Budget 2026
What the announcements could mean for you and your business
The Chancellor’s Budget includes changes affecting savings, property income, business disposals, payroll, pensions and the way tax is reported and paid. Some measures are new, while others confirm plans announced previously. Many will not take effect immediately, giving taxpayers time to consider their options.
This update highlights developments likely to be of interest to individuals, landlords, employers and smaller businesses. Dates and details are based on the Government’s published Overview of Tax Legislation and Rates (OOTLAR). Proposed measures remain subject to legislation or, where stated, consultation.
Personal tax and household finances
Income Tax rates and allowances for 2027–28
The Budget makes no general change to the main Income Tax rates, thresholds or Personal Allowance for 2027–28. The standard Personal Allowance remains £12,570 and the higher-rate threshold remains £50,270. For England, Wales and Northern Ireland, the main rates on employment, pension and trading income remain 20%, 40% and 45%. Scotland sets its own rates and bands for non-savings, non-dividend income and Wales has devolved rate-setting powers. The changes to savings and property income described below are exceptions, and previously announced dividend tax changes also remain relevant. Freezing thresholds can mean that an increase in income leads to a higher tax bill, even when headline rates stay the same.
Savings interest will face higher tax rates
From 6 April 2027, the rates applying to taxable savings income across the UK will be 24%, 44% and 49%. These rates add two percentage points to the 22%, 42% and 47% rates previously announced. The Personal Savings Allowance and tax-free ISA treatment remain relevant, so not all interest will necessarily be taxed. Savers with substantial balances outside ISAs may wish to review their expected liabilities.
Landlords will pay more tax on rental profits
From 6 April 2027, the rates applying to taxable property income will rise to 24%, 44% and 49% in England, Wales and Northern Ireland. This follows the rates of 22%, 42% and 47% announced in the previous Budget, with a further two percentage points added in Budget 2026. Scotland and Wales have devolved powers to set property income rates, so future differences may arise. Landlords should revisit forecasts of their after-tax rental income.
Trading allowance increases to £3,000
From 6 April 2027, the trading allowance will increase from £1,000 to £3,000, and the Self-Assessment trading income reporting threshold will also rise. This may simplify matters for people with modest trading or miscellaneous income. The allowance is an alternative to deducting actual expenses, not an extra deduction on top of them. Other reasons for filing a tax return may still apply.
Help for pensioners with modest incomes
A Pension Tax Allowance, previously announced in Budget 2025, will operate for three tax years from April 2027. It is designed to prevent certain pensioners whose total income does not exceed the full new State Pension from having to pay small Income Tax bills through Simple Assessment. The relief is gradually withdrawn as income increases.
A new ISA for first-time buyers
From April 2029, a new First Time Buyer ISA is due to replace the Lifetime ISA for new savers. It will permit contributions of up to £4,000 a year and provide a Government bonus of 25% calculated on the final account balance, capped at £20,000. The bonus will be paid when funds are withdrawn towards a qualifying first home costing no more than £450,000. Existing Lifetime ISA holders can continue using their accounts under existing rules. The new ISA will have no upper age restriction.
Lifetime ISA withdrawal charge changes
From 29 October 2026, the withdrawal charge for using a Lifetime ISA to purchase a property above the permitted price cap will fall from 25% to 20%. The 25% charge remains for other unauthorised withdrawals. The Government also intends to retain the £20,000 cash ISA limit for adults from April 2027, which had been expected to fall to £12,000.
Household energy bills and the cost of living
£100 Household Energy Payment
From January 2027, a £100 Household Energy Payment will be delivered to qualifying households in Council Tax bands A to D in England. The Government expects the £2.6 billion scheme to reach up to twenty million households. Payments will be made directly to bank accounts through arrangements involving local authorities and the Council Tax system. Devolved governments will receive funding to determine comparable support in their nations.
Temporary reduction in electricity VAT extended
The temporary zero rate of VAT on qualifying domestic electricity, introduced on 1 October 2026, has been extended until 30 June 2027. The Government estimates that the extension will reduce the annual Ofgem price cap equivalent by around £50 in April 2027. Actual savings will vary with usage and tariff. Separate funding is intended to provide comparable support in Northern Ireland.
Changes proposed for gas standing charges
The Government has asked Ofgem to abolish domestic gas standing charges, aiming for implementation by the end of 2027 or as soon as possible afterwards. Suppliers would recover the relevant costs through gas unit rates instead. The change would not necessarily reduce total bills for every household, particularly those using more gas. Reform of electricity standing charges is also under consideration.
Help with home energy improvements
The Government has launched a Warm Homes Loan Scheme to support household investment in heat pumps and other clean technologies. Details of eligibility, loan costs and individual savings should be checked before committing to work. The Budget also confirms continued funding for the Boiler Upgrade Scheme, although some capital grant funding within the wider Warm Homes Plan has been reprioritised.
