical repairs;
damp treatment;
flooring;
structural repairs;
decorating;
and replacing worn components.

The important questions aren’t simply:

“Was the work expensive?”

or:

“Was it done shortly after purchase?”

Instead we need to ask:

Was the property capable of use when acquired?
Did the purchase price reflect serious defects?
Was the expenditure restoring what already existed?
Was an entire separate asset replaced?
Was the character of the property changed?
Was this actually a scheme to substantially improve or transform the property?

Depending on the answers, substantial expenditure shortly after acquisition can still contain deductible repairs.

Replacement of Domestic Items Relief – RDI

Repairs are only part of the story.

Residential landlords can also have Replacement of Domestic Items Relief.

This is particularly important for furnished and partly furnished properties.

RDI can apply to the replacement of domestic items such as:

beds;
sofas;
tables and chairs;
carpets;
curtains;
crockery and cutlery;
televisions;
fridges;
freezers;
washing machines;
and similar household items.

The key word is:

REPLACEMENT

First Purchase vs Replacement

Suppose you start letting an unfurnished property and buy a sofa for £1,000.

There was no previous sofa.

That isn’t a replacement, so RDI doesn’t apply merely because the sofa is used by the tenant.

Now suppose several years later that sofa is worn out and replaced.

That is potentially within RDI.

The underlying material makes exactly this distinction: the relief is concerned with replacing an existing domestic item rather than purchasing something for the first time.

What If the New Item Is Better Than the Old One?

This needs careful consideration.

Suppose the tenant’s old fridge needs replacing.

An equivalent modern replacement costs:

£600

Instead, the landlord buys a premium American-style fridge-freezer costing:

£1,800

RDI does not necessarily give relief for the entire £1,800.

Broadly, where the new item represents an improvement beyond a reasonable modern equivalent, the additional improvement cost can be excluded from the relief.

The key distinction is again between:

modern equivalent

and:

genuine upgrade.

So replacing an old basic appliance with today’s ordinary equivalent is different from deliberately moving into a substantially higher specification.

Fixtures Aren’t Necessarily Replacement Domestic Items

It is also important to distinguish movable domestic items from parts of the building.

A freestanding fridge, for example, can be an asset in its own right. HMRC contrasts this with fixtures forming part of the building.

Items such as:

boilers;
fitted sanitary ware;
radiators;
plumbing systems;
and other fixtures

will generally need to be considered under the repairs versus capital rules rather than simply being put through RDI.

This distinction is also made in the source material between movable domestic items and fixtures forming part of the dwelling.

Holiday Lets – The Rules Changed From April 2025

This is a major change for holiday-let owners.

Before abolition, qualifying Furnished Holiday Lettings benefited from special tax treatment.

For capital allowances, qualifying FHL businesses could claim allowances on plant and machinery such as:

furniture;
white goods;
and other qualifying equipment within the property.

Ordinary residential property businesses generally could not claim capital allowances on those dwelling-house items.

That changed when the FHL regime was abolished.

The special rules ceased from:

6 April 2025 for Income Tax, and
1 April 2025 for Corporation Tax accounting periods, subject to the detailed commencement provisions.

What Does That Mean for a Holiday Let in 2026?

A former FHL is now generally brought into the same UK or overseas property business rules as other property lettings.

For new expenditure, the old FHL capital allowance advantage no longer applies.

Instead, former FHL businesses can potentially use:

REPLACEMENT OF DOMESTIC ITEMS RELIEF

in line with other property businesses.

This is a major practical change.

For example, before abolition a qualifying FHL might have claimed capital allowances on qualifying furniture and white goods.

After abolition, a replacement sofa or fridge in a former FHL needs to be considered under the ordinary property rules, including RDI where its conditions are met.

What Happens to Old FHL Capital Allowance Pools?

They don’t simply disappear.

HMRC confirms that where an existing FHL business had an ongoing capital allowance pool before abolition, the business can continue to claim writing-down allowances on that historic pool.

But new expenditure incurred after the relevant abolition date must be considered under the ordinary property-business rules.

So there are effectively two questions:

OLD EXPENDITURE

Was it already in a qualifying pre-abolition FHL capital allowance pool?

NEW EXPENDITURE

What relief, if any, is available under the normal property-business rules?

This distinction is particularly important for established holiday-let businesses with historic capital allowance claims.

What About Capital Allowances on Dwellings?

The abolition of FHL treatment means former holiday lets no longer have the special FHL exemption that allowed qualifying plant and machinery allowances on items within the dwelling.

HMRC is explicit that FHLs previously obtained capital allowances on furniture and white goods whereas non-FHL property businesses did not — and still do not — qualify for capital allowances on those items.

Therefore, don’t assume:

“It’s a holiday let, so we can claim capital allowances.”

For new expenditure, that old FHL treatment has gone.

What About HMOs?

HMOs can require particular care.

Simply describing an area as a “communal area” doesn’t necessarily take it outside the dwelling-house capital allowance restrictions.

The precise property layout, nature of occupation and expenditure need to be considered.

So I would be wary of broad claims that furniture or equipment in HMO common areas automatically qualifies for capital allowances.

Repairs and Improvements Can Affect Capital Gains Tax Later

If expenditure is capital rather than revenue, that doesn’t necessarily mean it is lost forever.

Qualifying capital enhancement expenditure may potentially be deductible when calculating the gain on a later disposal of the property, subject to the CGT rules.

That makes good record keeping important.

If you spend £25,000 on a genuine capital improvement in 2026 and sell the property ten years later, you don’t want to discover that the invoices and evidence disappeared nine years ago.

Keep records of:

invoices;
contracts;
planning documents;
photographs before and after;
specifications;
bank payments;
and explanations of the work undertaken.

Don’t Forget VAT – Could a Development Company Help?

There is another tax that can make a huge difference to major property projects:

VAT

Ordinary residential letting is generally an exempt activity for VAT purposes.

That can mean VAT incurred on refurbishment or development costs isn’t recoverable in the way a VAT-registered taxable business might expect.

But property development and conversion can have very different VAT consequences.

For example, HMRC’s current construction guidance provides for:

zero-rating of qualifying new dwellings;
5% VAT for certain conversions to a different residential use;
5% VAT for qualifying renovation or alteration of residential premises that have been empty for at least two years;
and potentially zero-rating of the first sale or long lease following certain qualifying non-residential-to-residential conversions.

This is why, in the right circumstances, undertaking a genuine development project through a development company can potentially create VAT advantages.

We have previously looked at this in:

The VAT Advantages of a Development Company

Read our Development Company VAT article

However:

DO NOT INSERT A DEVELOPMENT COMPANY AFTER THE EVENT JUST TO TRY TO RECOVER VAT

The structure, contractual arrangements, ownership, intended onward supply and VAT position need considering before significant expenditure is incurred.

This is an area where planning before the project begins can be considerably more valuable than tax advice after the invoices have already been paid.

10 Common Landlord Mistakes

1. Assuming anything expensive must be capital

The amount spent does not determine the treatment.

2. Assuming anything described as “maintenance” on an invoice is deductible

Tax treatment depends on what was actually done, not the invoice heading.

3. Assuming new materials automatically mean improvement

Modern equivalent replacements can still be repairs.

4. Assuming a new kitchen is always capital

An equivalent fitted-kitchen replacement can potentially be a repair.

5. Assuming work immediately after buying a property is always capital

The property’s condition, price and purpose of the works matter.

6. Claiming RDI on the first furniture bought for a property

There needs to be a replacement.

7. Claiming the full cost of a substantial upgrade under RDI

A genuine improvement element may need restricting.

8. Treating every item in one refurbishment project the same way

A project can contain repairs, capital improvements and RDI items.

9. Continuing to claim FHL capital allowances on new expenditure after abolition

The special FHL treatment ended from April 2025.

10. Thinking about VAT after the development has started

VAT planning can depend on the structure and intended transaction, so it should be considered before contracts and expenditure are committed.

Landlord Repair or Improvement – Decision Table

Question	If YES	If NO
Is the work restoring something already there?	May be a repair	Consider capital
Is the whole separate asset being replaced?	More likely capital	Repair may be possible
Is it merely the nearest modern equivalent?	Can still be repair	Consider improvement
Does the property do something substantially new afterwards?	Likely improvement	Repair more likely
Is a movable domestic item being replaced?	RDI may apply	Consider other rules
Was there an old item to replace?	Continue RDI test	No RDI
Is the replacement substantially better?	Improvement restriction may apply	Full RDI may be possible
Is it a former FHL after April 2025?	Ordinary property rules now generally apply	—
Is there an old FHL capital allowance pool?	WDA may continue	No new FHL pool
Is this a major development/conversion?	Consider VAT before starting	Normal landlord VAT position may apply

Frequently Asked Questions

Is replacing a kitchen tax deductible for a landlord?

Potentially. Replacing an existing fitted kitchen with a modern equivalent can be a repair. HMRC gives an example where an equivalent replacement fitted kitchen is treated as a repair to the house.

Is replacing a roof a repair or improvement?

Replacing or repairing a worn roof can potentially be a revenue repair because the roof is a subsidiary part of the building. Adding another storey or fundamentally changing the building would be capital.

Is double glazing a repair or improvement?

Replacing old windows with the modern equivalent can potentially remain a repair. The fact that modern materials are technically superior does not automatically create a capital improvement.

Can a landlord claim for a new boiler?

Replacing an existing boiler with a modern equivalent can potentially be a repair. The precise circumstances and whether the heating system is being substantially improved should be considered.

Can landlords claim for furniture?

Where an existing domestic item supplied to tenants is replaced, Replacement of Domestic Items Relief may be available subject to its conditions. The initial purchase of an item where there was nothing to replace generally doesn’t qualify for RDI.

Can I claim a new fridge in a holiday let?

Since abolition of the FHL regime, new expenditure no longer gets the former FHL capital allowance treatment. If an existing fridge is being replaced, RDI may potentially apply instead.

Can holiday lets still claim capital allowances?

The special FHL capital allowance treatment for new expenditure has ended. Existing qualifying pre-abolition pools can continue to receive writing-down allowances.

Can refurbishment costs immediately after buying a property be deducted?

Sometimes. Timing alone isn’t decisive. The condition of the property when purchased, whether it was usable, whether the price reflected its defects and the nature and purpose of the works all need consideration.

What happens to capital improvements?

They aren’t normally deducted from rental profits. Qualifying enhancement expenditure may potentially become relevant to the CGT calculation when the property is eventually disposed of.

Can I recover VAT on refurbishment costs?

It depends on the activity and structure. Ordinary residential letting is generally VAT exempt, but new construction, qualifying conversions and certain renovations can have special VAT treatment.

Before Starting a Major Refurbishment – Get the Tax Treatment Right

If you are about to spend £20,000, £50,000 or £100,000 on a property, don’t wait until the year-end accounts are prepared before thinking about tax.

Before starting, consider:

INCOME TAX / CORPORATION TAX

Which costs are repairs and which are capital?

REPLACEMENT OF DOMESTIC ITEMS

Which furniture, appliances and furnishings genuinely replace existing items?

CAPITAL ALLOWANCES

Are there historic pools or qualifying assets outside the normal dwelling restrictions?

CAPITAL GAINS TAX

Which improvement costs should be retained for a future disposal?

VAT

Is this actually a development or conversion where the VAT treatment could be different?

STRUCTURE

Should the development activity be undertaken personally, through the existing property company or potentially through a separate development company?

That last question needs answering before the project begins, not after completion.

How Bicknell Business Advisers Can Help

Property refurbishment frequently involves several different taxes at the same time.

We can help review:

repairs versus capital improvements;
major refurbishment programmes;
Replacement of Domestic Items Relief;
former FHL expenditure after April 2025;
historic FHL capital allowance pools;
property acquisition and pre-letting expenditure;
VAT on developments and conversions;
development-company structures;
and the records required for future Capital Gains Tax calculations.

For larger projects, it is often worth reviewing the proposed works and builders’ estimates before work starts so that the accounting, tax and VAT treatment can be considered while there is still an opportunity to plan.

The Key Question: What Has Actually Changed?

When deciding whether property expenditure is a repair or an improvement, don’t focus only on:

how much it cost

or:

how new it looks.

Instead ask:

WHAT WAS THERE BEFORE?

WHAT WORK WAS ACTUALLY DONE?

WHAT IS THERE AFTERWARDS?

HAS THE PROPERTY OR ASSET SIMPLY BEEN RESTORED — OR HAS IT BEEN FUNDAMENTALLY IMPROVED?

Then separately consider whether any movable domestic items qualify for Replacement of Domestic Items Relief.

And for holiday-let owners, remember the major change:

THE SPECIAL FHL TAX REGIME ENDED IN APRIL 2025

Former FHLs are now generally within the same property-business regime as other residential lettings. New expenditure no longer receives the old FHL capital allowance treatment, although historic qualifying pools can continue, and RDI may now be available.

Getting the answer right can determine whether tax relief is obtained now, later, or not at all.

Forgot to Declare Rental Income? What to Do Before HMRC Contacts You

The VAT advantages of a development company

Is it a Repair, Replacement (RDI) or Improvement?

About the Author

Forgot to Declare Rental Income? What to Do Before HMRC Contacts You

Forgot to Declare Rental Income? HMRC Let Property Campaign 2026

HMRC’s Let Property Campaign Explained – Undeclared Rent, Penalties, Interest and How Far Back HMRC Can Go

By Steve Bicknell FCMA, CGMA

Have you received rental income that you haven’t declared to HMRC?

Perhaps you:

inherited a property and started letting it;
became an accidental landlord;
own a rental property jointly with somebody else;
assumed your letting agent dealt with the tax;
thought there was no profit because the rent only covered the mortgage;
spent substantial amounts repairing or improving the property;
live abroad but rent out a UK property;
or simply didn’t realise the income needed to be reported.

If so, ignoring the problem is unlikely to make it disappear.

HMRC operates the Let Property Campaign, which gives many individual residential landlords an opportunity to disclose previously undeclared rental income and bring their tax affairs up to date. HMRC’s current guidance was updated on 6 April 2026.

And there is an important reason to deal with the problem sooner rather than later:

IT CAN BE BETTER TO APPROACH HMRC BEFORE HMRC APPROACHES YOU

HMRC specifically distinguishes between unprompted and prompted disclosures. A disclosure is unprompted where, at the time it is made, you have no reason to believe HMRC has discovered or is about to discover the failure. Otherwise it is prompted.

Let Property Campaign – Quick Answer

If you have undeclared rental income, don’t simply put several years of old rent on your next Self Assessment return and assume the problem is fixed.

The correct route depends on the circumstances, but for many individual residential landlords the process is broadly:

1. Establish what has not been declared

Identify the property, ownership, rental periods and affected tax years.

2. Notify HMRC

Tell HMRC that you intend to make a disclosure.

3. Receive HMRC’s disclosure reference

HMRC provides a Disclosure Reference Number and payment reference.

4. Calculate what is owed

This can include:

TAX + INTEREST + PENALTIES

5. Submit the disclosure

HMRC currently gives you 90 days from its acknowledgement of the notification to submit the disclosure.

6. Pay HMRC

Payment is normally due by the same deadline. If you cannot pay in full, HMRC says you should discuss the position with it before submitting the disclosure.

What Is HMRC’s Let Property Campaign?

The Let Property Campaign has been operating since 2013.

It is aimed at individual landlords who owe tax from letting residential property, including property in the UK and overseas.

It can potentially cover people who:

rent one residential property;
own several rental properties;
rent a room above the Rent a Room threshold;
have relevant holiday letting income;
live abroad and rent UK residential property;
or have inherited a property and subsequently rented it out.

This means the campaign is not just for professional landlords with large portfolios.

Some of the people most likely to get into difficulty are those who never really regarded themselves as landlords in the first place.

The underlying property-sector material also reflects this: examples include inherited property, joint ownership and landlords who misunderstood the effect of mortgage payments or improvements on taxable profit.

Who Cannot Use the Let Property Campaign?

The campaign is primarily for individual residential landlords.

It is not the disclosure route for:

COMPANIES

or:

TRUSTS

and other disclosure routes may be needed for different types of taxpayer or income.

That does not mean undeclared income can simply be ignored. It means the correct HMRC disclosure mechanism needs to be identified.

Common Ways Landlords End Up With Undeclared Rental Income

Not every case begins with somebody deliberately deciding not to pay tax.

The Accidental Landlord

Sarah moves in with her partner but keeps her previous home and rents it out.

She has always been taxed through PAYE and has never normally completed a Self Assessment return.

Three years later she discovers that the rental income should have been considered for tax.

The Inherited Property

John inherits his mother’s house.

Rather than sell it immediately, he rents it out.

He assumes that because the property was inherited and much of the rent is being spent maintaining it, there is nothing to report.

That assumption may be wrong.

Inherited residential property can still generate taxable rental income.

Joint Owners

Two siblings jointly own a rental property.

The rent goes into one bank account and neither has correctly declared their share.

Each individual’s tax position needs to be considered separately.

“The Mortgage Used All the Rent”

David receives £18,000 a year in rent.

His mortgage payments, repairs and other costs come to almost £18,000.

He concludes:

“I haven’t made any money, so there can’t be any tax.”

Unfortunately:

CASH FLOW AND TAXABLE RENTAL PROFIT ARE NOT THE SAME THING

Can HMRC Find Out That I Own a Rental Property?

You should not assume that because HMRC has not contacted you yet, it does not know about the property.

HMRC can compare information it holds with information from other sources.

The more important point is:

DON’T BASE YOUR DECISION TO DISCLOSE ON WHETHER YOU THINK HMRC WILL FIND OUT

If you know there is undeclared rental income, investigate the position.

Waiting for HMRC to contact you may also affect whether the disclosure is treated as prompted or unprompted.

How Far Back Can HMRC Go for Undeclared Rental Income?

This is one of the first questions landlords usually ask.

And the answer is not simply:

“HMRC can always go back 20 years.”

The period depends heavily on what happened and why the tax was underpaid.

Broadly, different time limits can apply depending on whether the taxpayer took reasonable care, was careless, acted deliberately, or failed to notify HMRC of the tax liability.

The practical message is:

THE REASON FOR THE ERROR MATTERS

not just the number of years the property has been rented.

That is why preparing a clear chronology of what happened is so important.

Reasonable Care, Careless or Deliberate?

You should not simply choose whichever description produces the lowest penalty.

The facts need to support the position.

There can be a significant difference between someone who:

tried to get their affairs right but still made an error;
failed to take reasonable care;
or knew tax was due and deliberately failed to report the income.

Those circumstances can affect:

HOW FAR BACK HMRC CAN GO

and:

THE PENALTY POSITION

The underlying disclosure guidance also distinguishes careless, deliberate and deliberate-and-concealed behaviour, with increasingly serious penalty consequences.

Prompted vs Unprompted Disclosure – Why It Matters

This distinction can be very important.

Unprompted Disclosure

HMRC says a disclosure is unprompted where the taxpayer has no reason to believe HMRC has discovered or is about to discover the failure.

Prompted Disclosure

Otherwise the disclosure is prompted.

HMRC expressly says it wants to encourage taxpayers to come forward voluntarily.

So if you already know there is a problem:

DON’T WAIT FOR THE HMRC LETTER SIMPLY BECAUSE IT HASN’T ARRIVED YET

Does an Unprompted Disclosure Mean No Penalty?

Not necessarily.