Fuel Duty relief extended
The temporary 5p-per-litre Fuel Duty reduction continues until 30 June 2027. On 1 July 2027, duty is scheduled to return to its pre-March 2022 level and increase in line with RPI inflation. This represents a potentially significant one-step increase at the pump, rather than simply a deferred inflation adjustment. Motorists and businesses with substantial fuel expenditure should allow for the change in budgets.
Higher National Living Wage
From 1 April 2027, the National Living Wage for workers aged twenty-one and over will rise by 3.9% to £13.21 an hour. This will increase gross pay for eligible employees, while employers will need to budget for the additional payroll costs.
Support with food and everyday purchases
The Budget report confirms tariff suspensions affecting a range of food products, kerosene used for heating oil and fertiliser, with different start and end dates. These changes may reduce costs for importers and, where savings are passed on, consumers. Retail prices will also depend on supply chains, margins and other market conditions.
Help for first-time buyers and families
The Your First Home equity loan scheme is planned to open for applications from February 2027, with first loans from April 2027. It will support qualifying first-time buyers, subject to income, property price and deposit limits. A separate Parental Allowance for self-employed, eligible fathers, partners and adopters in Great Britain is planned from April 2029. Both schemes will have eligibility rules, so they should not be treated as universal entitlements.
Council Tax payment arrangements
The Government has outlined reforms intended to make Council Tax administration more manageable, including greater flexibility over payment arrangements. As the timing and detailed application of individual changes depend on implementation, households should continue to follow their council’s current bills and payment instructions.
Cap on bus fares extended to £2
The Budget report confirms that single bus fares in England outside London will be capped at £2 for one year from 1 January 2027. The cap is part of the Government’s wider transport support package, rather than a completely new policy first devised in this Budget. It may assist regular bus users, although not every service is covered.
Extra support for households struggling with energy bills
Alongside the £100 Household Energy Payment, the Budget provides £100 million for local authorities in England to support households particularly affected by energy costs, including some living in higher Council Tax bands. A separate energy debt strategy includes improved repayment support and a targeted debt relief scheme for eligible households. Eligibility and delivery arrangements will need to be checked locally.
Business owners and company directors
Business rates relief for high-street firms
From April 2027, qualifying retail, hospitality and leisure properties in England will benefit from revised business rates support. The thresholds for 100% Small Business Rate Relief in these sectors rise from a rateable value of £12,000 to £18,000, with tapered relief up to £21,000 increased from £15,000. Additional relief is planned for pubs, social clubs and live music venues. Eligibility depends on the property and local rating circumstances.
Selling a business: review the tax position
From 6 April 2027, the lifetime limit for Business Asset Disposal Relief will fall from £1 million to £500,000. This may increase Capital Gains Tax for qualifying owners selling a business or shares. Anyone considering a disposal should take advice well before agreeing terms, particularly where contracts or reorganisations are involved.
New 10% relief for qualifying business founders
From 6 April 2027, the Government plans a new Founders’ Relief giving qualifying founders and significant early investors in high-growth, innovative UK companies a 10% Capital Gains Tax rate on up to £10 million of lifetime qualifying gains. It is not a general replacement for Business Asset Disposal Relief (BADR). The proposed rules link the available lifetime limit to claims under BADR and Investors’ Relief, so earlier or concurrent claims may reduce the Founders’ Relief available. The detailed design remains subject to a technical consultation closing on 30 November 2026. Advice should be taken before any planned disposal.
Changes to tax relief on equipment
The existing 40% main-rate first-year allowance is to increase to 50% for qualifying expenditure from 1 January 2027. The main-rate writing-down allowance will reduce to 12% from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax. These changes affect the timing of relief, but the Annual Investment Allowance and full expensing may still be available in appropriate cases. Businesses considering substantial equipment purchases should review which relief applies.
Corporation Tax rates remain unchanged
The Government has confirmed a 25% main Corporation Tax rate and 19% small profits rate for the fiscal year beginning April 2028. The amount actually paid by a company can depend on its profits and associated company rules.
Banking surcharge increase
The Corporation Tax surcharge on banking companies is increasing from 3% to 6%. The change will apply from 1 January 2027 to 31 March 2028.
Employee share schemes become more flexible
From April 2027, the individual Company Share Option Plan limit will rise to £120,000, with changes to exercise periods and Enterprise Management Incentives. These measures may help growing businesses recruit and retain employees. Separate notification of new EMI option grants will also be replaced by reporting through annual returns for grants from 6 April 2027.
Employers and payroll
More company benefits will be taxed through payroll
From 6 April 2027, employers will have to payroll company cars, vans, fuel and medical benefits. Most other taxable benefits follow from April 2028, except employment-related loans and living accommodation. Employers should discuss software, payroll processes and employee communications with their payroll provider.
Company car costs continue to change
Company car benefit percentages are set to increase further for 2030–31, including a one percentage point increase for zero-emission vehicles. Employers planning fleet changes should consider the full running and tax costs rather than purchase price alone.