But the timing and quality of the disclosure can influence the penalty outcome.

HMRC considers matters including:

TELLING

HELPING

GIVING ACCESS

The source material describes these as providing a full explanation, helping HMRC establish the correct liability and providing access to supporting records.

A carefully prepared disclosure is therefore very different from simply sending HMRC a rough estimate.

Worked Example – Five Years of Undeclared Rental Income

Consider a deliberately simplified example.

A landlord discovers that rental income has not been correctly declared for five years.

After reconstructing the records:

	Illustrative amount
Gross rental income	£38,000
Allowable property expenses	(£12,000)
Taxable rental profits	£26,000
Estimated additional Income Tax	£7,000
Estimated late-payment interest	£1,400
Illustrative penalties	£1,200
Illustrative total payable	£9,600

This is only an illustration.

An actual disclosure should be calculated tax year by tax year, taking account of:

the landlord’s other income;
allowances;
applicable tax rates;
finance-cost rules;
losses;
interest;
behaviour;
and the appropriate penalty rules.

The source working example illustrates the same underlying principle: unpaid tax, penalties and late-payment interest are separate components of the eventual liability.

“But My Mortgage Cost More Than the Rent – Surely There Is No Tax?”

This is a very common misunderstanding.

Imagine:

Rent received: £18,000
Mortgage payments: £14,000
Other costs: £3,000

Cash remaining:

£1,000

That does not automatically mean taxable property profit is £1,000.

Mortgage payments may include:

CAPITAL REPAYMENT

and:

INTEREST

Repaying borrowed capital is not an ordinary deductible property expense.

And for individual residential landlords, qualifying finance costs are subject to specific rules rather than being treated like an ordinary expense deduction. HMRC confirms that the full mortgage payment is not deductible and that residential mortgage interest is subject to the finance-cost restriction rules.

Therefore:

CASH PROFIT ≠ TAXABLE RENTAL PROFIT

“I Spent Thousands Renovating the Property – Can’t I Deduct It?”

Again, it depends on the nature of the expenditure.

There is a major distinction between:

REPAIRS

and:

CAPITAL IMPROVEMENTS

HMRC allows qualifying repairs and maintenance as property-business expenses, but improvements and other capital expenditure are not ordinary deductions against rental income.

So do not simply total every builder’s invoice and deduct it from the rent.

What Expenses Can Potentially Be Claimed?

Depending on the year and the circumstances, qualifying expenses can include items such as:

letting agent fees;
accountants’ fees;
buildings and contents insurance;
repairs and maintenance;
utilities paid by the landlord;
service charges;
ground rent;
cleaning and gardening;
and other direct costs of letting the property.

The source checklist similarly identifies agent statements, repairs, insurance, service charges, mortgage-interest information and replacement domestic items as useful disclosure records.

What If I Don’t Have All the Old Records?

This is extremely common, particularly where the problem goes back many years.

But:

MISSING RECORDS DON’T MEAN YOU SHOULD SIMPLY ACCEPT A GUESS

Historic property accounts can often be reconstructed from:

bank statements;
letting-agent statements;
tenancy agreements;
mortgage statements;
credit-card statements;
insurance records;
invoices;
service-charge statements;
council tax records;
emails;
deposit information;
and other evidence.

The source material specifically anticipates reconstructing missing rental history from estimates, emails and tenancy-deposit information where necessary.

And this can make a very substantial difference.

Real Case Study – HMRC Assessment Reduced by £32,085

In one previous case, HMRC contacted a landlord about undeclared property income going back to 2010/11.

HMRC’s original assessment was:

£54,798

We reconstructed the historic records using:

bank statements;
letting records;
expenses;
credit-card statements;
and other supporting information.

The work became effectively a forensic reconstruction exercise, with information and questions going backwards and forwards with HMRC over many months.

HMRC ultimately issued a revised assessment of:

£22,713

The reduction was:

£32,085

The case demonstrates an important principle:

DON’T ASSUME HMRC’S FIRST FIGURE IS NECESSARILY THE FINAL ANSWER

The objective is not to invent expenses or artificially reduce the liability.

It is to establish the correct position supported by the best available evidence.

Read the full £32,085 Undeclared Property Income case study

Free Download – Let Property Campaign Checklist

We have prepared a practical checklist to help landlords identify the records and information likely to be needed.

It covers:

property ownership;
letting history;
rent received;
allowable expenditure;
mortgage information;
missing records;
other taxable income;
circumstances surrounding the omission;
and the HMRC disclosure process.

Use this CTA button on the blog:

FREE DOWNLOAD

Free Checklist Download

Let Property Campaign – Landlord Disclosure Checklist

Download the Let Property Campaign Landlord Disclosure Checklist

What Information Should You Gather?

Before calculating a disclosure, I would normally want to establish:

Property

full address;
date acquired;
ownership percentages;
changes in ownership;
whether the property has now been sold.

Letting History

date letting commenced;
tenancy periods;
void periods;
gross rents for each tax year;
letting-agent statements.

Expenses

repairs;
insurance;
agent fees;
service charges;
professional fees;
replacement items;
mortgage interest/finance costs;
other property expenditure.

Wider Tax Position

employment income;
self-employment income;
pensions;
other property income;
previous Self Assessment returns;
losses brought forward.

Explanation

Prepare a chronology explaining:

when the property was first let;
what you understood the tax position to be;
whether advice was obtained;
why the rent was not declared;
when the issue was discovered;
and what happened afterwards.

What If the Property Is Jointly Owned?

Do not automatically report all the rental income on one person’s disclosure.

The ownership and tax treatment need to be established.

This is particularly important for:

spouses and civil partners;
siblings;
unmarried couples;
unequal ownership;
and situations where all rent happened to be paid into one person’s bank account.

What If the Property Has Already Been Sold?

Selling the property does not make historic rental income disappear.

There may also be a separate:

CAPITAL GAINS TAX

position to review.

The disposal and the historic rental income should therefore both be considered.

What About Overseas Rental Property?

The Let Property Campaign can potentially cover undisclosed residential rental income from overseas property as well as UK property.

Offshore cases can be more complex because of:

residence;
foreign tax;
double-taxation relief;
and potentially different penalty rules.

Professional advice is especially sensible where overseas property is involved.

How Is Interest Calculated?

Interest is separate from the penalty.

HMRC charges late-payment interest because the tax was paid later than it should have been.

A multi-year disclosure therefore often requires a separate interest calculation for each affected tax year.

The source working illustrates just how much the interest can build across several historic years.

The 90-Day Let Property Campaign Process

STEP 1 – NOTIFY HMRC

Tell HMRC that you intend to disclose.

↓

STEP 2 – RECEIVE THE DISCLOSURE REFERENCE

HMRC provides the relevant reference numbers.

↓

STEP 3 – RECONSTRUCT THE PROPERTY ACCOUNTS

Calculate the correct result for every relevant year.

↓

STEP 4 – CALCULATE TAX

Take account of other income, allowances, losses and year-specific tax rules.

↓

STEP 5 – CALCULATE INTEREST

Calculate late-payment interest.

↓

STEP 6 – CALCULATE PENALTIES

Consider:

behaviour

prompted vs unprompted

quality of disclosure

↓

STEP 7 – SUBMIT THE DISCLOSURE

Normally within:

90 DAYS

↓

STEP 8 – PAY HMRC

or agree an appropriate payment arrangement.

The source material sets out the same broad sequence: notification, calculation and submission within the 90-day window, followed by payment.

What If I Can’t Afford to Pay HMRC?

Do not let inability to pay immediately stop you from addressing the tax problem.

HMRC has a dedicated Let Property Campaign contact route and advises taxpayers who need help with the campaign to contact it.

The sensible approach is to establish the correct liability and discuss affordability rather than ignoring the disclosure altogether.

Will HMRC Automatically Accept My Disclosure?

No.

HMRC can review the disclosure and request further information.

That is another reason why accurate calculations and supporting evidence matter.

A properly prepared disclosure should be capable of explaining:

how the figures were calculated;
what assumptions were made;
why the omission occurred;
and what records support the position.

Should I Just Wait and See Whether HMRC Contacts Me?

In my view:

NO

If you have identified undeclared rental income, investigate it now.

Waiting can:

increase interest;
leave you dealing with the problem on HMRC’s timetable;
and potentially turn an unprompted disclosure into a prompted one.

HMRC’s own guidance says it wants to encourage unprompted disclosures.

Let Property Campaign – Decision Tree

Have you received rental income?

→ The Let Property Campaign probably is not relevant.

YES

↓

Was all taxable rental income correctly reported?

YES

→ A historic disclosure may not be needed.

NO / NOT SURE

↓

Has HMRC already contacted you about the rent or property?

INVESTIGATE AN UNPROMPTED DISCLOSURE NOW

YES

TAKE ADVICE BEFORE RESPONDING

↓

Establish:

YEARS + RENT + EXPENSES + FINANCE COSTS + OTHER INCOME

↓

Calculate:

TAX + INTEREST + PENALTIES

↓

Submit the appropriate disclosure and make sure current reporting is brought fully up to date.

Frequently Asked Questions

I forgot to declare rental income. What should I do?

Establish the tax years and amounts involved and consider whether HMRC’s Let Property Campaign is the correct disclosure route.

Can HMRC go back 20 years?

Potentially, depending on the circumstances. The reason for the underpayment and whether you failed to notify HMRC are important.

What if the rent only covered my mortgage?

That does not necessarily mean there is no taxable profit. The full mortgage payment is not an allowable rental expense.

What if I spent thousands renovating the property?

Repairs may potentially be deductible. Improvements and other capital expenditure generally are not ordinary deductions against rental income.

What if I have no records?

Historic accounts can often be reconstructed using bank statements, letting-agent statements, mortgage records and other available evidence.

What if HMRC’s estimate looks too high?