Income Tax exemption for overseas worker sponsorship fees
Employer payments of specified certificate of sponsorship fees and immigration skills charges under the Skilled Worker route will be exempt from employment Income Tax for payments made on or after 28 October 2026.
Pensions, inheritance and property
Unused pension funds and Inheritance Tax
Most unused pension funds and pension death benefits will be included in Inheritance Tax calculations for deaths on or after 6 April 2027. The main change was legislated in Finance Act 2026, following an earlier announcement. Budget 2026 includes further administrative measures to help personal representatives arrange for pension scheme administrators to pay tax. Individuals reviewing their estate planning should consider the interaction with existing exemptions and allowances.
Two-year rule for pension death benefits removed
For payments made on or after 28 October 2026, pension and lump sum death benefits that would otherwise qualify for tax-free treatment will no longer become taxable solely because they are paid more than two years after the scheme administrator knew, or could have known, of the death. Other conditions governing the tax treatment of pension death benefits continue to apply.
An extra charge for high-value homes
A High Value Council Tax Surcharge is planned from April 2028 for residential properties worth £2 million or more. This implements a previously announced measure and will be particularly relevant to owners of high-value homes.
VAT, tax returns and business administration
Electronic VAT invoicing is on the horizon
The Government intends to introduce mandatory electronic VAT invoicing from April 2029. Regulations will prescribe the electronic format. This goes further than sending a PDF invoice by email, and businesses should watch for software guidance and detailed implementation rules.
VAT on services bought from overseas
From April 2027, the VAT reverse charge on business-to-business services supplied from overseas will be restricted to VAT-registered UK recipients. Overseas suppliers will instead have to charge UK VAT where the receiving UK business is not VAT registered. This could increase costs for some small businesses.
Making Tax Digital: an important concession
The next group of sole traders and landlords is due to join Making Tax Digital for Income Tax from April 2027. The Government says it will not apply late submission penalty points to quarterly updates for the 2027–28 tax year for taxpayers required to join that April. Quarterly updates will still be required before a tax return can be submitted.
Tax payments could become more frequent
From April 2029, the Government plans more regular in-year Income Tax payments for Self-Assessment taxpayers who currently make payments on account. The detailed arrangements are still being developed. This is a forward-planning issue rather than an immediate change to January 2027 payments.
Direct Debits proposed for VAT and PAYE
From April 2029, the Government plans to require Direct Debit instructions for VAT and PAYE return liabilities, subject to exceptions. Businesses would still be able to pay by another method before a specified cut-off, with Direct Debit used for unpaid balances. Detailed rules will follow.
Tax return errors and HMRC compliance
From 1 April 2028, new rules will require taxpayers to correct certain inaccuracies and will give HMRC powers to issue Customer Correction Notices. Businesses and individuals should maintain reliable records and tell their accountant promptly if they discover an error in information already supplied to HMRC. The detailed legal conditions will determine when the new rules apply.
Online marketplaces and retail systems
From October 2027, online marketplaces will become responsible for VAT on certain sales by UK VAT-registered sellers and by other UK sellers whose annual sales exceed £90,000 on an individual platform. The precise scope of qualifying transactions matters, and the measure does not mean that every casual private sale will attract VAT. Businesses selling through platforms should review the effect on their invoicing and reporting.
Motoring and other business costs
Mileage allowance for business travel
The tax-free and tax-deductible car and van mileage rate for the first 10,000 qualifying business miles increased to 55p from 6 April 2026, following an announcement on 21 May 2026. This increase has now been made permanent. Separately, the rate for qualifying mileage above 10,000 miles will rise from 25p to 35p from 6 April 2027, announced on 27 October 2026. Employers and self-employed people using simplified mileage calculations should update their records and policies as appropriate.
Electric vehicle mileage charges
From April 2028, a mileage-based charge is planned for electric and plug-in hybrid cars, initially 3p per mile for fully electric and hydrogen fuel-cell cars and 1.5p per mile for plug-in hybrids. Drivers and businesses should include this in longer-term motoring cost forecasts.
Changes for particular sectors
The Budget also includes measures affecting alcohol, soft drinks, packaging, landfill, imports and certain private hire operators. These are not universal business tax changes, but affected firms should review the relevant sector-specific rules.
What should you do now?
- If you are considering selling a business, review the timing and potential Capital Gains Tax cost before entering into a binding agreement.
- If you are a landlord or have substantial savings outside ISAs, review your forecast income and tax liabilities for 2027–28.
- If you employ staff, ask your payroll provider about compulsory payrolling of benefits from April 2027.
- If you are a sole trader or landlord approaching Making Tax Digital, check your start date and software arrangements.
- If you are planning substantial investment, an electric vehicle purchase or changes to pension and estate arrangements, take advice before committing.
- We can help identify which announcements are relevant to your circumstances and whether action is needed now or at a later date.