Check it carefully. Our previous property case resulted in a £54,798 HMRC assessment being reduced to £22,713 after the historic records were reconstructed.

Can my accountant make the disclosure?

Yes, an agent can assist with the disclosure process.

Can a limited company use the Let Property Campaign?

The campaign is aimed at individual landlords; other disclosure routes are used for companies.

What if HMRC has already written to me?

Do not ignore the letter. The prompted/unprompted position and the correct response need to be considered carefully.

How long do I get to complete the disclosure?

HMRC currently gives 90 days from acknowledgement of notification.

How Bicknell Business Advisers Can Help

A Let Property Campaign disclosure involves much more than adding up rent received.

We can help:

1. Establish the history

Identify the properties, ownership, letting dates and years affected.

2. Reconstruct the rental accounts

Using bank statements, letting records, mortgage statements, credit cards and other available evidence.

3. Identify allowable expenses

Including repairs versus improvements and the correct treatment of finance costs.

4. Calculate each tax year

Taking account of other income, allowances, tax rates and losses.

5. Calculate interest and penalties

Including consideration of behaviour and whether the disclosure is prompted or unprompted.

6. Prepare the explanation

Set out what happened and why.

7. Deal with HMRC

Assist with notification, submission and queries.

8. Get the current position right

Make sure ongoing rental income is correctly reported going forward.

Don’t Wait for HMRC to Find the Problem

Discovering that several years of rental income have not been declared can be worrying.

But the sensible response is to establish:

WHAT SHOULD HAVE BEEN DECLARED

then:

HOW MANY YEARS NEED CORRECTING

then:

WHAT TAX, INTEREST AND PENALTIES ARE ACTUALLY DUE

And as our £32,085 case study demonstrates, properly reconstructing the records can make a very significant difference.

The objective is not to produce the lowest possible figure.

It is to produce the:

CORRECT, EVIDENCED FIGURE

and make a complete disclosure.

If you have undeclared rental income, inherited a property that has been let, received an HMRC letter or are simply unsure whether historic rental income was correctly reported, Bicknell Business Advisers can review the position and help you decide the appropriate next step.

Useful Blogs

Making Tax Digital for Income Tax – Understanding Quarterly Updates

How Landlords Can Legally Reduce Tax by Changing the Split of Rental Income

ATED Revaluation 2027 – Could Your Property Company Be Caught by the £500,000 Tax Trap?

Landlords Face Higher Tax Rates from April 2027 – How Much More Will You Pay?

About the Author

Should Your Limited Company Buy a New or Second-Hand Electric Car?

New or Second-Hand Electric Car Through Your Limited Company?

New vs Used EV Tax Explained – Capital Allowances, BIK, VAT, Grants and Mileage for 2026/27

By Steve Bicknell FCMA, CGMA

You have found two electric cars.

One is brand new.

The other is two or three years old.

The second-hand car may be thousands of pounds cheaper — but the new car could potentially qualify for 100% First-Year Capital Allowances.

So which is actually better?

For a limited company in 2026/27, the answer is more complicated than simply comparing the purchase prices.

You need to consider:

100% capital allowances on qualifying new EVs;
14% writing-down allowances on second-hand EVs;
the 4% electric company-car Benefit in Kind rate;
the original list price of a second-hand car;
Corporation Tax;
VAT;
government EV grants;
charging costs;
business mileage;
depreciation;
Vehicle Excise Duty;
finance;
and what happens when you eventually sell the car.

And there is a third option which shouldn’t be overlooked:

BUY THE EV PERSONALLY AND CLAIM 55P PER BUSINESS MILE.

Let’s compare them.

Quick Answer – New EV, Used EV or Personal Ownership?

	New EV – Company	Used EV – Company	Personally Owned EV
Company funds purchase	Yes	Yes	No
100% zero-emission FYA	Potentially yes	No	No company CA
Capital allowances	Potentially 100%	Normally 14% WDA	—
2026/27 EV BIK	4%	4%	None
BIK based broadly on original list price	Yes	Yes	—
Electric Car Grant	Potentially	No	Potentially on eligible new EV
AMAP – first 10,000 business miles	No	No	55p
Company owns car	Yes	Yes	No
VAT on purchase with private availability	Usually blocked	Usually blocked	—
Initial depreciation	Potentially high	Often substantially absorbed already	Personal cost

The biggest tax difference between buying a new and second-hand EV through your company is generally the timing of the:

CAPITAL ALLOWANCES.

Why Are New Electric Cars So Tax-Efficient?

A qualifying new and unused zero-emission car can currently qualify for a:

100% FIRST-YEAR ALLOWANCE

That potentially allows the company to deduct the entire qualifying cost from taxable profits in the relevant accounting period.

For Corporation Tax purposes, the current relief runs until:

31 MARCH 2027

and for Income Tax purposes until:

5 APRIL 2027.

This relief is particularly valuable because cars are excluded from:

Annual Investment Allowance;
Full Expensing;
and the general 40% First-Year Allowance.

A qualifying new zero-emission car has its own specific 100% FYA.

Example – £50,000 New Electric Car

Suppose Consultancy 4 Business Ltd buys a qualifying brand-new zero-emission car for:

£50,000

Potential First-Year Allowance:

£50,000 × 100% = £50,000

If the company obtains tax relief at 25%, the simple illustrative Corporation Tax reduction is:

£50,000 × 25% = £12,500

POTENTIAL CT SAVING: £12,500

That is an extremely valuable timing advantage.

But it does not mean a £50,000 EV really costs £37,500.

The company has still spent £50,000 and needs to consider depreciation, finance, running costs, BIK and eventual disposal.

The actual Corporation Tax benefit also depends on the company’s taxable profits and applicable Corporation Tax rate.

What Counts as New and Unused?

Don’t assume that:

“new to me”

means:

“new and unused”

for capital allowance purposes.

The conditions need to be checked.

Limited mileage arising from matters such as delivery, testing, customer test drives or demonstrator use does not necessarily mean a vehicle is second-hand.

Similarly, pre-registration does not automatically prevent qualification.

So if you’re considering a:

PRE-REGISTERED EV

or:

DEMONSTRATOR

it is worth checking the facts before assuming the 100% allowance has been lost.

What About a Second-Hand Electric Car?

A second-hand EV does not qualify for the special 100% zero-emission car FYA.

Instead, a zero-emission car will generally fall within the:

MAIN-RATE CAPITAL ALLOWANCE POOL.

The main writing-down allowance rate reduced from 18% to:

14%

from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax.

Accounting periods spanning the change can have a hybrid rate.

Example – £50,000 Second-Hand EV

Suppose Consultancy 4 Business Ltd instead pays:

£50,000

for a second-hand zero-emission car.

Using a simple full-year 14% illustration:

£50,000 × 14% = £7,000

At an illustrative 25% Corporation Tax rate:

£7,000 × 25% = £1,750

Compare that with our qualifying new car:

	New EV	Used EV
Purchase price	£50,000	£50,000
Illustrative first-year CA	£50,000	£7,000
Illustrative CT reduction @25%	£12,500	£1,750
Difference in first-year CT relief		£10,750

That is a very substantial difference.

But it is primarily a difference in the timing of tax relief.

The second-hand EV hasn’t necessarily lost all the remaining capital allowances — they are generally obtained more slowly.

But the Used EV Could Be £20,000 Cheaper

This is where tax relief can distract from the real commercial decision.

Suppose the choice is:

Brand-new EV

£50,000

versus:

Three-year-old equivalent

£30,000

The new EV may potentially produce a £50,000 FYA.

The £30,000 used EV would have an illustrative first-year 14% WDA of:

£30,000 × 14% = £4,200

At 25% CT, that’s an illustrative first-year tax reduction of:

£1,050

But the used car required:

£20,000 LESS CASH

to buy.

That’s considerably more than the difference in our illustrative first-year Corporation Tax savings.

So remember:

DON’T SPEND £1 SIMPLY TO SAVE 25P OF TAX.

Tax is only part of the calculation.

Are There Still Government Grants for Electric Cars?

YES.

The Government’s Electric Car Grant currently gives discounts on qualifying new zero-emission cars.

There are two grant bands:

Band 1

UP TO £3,750

Band 2

UP TO £1,500

You don’t normally claim the grant yourself.

The seller applies the grant as a discount to the purchase price.

But not every electric car qualifies.

The scheme applies to approved vehicles satisfying conditions including zero tailpipe emissions, minimum range, warranties, sustainability requirements and price limits.

The main Electric Car Grant price cap is currently £37,000 RRP, although particular rules can allow certain variants in the same interpolation family up to £42,000.

That means our hypothetical £50,000 new EV would not ordinarily qualify for the standard Electric Car Grant.

This is important — don’t add £3,750 to the tax saving on a £50,000 car unless the particular vehicle actually qualifies.

The list of eligible vehicles changes, so check the current Government list before ordering.

New EV – Potential Double Advantage

For an eligible qualifying new EV, there could therefore be:

ELECTRIC CAR GRANT

plus:

100% FIRST-YEAR ALLOWANCE

plus the low:

4% EV BIK RATE.

That can significantly narrow the economic difference between a new and nearly-new EV.

Benefit in Kind – New and Used EVs Get the Same Percentage

The low Benefit in Kind rate remains one of the biggest attractions of putting an EV through a limited company.

For a zero-emission company car, the appropriate percentage is:

2026/27

4%

2027/28

5%

2028/29

7%

2029/30

9%

So a second-hand EV doesn’t suffer a higher percentage simply because it is used.

But there is a trap.

BIK Uses List Price – Not What You Paid Second-Hand

Suppose your company buys a three-year-old EV for:

£30,000

but its relevant original list price was:

£50,000.

The company-car BIK is broadly based on the relevant list price and taxable accessories — not the £30,000 your company paid.

At 4%:

£50,000 × 4% = £2,000 taxable benefit

So the BIK could broadly be the same as on a brand-new £50,000 EV.

THE USED PRICE FALLS.

THE BIK LIST PRICE DOESN’T FALL WITH IT.

This is an important consideration when looking at heavily depreciated premium EVs.

What Does a £2,000 EV Benefit Actually Cost?

For a £50,000 relevant list price and a 4% BIK percentage:

TAXABLE BENEFIT = £2,000

Illustratively, the employee/director’s Income Tax could be:

Tax rate	Illustrative tax
20%	£400
40%	£800
45%	£900

The company will also normally pay Class 1A National Insurance.

Even after allowing for that, the BIK can remain dramatically lower than on many petrol or diesel company cars.

New £50,000 vs Used £30,000 – The Interesting Comparison

	New EV	Used EV
Company purchase price	£50,000	£30,000
Original list price	£50,000	£50,000
2026/27 BIK rate	4%	4%
Illustrative taxable benefit	£2,000	£2,000
Potential first-year CA	£50,000	£4,200*
Illustrative CT reduction @25%	£12,500	£1,050*
Cash purchase difference	—	£20,000 cheaper

*Simple 14% full-year illustration.

Now the decision is much less obvious.

The new car wins on immediate tax relief.

The used car wins on purchase price.

And both have the same illustrative BIK because they originally had the same list price.

Depreciation May Matter More Than Tax

This is probably the most important commercial point in this article.

Imagine a new EV costs:

£50,000

and is worth:

£25,000

three years later.

That’s a:

£25,000 LOSS IN VALUE.

Receiving accelerated Corporation Tax relief doesn’t eliminate that economic loss.

A two or three-year-old EV may allow you to buy after somebody else has absorbed much of the initial depreciation.

So the real comparison is closer to:

PURCHASE PRICE

minus:

EXPECTED RESALE VALUE

plus:

FINANCE AND RUNNING COSTS

plus:

PERSONAL BIK TAX

minus:

COMPANY TAX RELIEF.

What Happens When the Company Eventually Sells the EV?

Don’t look at the 100% FYA in isolation.

Capital allowance disposal rules apply when the company eventually sells the vehicle.

So claiming £50,000 upfront doesn’t mean the proceeds received when the car is sold are ignored.

A proper whole-life calculation should therefore consider:

PURCHASE + OWNERSHIP + DISPOSAL.

What About VAT When Buying an Electric Car?

This is one of the most misunderstood EV tax rules.

ELECTRIC DOES NOT MEAN VAT-FREE.

An electric car is still a car for VAT purposes.

VAT on buying a car is generally blocked where the vehicle is available for private use.

Full VAT recovery is normally only possible where the relevant conditions are satisfied — for example, where the car is not available for private use or is acquired for certain qualifying activities.

So if a director buys an electric car through the company and uses it both privately and for business:

DO NOT ASSUME THE COMPANY CAN RECLAIM THE PURCHASE VAT.

What About VAT on Leasing an EV?

Leasing is different.

Where a VAT-registered business leases a car that has private use, it can normally recover:

50% OF THE VAT ON THE LEASE RENTAL

subject to the normal rules.

VAT on separately charged maintenance can potentially have different treatment.

This is one reason why a proper comparison between:

cash purchase;
HP;
PCP;
and lease

is worthwhile before signing the agreement.

What About VAT on Charging an Electric Car?

This is another area where the rules differ from petrol and diesel.

HMRC says VAT incurred by a business on charging an EV can be recovered to the extent it relates to business use where charging takes place:

at the workplace; or
at a public charging point,

subject to the normal VAT rules.

Mileage records should be maintained to identify business and private use where necessary.

But home charging by an employee is different.

Where an employee charges an EV at home, HMRC’s published position is that the electricity is supplied to the employee, not the employer.

The employer therefore cannot currently recover VAT on that home electricity under HMRC’s published guidance.

Does the VAT Fuel Scale Charge Apply to an Electric Car?

This needs particular care.

Businesses with petrol or diesel cars sometimes reclaim VAT on road fuel and account for private use using HMRC’s:

VAT ROAD FUEL SCALE CHARGE.

For 1 May 2026 to 30 April 2027, the lowest CO₂ band — 120g/km or less — has an annual VAT-inclusive scale-charge value of £657.

But:

DON’T SIMPLY APPLY THE £657 SCALE CHARGE TO AN EV BECAUSE IT HAS 0G/KM CO₂.

HMRC’s VAT Notice deals with electricity for charging EVs separately from its rules on road fuel and fuel scale charges.

HMRC says businesses should identify business/private electricity use through mileage records where appropriate.

The practical VAT treatment therefore depends on:

where the EV is charged;
who receives the supply of electricity;
who pays for it;
whether the business has incurred recoverable VAT;
and the business/private mileage split.

This is another reason to keep good mileage and charging records.

Are There Still Grants for EV Chargers?

YES.

The Workplace Charging Scheme currently contributes towards the purchase and installation of EV chargepoints at eligible workplaces.

The scheme can cover up to:

75% OF THE COST

subject to a maximum of:

£500 PER SOCKET

and:

40 SOCKETS

across all sites per applicant.

The current scheme closes on:

31 MARCH 2027.

Eligibility conditions apply, so check them before committing to the installation.

Can the Company Also Claim Tax Relief on a Charger?

Potentially.

Qualifying expenditure on new and unused electric vehicle chargepoints can currently qualify for:

100% FIRST-YEAR ALLOWANCES.

The current relief is available until:

31 March 2027 – Corporation Tax

5 April 2027 – Income Tax

So a business considering workplace charging should potentially investigate both the grant and the capital allowance position.

The interaction with grant funding needs to be taken into account when determining the qualifying expenditure.

What About Charging at Home?

The tax position shouldn’t be confused with the VAT position.

For a fully electric company car, HMRC says an employer does not have to report charging provided for the employee’s company EV as a taxable benefit.

For reimbursement of business mileage in a company EV, HMRC now publishes separate advisory electric rates.

From:

1 SEPTEMBER 2026

these are:

Home charging

7P PER MILE

Public charging

15P PER MILE.

These rates relate to company electric cars.

They should not be confused with the 55p AMAP rate for personally owned cars.

What If I Buy the EV Personally?

This has become significantly more interesting in 2026/27.

If you personally own the vehicle and use it for qualifying business journeys, your company can pay Approved Mileage Allowance Payments of:

First 10,000 business miles

55P PER MILE

Thereafter

25P PER MILE.

The increase from 45p to 55p was backdated to:

6 APRIL 2026.

So if you drive 10,000 qualifying business miles:

10,000 × 55p = £5,500

£5,500

can potentially be reimbursed under the AMAP rules.

That rate applies to electric cars as well as petrol, diesel and hybrid cars.

£30,000 Used EV Personally vs Company Owned

Suppose you buy a used EV personally for:

£30,000

and drive:

10,000 QUALIFYING BUSINESS MILES.

Your company could potentially reimburse:

£5,500

under the AMAP rules.

There is no company-car BIK because:

IT IS YOUR CAR.

But you personally had to fund the £30,000 purchase.

If the company buys it instead:

the company provides the £30,000;
it owns the vehicle;
it potentially obtains capital allowances;
it can pay relevant running costs;

but private availability will normally create a company-car BIK.

Neither answer is automatically better.

Don’t Confuse the EV Mileage Rates

There are now some very different numbers being quoted for electric cars:

Situation	2026/27 rate
Personally owned car – first 10,000 qualifying business miles	55p/mile
Personally owned car – thereafter	25p/mile
Company EV – home charging advisory rate from 1 Sept 2026	7p/mile
Company EV – public charging advisory rate from 1 Sept 2026	15p/mile

These rates do completely different jobs.

55P DOES NOT APPLY TO A COMPANY CAR.

What About Vehicle Excise Duty?

Electric cars are no longer generally exempt from Vehicle Excise Duty.

There is also the Expensive Car Supplement to consider.

From 1 April 2026, the Expensive Car Supplement threshold for zero-emission cars increased from:

£40,000

to:

MORE THAN £50,000.

So an EV’s list price can affect:

company-car BIK; and
potentially VED.

That’s another reason to look beyond the discounted price you actually pay.

What About Salary Sacrifice?

EVs can also remain particularly attractive through properly structured salary-sacrifice arrangements because low-emission cars benefit from special treatment under the Optional Remuneration Arrangement rules.

But salary sacrifice introduces additional considerations including:

National Minimum Wage;
pensionable pay;
statutory payments;
early termination charges;
maternity and other leave;
employees leaving;
insurance;
damage;
and excess mileage.

For an owner-managed limited company, straightforward company ownership may often be easier to compare first.

So Which Option Is Best?

A NEW COMPANY EV MAY BE BEST IF:

your company has sufficient taxable profits;
the car qualifies for the 100% FYA;
immediate Corporation Tax relief is valuable;
an eligible vehicle qualifies for the Electric Car Grant;
you value a full manufacturer/battery warranty;
you want the latest battery and charging technology;
you expect to keep the car for a reasonable period.

A SECOND-HAND COMPANY EV MAY BE BEST IF:

somebody else has already absorbed substantial depreciation;
the purchase price is significantly lower;
preserving company cash is important;
immediate capital allowance relief is less important;
the battery condition and warranty are good;
you are comfortable with the original list price used for BIK.

PERSONAL OWNERSHIP MAY BE BEST IF:

you can buy a relatively inexpensive used EV personally;
you drive significant business mileage;
the 55p AMAP rate is valuable;
you want to avoid company-car BIK;
you prefer personal ownership and flexibility.

The Comparison I Would Make Before Buying

For an owner-managed limited company, don’t just ask:

“Should the company buy an electric car?”

Compare:

OPTION 1

NEW EV BOUGHT BY THE COMPANY

Potential 100% FYA
Low 4% BIK
Potential grant on qualifying lower-priced models
Potentially highest depreciation

OPTION 2

SECOND-HAND EV BOUGHT BY THE COMPANY

Much lower purchase price possible
14% main-rate capital allowances
Same 4% BIK percentage
BIK still based broadly on original list price

OPTION 3

EV BOUGHT PERSONALLY

No company capital allowances
No company-car BIK
Company can potentially pay 55p/mile for first 10,000 qualifying business miles
You personally fund the vehicle

10 Questions to Ask Before You Order an EV

Is it genuinely new and unused?
Does it qualify for the 100% EV FYA?
Does the particular new model qualify for the Electric Car Grant?
What was the original list price for BIK?
How much has an equivalent used EV already depreciated?
What is the expected resale value in three or four years?
How many business miles will I actually drive?
Should I buy it personally and claim 55p mileage instead?
Should the company buy, HP, PCP or lease it?
Where will I charge it and what are the VAT and reimbursement consequences?

Answer those questions before choosing the car.

Frequently Asked Questions

Does a new electric car get 100% tax relief?

A qualifying new and unused zero-emission car can currently qualify for 100% First-Year Allowances. For Corporation Tax purposes, the current relief runs to 31 March 2027.

Does a second-hand electric car get 100% capital allowances?

No. A second-hand zero-emission car will generally receive main-rate writing-down allowances instead.

What is the capital allowance rate for a used EV in 2026?

The main WDA rate reduced to 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Hybrid rates can apply to accounting periods spanning the change.

Can I claim AIA on an electric car?

No. Cars are excluded from AIA.

Can I claim Full Expensing on an electric car?

No.

Does the general 40% FYA apply to cars?

No.

The 100% relief for qualifying new EVs comes from the specific zero-emission car FYA.

What is the EV BIK rate for 2026/27?

4%.

Is BIK lower if I buy the EV second-hand?

Not simply because it is second-hand. The calculation is broadly based on the relevant original list price rather than the second-hand price paid.

Can my company reclaim VAT when it buys an electric car?

Usually not where the car is available for private use. EVs don’t receive a special exemption from the normal VAT rules for cars.

Does the VAT fuel scale charge apply to electricity?

Don’t automatically apply the conventional road-fuel scale charge to an EV. HMRC deals with EV charging electricity separately in its VAT guidance, and business/private use and the identity of the recipient of the electricity supply need to be considered.

Can my company recover VAT on home charging?

Under HMRC’s currently published position, where an employee charges an EV at home, the electricity is supplied to the employee rather than the employer, so the employer cannot recover that VAT.

Are EV grants still available?

Yes. Eligible new cars can currently qualify for the Electric Car Grant, with maximum discounts of £3,750 or £1,500, depending on the vehicle’s grant band.

Are charger grants still available?

Yes. The Workplace Charging Scheme currently offers up to 75% of eligible costs, capped at £500 per socket for up to 40 sockets, subject to eligibility.

Can my company pay 55p per mile if I own an EV personally?

Yes, for the first 10,000 qualifying business miles in 2026/27 under the AMAP rules. The rate then falls to 25p.

New Doesn’t Automatically Mean Better

There is a very compelling tax case for a qualifying new company EV:

100% FIRST-YEAR ALLOWANCE

4% BIK

POTENTIAL EV GRANT

POTENTIAL CHARGEPOINT SUPPORT.

But:

TAX RELIEF DOESN’T MAKE DEPRECIATION DISAPPEAR.

A two or three-year-old EV might cost £15,000 or £20,000 less than its new equivalent.

And personal ownership has become more competitive because the first 10,000 qualifying business miles can now potentially be reimbursed at:

55P PER MILE.

So the right question isn’t:

“Which option gives me the biggest tax deduction?”

It is:

“WHICH OPTION GIVES ME THE LOWEST WHOLE-LIFE AFTER-TAX COST?”

Bicknell Business Advisers

For owner-managed limited companies, electric cars remain one of the most tax-efficient company-car options available in 2026/27.

But new, second-hand and personally owned EVs can produce very different results.

Before ordering a car, we can compare:

new vs second-hand;
company vs personal ownership;
cash vs HP vs PCP vs lease;
Corporation Tax;
capital allowances;
Benefit in Kind;
Class 1A NIC;
VAT;
grants;
charging;
business mileage;
and expected disposal value.

When you’re spending £30,000, £40,000 or £50,000 on a vehicle, doing the calculation before you buy it can be considerably more useful than working out the tax consequences afterwards.

More Company Car & Vehicle Tax Guides

Buy, HP, PCP or Lease a £50,000 Car Through Your Business?

Compare cash purchase, finance, PCP, leasing and personal ownership.

Hire Purchase, PCP & Leasing – Capital Allowances & Tax

How the method of finance changes the tax and accounting treatment.

Is It a Van or a Car for Tax?

Double-cab pickups, crew vans, Benefit in Kind, capital allowances and VAT explained.

About the Author

Buy, HP, PCP or Lease a £50,000 Car Through Your Business?

Buying a £50,000 business car? Compare cash, HP, PCP, leasing and personal ownership, including EV tax relief, VAT, BIK, salary sacrifice and 2026 mileage rates.

Limited Company vs Self-Employed – Tax, VAT, Benefit in Kind & Capital Allowances Explained for 2026/27

By Steve Bicknell FCMA, CGMA

Business owners ask us about cars all the time.

You have found the car you want.

It costs:

£50,000

Now comes the difficult question:

WHAT IS THE MOST TAX-EFFICIENT WAY TO GET IT?

Should your limited company:

buy it outright?
use Hire Purchase?
take a PCP?
lease it?
buy a new electric car?
buy a second-hand electric car?

Or would you actually be better buying the car personally and claiming business mileage?

The answer isn’t simply:

“Put the car through the company and claim the tax.”

How the vehicle is financed, its CO₂ emissions, whether it is new or second-hand, how much private use there is, and whether you operate through a limited company or are self-employed can completely change the answer.

And the 2026/27 rules contain some important changes.

Company Cars Are Making a Comeback – And Half Are Electric

Company cars certainly haven’t disappeared.

HMRC’s latest official statistics estimate that 920,000 people received company-car benefit in 2024/25, up from 840,000 in the previous year.

That represents an increase of:

80,000 COMPANY-CAR RECIPIENTS IN ONE YEAR

But the type of company car has changed dramatically.

In 2024/25:

51% of reported company cars were fully electric
around 467,000 company-car recipients had zero-emission cars
693,000 company cars had emissions of 74g/km or less
diesel cars represented only 7% of company cars
average reported company-car emissions had fallen to 41g/km

HMRC’s figures are provisional for 2024/25, but the direction is striking.

That helps explain why the question:

“SHOULD MY COMPANY BUY ME AN ELECTRIC CAR?”

has become so common.

But before deciding which car to buy, we should first determine who should own it and how it should be financed.

£50,000 Car – Quick Answer

There is no single winner.

But some useful starting points are:

NEW ELECTRIC CAR

Potentially very attractive through a limited company because a qualifying new and unused zero-emission car can currently obtain a 100% first-year capital allowance.

The 2026/27 company-car Benefit in Kind percentage is also only:

4%

SECOND-HAND ELECTRIC CAR

Still benefits from the low electric-car BIK percentage, but it doesn’t receive the same 100% first-year capital allowance.

It instead falls into the main-rate capital allowance regime.

PETROL OR DIESEL CAR

Can be considerably less attractive through a company if there is private availability, because company-car BIK percentages can reach:

37%

in 2026/27.

HP

Normally represents acquisition of the car using finance.

The repayments themselves aren’t simply deducted as a monthly business expense: capital allowances and finance costs need to be considered separately.

PCP

The precise tax treatment depends on the actual agreement.

Don’t decide the accounting or tax treatment simply because the paperwork says PCP.

LEASE

The business normally obtains tax relief for lease rentals rather than claiming capital allowances on the car.

VAT treatment can also be more favourable than outright purchase.

PERSONAL OWNERSHIP + MILEAGE

This has become more attractive since 6 April 2026, because the approved rate for the first 10,000 qualifying business miles increased to:

55p PER MILE

The First Decision Isn’t HP or PCP

Before deciding how to finance the vehicle, ask:

WHO SHOULD OWN THE CAR?

There are really two decisions.

Decision 1

Business/company car or personally owned car?

Then:

Decision 2

Cash, HP, PCP or lease?

Those decisions are often approached in the wrong order.

Our £50,000 Example

We’ll compare:

OPTION 1

Business buys for cash

OPTION 2

Hire Purchase

OPTION 3

PCP

OPTION 4

Lease / contract hire

OPTION 5

Personal ownership + business mileage

But there is another factor capable of completely changing the result:

WHAT TYPE OF CAR IS IT?

So we also need to compare:

£50,000 NEW ELECTRIC CAR

£50,000 SECOND-HAND ELECTRIC CAR

£50,000 PETROL/DIESEL CAR

New Electric Car – 100% Capital Allowance

For qualifying new and unused zero-emission cars, the business can currently claim:

100% FIRST-YEAR ALLOWANCE

HMRC’s current business-car rules distinguish these cars from other vehicles.

So if Consultancy 4 Business Ltd buys a qualifying new EV for:

£50,000

potential qualifying first-year allowance:

£50,000

If the company is paying Corporation Tax at 25%, a simplified illustration gives:

£50,000 × 25%

£12,500 CORPORATION TAX SAVING

subject to sufficient taxable profits and the company’s circumstances.

That is a very powerful tax incentive.

Second-Hand EV – Very Different Capital Allowances

Now change just one thing.

The £50,000 electric car is second-hand.

It does not receive the special 100% first-year allowance available to a qualifying new EV.

Instead it falls into the main-rate capital allowance regime. HMRC’s current main-pool WDA is:

14%

from April 2026.

So a simple first-year illustration would be:

£50,000 × 14%

£7,000 CAPITAL ALLOWANCE

Compare:

New qualifying EV

£50,000

Second-hand EV

£7,000 first-year WDA

That is a major difference in the timing of tax relief.

It doesn’t necessarily make the second-hand EV commercially worse — depreciation and purchase price still matter — but:

ELECTRIC DOESN’T AUTOMATICALLY MEAN 100% TAX RELIEF

Higher-Emission Car

A higher-emission vehicle may fall into the special-rate pool.

The current special-rate WDA remains:

6%

So on £50,000:

£50,000 × 6%

£3,000

of first-year WDA in a straightforward illustration.

The capital allowance contrast can therefore be enormous.

£50,000 Car	Illustrative First-Year Capital Allowance
Qualifying new zero-emission car	£50,000
Second-hand electric / qualifying main-rate car	£7,000
Higher-emission special-rate car	£3,000

The actual result depends on the specific vehicle and period, but this demonstrates why the emissions and whether the car is new matter so much.

Capital Allowances Are Only Half the Story

A company might get excellent tax relief on acquiring the car.

But if it is available to the director for private use, the director can simultaneously have a:

COMPANY-CAR BENEFIT IN KIND

And private use includes ordinary commuting.

So we need to compare:

COMPANY TAX SAVING

against:

PERSONAL TAX COST

£50,000 Electric Company Car – 2026/27 BIK

For a zero-emission company car, the 2026/27 appropriate percentage is:

4%

Assume the relevant list price is £50,000.

£50,000 × 4%

£2,000 TAXABLE BENEFIT

Illustrative personal tax:

Tax rate	Annual Income Tax
20%	£400
40%	£800
45%	£900

The employer also has Class 1A NIC to consider.

That’s one reason electric company cars remain attractive.

EV Company-Car Tax Will Rise

The percentage doesn’t stay at 4%.

For zero-emission company cars:

2026/27

2027/28

The government’s published policy continues increasing the electric-car percentages thereafter.

So if you’re considering a three- or four-year finance agreement:

Don’t calculate the whole deal using today’s BIK percentage.

Compare a £50,000 Petrol Car

A sufficiently high-emission car can attract the maximum 2026/27 percentage of:

37%

£50,000 × 37%

£18,500 TAXABLE BENEFIT

For a 40% taxpayer:

£18,500 × 40%

£7,400 INCOME TAX PER YEAR

Compare that with the £800 illustrative tax on our £50,000 EV.

Same £50,000 list price.

Very different personal tax cost.

Option 1 – Buy the Car for Cash

The business pays:

£50,000

and acquires the vehicle.

Potential advantages:

no finance interest;
no monthly finance commitment;
business owns the vehicle;
potential capital allowances;
potentially 100% FYA for a qualifying new EV.

Potential disadvantages:

major immediate cash outflow;
company bears depreciation risk;
VAT on an ordinary car purchase is usually difficult to recover;
company-car BIK arises if available privately.

Can the Business Reclaim VAT When Buying a Car?

This is often misunderstood.

For an ordinary business car which is available for private use:

INPUT VAT ON PURCHASE IS NORMALLY BLOCKED

Full recovery typically requires the circumstances to meet one of the specific exceptions, including genuinely excluding private availability.

The test isn’t merely:

“I hardly use it privately.”

There needs to be a strong basis for saying that it is not available for private use.

Option 2 – Hire Purchase

Under a typical HP arrangement:

Deposit

↓

Monthly payments

↓

Ownership passes / is acquired under the agreement

For tax purposes, don’t simply put the whole HP repayment through as:

Motor expense

The capital part relates to the acquisition of the vehicle.

The relevant capital allowance treatment therefore needs considering.

The finance/interest element is treated separately.

For a qualifying new zero-emission vehicle, the capital allowance position can make HP particularly interesting because the tax relief may arise much more quickly than the corresponding cash payments.

Option 3 – PCP

PCP is popular because it can reduce the monthly payment.

Typically:

Deposit

↓

Monthly payments

↓

Large final / balloon payment

Then the customer can often:

pay the balloon and keep the vehicle;
hand it back;
or use any equity towards another car.

But:

PCP DOESN’T AUTOMATICALLY MEAN LEASE

The actual contractual terms matter.

Questions include:

Is ownership expected to transfer?
How significant is the purchase option?
Who carries residual-value risk?
Is this effectively financing an acquisition?
Or is it fundamentally a hire arrangement?

So I would always suggest giving the actual PCP agreement to your accountant rather than simply saying:

“It’s on PCP.”

Option 4 – Lease / Contract Hire

Suppose instead the business leases the vehicle.

For example:

Initial rental

£4,500

Monthly rental

£750 + VAT

Term

36 months

End

Car returned to leasing company.

The business isn’t normally claiming ordinary capital allowances on the car because it doesn’t own it.

Instead, it claims the relevant lease-rental expense.

For higher-emission leased cars, a tax restriction can apply to part of the rental cost.

Leasing Has an Important VAT Advantage

Buying and leasing can produce very different VAT outcomes.

Where a car is leased and used partly privately, the standard restriction generally blocks:

50% OF THE VAT ON THE LEASE RENTALS

meaning the remaining VAT may potentially be recovered subject to the normal rules.

That is often considerably better than buying an ordinary company car where purchase VAT is completely blocked.

So if the lease is:

£750 + £150 VAT

potentially:

£75

of the VAT may be recoverable under the normal 50% car-leasing restriction, assuming full business VAT recovery otherwise.

Don’t Treat Maintenance the Same as the Car Rental

If a lease invoice separately identifies:

maintenance;
servicing;
other charges,

those items can have different VAT consequences.

So don’t simply apply:

50% VAT RECOVERY

to everything on the invoice without checking what it relates to.

£50,000 Car – Buy vs HP vs PCP vs Lease

Issue	Cash	HP	PCP	Lease
Large upfront cash cost	High	Lower	Lower	Lower
Business ownership	Yes	Usually acquisition route	Depends on agreement	Usually no
Capital allowances	Yes	Potentially yes	Depends on substance	Usually not claimed by lessee
New EV 100% FYA	Potentially	Potentially	Depends on arrangement	Rental deduction instead
Finance cost	None	Yes	Yes	Included in rent
Purchase VAT with private use	Usually blocked	Usually blocked	Depends on structure	N/A as purchase
Lease VAT recovery	N/A	N/A	Depends	Normally 50% block
Company-car BIK	Yes	Yes	Yes	Yes
Residual-value risk	Business	Business	Contract dependent	Lessor
Own vehicle at end	Yes	Usually	Optional	No

The key point is:

FINANCE METHOD DOESN’T ELIMINATE BIK

If the company provides the car and it is available privately, changing the funding method generally doesn’t remove the company-car benefit.

Option 5 – Buy Personally and Claim Mileage

Sometimes the most tax-efficient company car is:

NO COMPANY CAR AT ALL

The director buys the vehicle personally.

Then the company reimburses qualifying business mileage.

For 2026/27 HMRC’s approved mileage rate for cars and vans is:

First 10,000 business miles

55p PER MILE

Over 10,000

25p PER MILE

At 10,000 business miles:

10,000 × 55p

£5,500

potentially reimbursable under the approved mileage regime.

And because it isn’t a company car:

NO COMPANY-CAR BIK

Limited Company vs Self-Employed

The position differs for a sole trader.

Issue	Limited Company	Self-Employed
Separate company owns car	Yes	No separate legal owner
Company-car BIK	Potentially yes	No BIK on proprietor
Private use	BIK consequence	Restricts business claim
Capital allowances	Company claims	Trader claims with private-use restriction
Personally owned mileage route	AMAP reimbursement	Simplified mileage may be available
First 10,000 miles 2026/27	55p	55p
VAT	Depends on use/transaction	Same broad VAT principles

A sole trader may therefore compare:

Actual vehicle costs + capital allowances

against:

Simplified mileage

subject to the relevant rules.

Again:

LIMITED COMPANY ≠ SELF-EMPLOYED

Salary Sacrifice – Does It Still Work for Cars?

Yes — but the rules are particularly favourable for low-emission cars.

Normally, the Optional Remuneration Arrangement rules can tax a benefit based on the higher of:

salary sacrificed; or
normal BIK value.

However, HMRC specifically excludes cars with CO₂ emissions of:

75g/km OR LESS

from those normal OpRA comparison rules.

They continue to be taxed under the normal company-car benefit calculation.

That means salary sacrifice can remain particularly attractive for electric cars.

For example:

Employee sacrifices

£600 monthly salary

in exchange for:

Electric company car

The taxable benefit can still be based on the normal EV company-car rules rather than simply taxing the £7,200 salary foregone.

But salary sacrifice must be a genuine contractual arrangement.

It needs to be put in place before the salary is earned, and employers need to consider:

National Minimum Wage;
pensionable pay;
statutory pay;
employment contracts;
employee leaving;
early termination;
insurance;
excess mileage.

It isn’t simply:

“We bought a car, so let’s retrospectively call it salary sacrifice.”

Personally Borrowing Money to Fund the Company Car?

This is another area where directors can accidentally blur the company/personal boundary.

Suppose the bank will only lend personally to the director.

The director borrows:

£50,000

personally and then puts the money into the company.

Don’t simply record the bank loan as:

Company car finance

The borrower is the individual.

The company and director are separate legal persons.

Usually, the accounting needs to reflect that the director has lent money to the company.

Could the Director Claim Tax Relief on Their Personal Interest?

Potentially.

Income Tax relief can be available where an individual borrows money and lends it to a qualifying close company for use wholly and exclusively in its business, subject to detailed eligibility conditions including the individual’s shareholding/working relationship and capital-recovery rules.

So before assuming the personal interest cost is simply lost:

CHECK QUALIFYING LOAN INTEREST RELIEF

Or Could the Company Pay the Director Interest?

Potentially.

If the director lends money to the company and charges it interest:

the interest can be a business expense for the company, subject to the usual rules;
it is personal taxable income for the director;
the company normally pays the interest net of 20% Income Tax;
and accounts for that tax quarterly using Form CT61.

This does not mean charging interest is always preferable to claiming personal qualifying-loan interest relief.

They are different structures.

The point is:

Decide what the financing arrangement actually is before putting the car through the accounts.

Private Fuel – Another Tax Charge

Company car and company fuel are separate benefits.

If the employer pays for private petrol or diesel and the employee does not fully reimburse it, a separate fuel benefit can arise.

This can be surprisingly expensive.

So:

“The company already owns the car, so it might as well pay for all my fuel.”

can be a costly assumption.

Always calculate the separate fuel-benefit position.

VAT on Fuel – Road Fuel Scale Charges

There is then a completely separate VAT issue.

Suppose a VAT-registered business pays for fuel, recovers input VAT, but the vehicle is also used privately.

One method of accounting for the private element is HMRC’s:

VAT ROAD FUEL SCALE CHARGE

The scale charge is determined by the vehicle’s CO₂ emissions and the VAT accounting period.

HMRC’s current scale applies from:

1 MAY 2026 TO 30 APRIL 2027

Examples for a 12-month VAT accounting period include:

CO₂ emissions	VAT-inclusive annual scale charge	VAT due
120g/km or less	£657	£109.50
150g/km	£1,314	£219.00
175g/km	£1,640	£273.33
200g/km	£1,971	£328.50
225g/km or more	£2,297	£382.83

The important thing is not to confuse:

Company-car fuel Benefit in Kind

with:

VAT road fuel scale charges

They are different tax regimes.

Pool Cars and “No Private Use”

A genuine pool car can avoid normal company-car BIK where all the statutory conditions are met.

But:

CALLING IT A POOL CAR DOESN’T MAKE IT ONE

Similarly, writing:

“No private use permitted.”

in a company policy is useful, but the actual behaviour must support it.

If the car is routinely:

taken home;
allocated to one director;
used at weekends;
available to family members,

the facts may undermine the label.

We will update our separate detailed guides to pool cars and no-private-use policies shortly.

Is It Actually a Car or a Van?

This question comes before much of the above.

HMRC’s tax treatment of cars and vans can differ materially.

This is particularly important for:

double-cab pickups;
crew vans;
combi vehicles;
vehicles with second rows of seats.

Don’t assume:

“The dealer calls it a commercial vehicle.”

means HMRC will necessarily treat it as a van for every tax.

That will be the subject of our next updated vehicle guide.

15 Questions to Answer Before Signing

Before buying or financing the vehicle, establish:

Is it a car or a van for tax?
Who should own it — company or individual?
New or second-hand?
Electric, hybrid, petrol or diesel?
CO₂ emissions?
Electric range if hybrid?
Relevant list price?
Actual purchase price?
Cash, HP, PCP or lease?
Is the business VAT registered?
How much business mileage?
How much private use?
What is the director’s marginal tax rate?
What is the company’s tax position?
What happens at the end of the agreement?

Only then can you properly answer:

WHICH OPTION IS BEST?

£50,000 Car – Broad Conclusions

NEW EV THROUGH LIMITED COMPANY

Often deserves serious consideration because of:

potentially 100% first-year capital allowance;
4% BIK for 2026/27;
business funding;
potentially attractive salary-sacrifice treatment.

SECOND-HAND EV

Still potentially attractive for BIK, but significantly slower capital allowances.

HIGH-EMISSION COMPANY CAR

Can become very expensive because of personal BIK.

HP

Potentially good where you want ownership but want to preserve cash flow.

PCP

Potentially attractive commercially, but the agreement needs reading before deciding its tax/accounting character.

LEASE

Can provide:

predictable cash costs;
no residual-value risk;
possible VAT recovery on rentals;
potentially deductible rentals.

PERSONAL OWNERSHIP

Should always be modelled, especially now that:

10,000 BUSINESS MILES = £5,500

under the 2026/27 approved mileage rate.

12 Common Car Tax Mistakes

Assuming every EV gets 100% first-year allowances.
Forgetting the difference between new and second-hand EVs.
Using purchase price instead of list price for BIK.
Treating all HP repayments as expenses.
Assuming all PCP agreements have identical tax treatment.
Assuming company payment means VAT is reclaimable.
Forgetting the normal 50% VAT block on leased-car rentals.
Ignoring company-car BIK because the car is “mainly business”.
Calling a director’s vehicle a pool car without meeting the conditions.
Forgetting the separate private-fuel benefit and VAT fuel rules.
Treating the director’s personal bank loan as though the company borrowed it.
Failing to compare everything with personal ownership + mileage.

Frequently Asked Questions

Can my company buy me a £50,000 car?

Yes, but whether it is tax-efficient depends on the car, finance, emissions and private use.

Does a new electric car get 100% tax relief?

A qualifying new and unused zero-emission car can currently qualify for a 100% first-year capital allowance.

What about a second-hand electric car?

It does not normally get that same 100% EV first-year allowance and instead falls into the main-rate capital allowance rules.

What is the EV company-car rate in 2026/27?

4%.

Can I claim VAT on a company car?

Usually not on a purchased car available for private use. Specific exceptions exist.

Can I claim VAT on a lease?

Where the standard car-leasing restriction applies, 50% of the VAT on the leasing charge is normally blocked.

Can PCP be claimed as a monthly expense?

Not automatically. The precise terms of the agreement need to be reviewed.

Can my company pay me mileage instead?

Yes, where you own the vehicle personally and make qualifying business journeys. The first 10,000 business miles are now 55p per mile for 2026/27.

Does electric-car salary sacrifice still work?

Yes. Cars emitting no more than 75g/km are excluded from the normal OpRA salary-foregone comparison and remain taxed under the normal company-car benefit rules.

What if I borrow personally and lend the money to my company?

Treat the personal loan and director-to-company loan as separate transactions. Qualifying loan interest relief and/or company-paid interest may need consideration depending on the circumstances.

Bicknell Business Advisers’ Car Decision

Before signing anything:

CAR OR VAN?

↓

COMPANY OR PERSONAL?

↓

NEW OR SECOND-HAND?

↓

EV / HYBRID / PETROL / DIESEL?

↓

CASH / HP / PCP / LEASE?

↓

CAPITAL ALLOWANCES OR RENTALS?

↓

VAT?

↓

PRIVATE USE + BIK?

↓

FUEL?

↓

55p MILEAGE ALTERNATIVE?

↓

END-OF-AGREEMENT POSITION?

Then:

BUY THE CAR

Bicknell Business Advisers’ Advice

The worst time to ask:

“What’s the best tax treatment?”

is after the car has already been bought.

The better approach is to send us:

vehicle quote;
list price;
CO₂ figure;
finance quotation;
PCP/HP agreement;
lease quote;
expected mileage;
estimated private use.

Then compare the options before signing.

For a £50,000 car, the tax difference between:

new EV,

second-hand EV,

high-emission company car,

lease,

and:

personally owned vehicle + mileage

can run into thousands of pounds.

How We Can Help

At Bicknell Business Advisers, we help company directors, business owners and the self-employed compare vehicle options before committing to the purchase.

We can review:

company vs personal ownership;
cash purchase;
Hire Purchase;
PCP;
leasing;
new vs second-hand EV;
petrol/diesel/hybrid;
Corporation Tax;
Income Tax;
capital allowances;
VAT;
Benefit in Kind;
salary sacrifice;
qualifying loan interest;
CT61 interest;
business mileage;
fuel; and
disposal/return of the vehicle.

For a substantial vehicle purchase, doing the calculation before signing the finance agreement can make a very significant difference.

About the Author

Bicknell Business Advisers Limited

40 Broadway Lane, Bournemouth

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Pablo Alonso ★★★★★ 5 years ago
I have known Steve for a couple of years and he has always been very helpful. He is pro-active and very knowledgeable. His advice is certainly top and I completely recommend him
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As is often the case, the most valuable business relationships are generated by word of mouth. Working as a Director of the Southern Electric Traction Group C.I.C in London, Bicknell Business Advisers Limited were recommended to me by a … More fellow business owner. I am truly grateful for that recommendation. I can honestly say that the guidance and support we have received from the team have been instrumental to our work and we would be in a considerably lesser position without them.
I haven't the words to fully express Bicknell's input, but perhaps the phrase "no question goes unanswered, no effort is spared" best sums up their approach to client support. I would wholeheartedly recommend Steve and his colleagues in any advisory capacity and am delighted that we have found such a professional, efficient and courteous company with which to do business.
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Where do I start? Steve, Kate, and their team are professional and tenacious. They go above and beyond to make sure you file correctly and file on time, as well as advising on anything financial. If you're looking for a top quality … More accountant, look no further, they're right here.
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I would recommend Steve 100% to anyone! He's the best advisor and tax professional I've found in many years. As a Spanish citizen, he has helped me a lot not only become very efficient with my taxes but also understand how the … More UK Tax system works!
He is friendly, professional and delivers a lot of value to the people he works with.
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Steve and his team have been an invaluable asset to Squirrel as of day 1. They never cease to hit the mark when it comes to our accounting, payroll and R&D-related needs. The depth of knowledge and expertise to address the challenges … More of running a small business on the path to becoming a growing concern has exceeded expectations. The team is extremely approachable and willing to drill into the details with myself and members of my team at every opportunity.
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I have known Steve Bicknell for around 20 years and have always found
him to be an extremely knowledgeable professional, with a down to earth
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I always … More recommend him to friends and business acquaintances and will continue to do so, as a person of integrity and professionalism.