Budget 2026: Key tax changes for individuals, business owners and trustees

We weren’t expecting significant tax changes today, and John Healey’s first ‘breathing space’ Budget was indeed a low-key affair by comparison with the last couple of years.

For individuals, the headlines are:

Tax rates: Income tax on savings income will rise by 4% from 6 April 2027 rather than the previously announced 2% (ie making the basic rate 24%, the higher rate 44% and additional rate of 49%). The same rates will also apply to property income in England, Wales and Northern Ireland. There are no changes to the headline income tax or dividend tax rates, nor to CGT, IHT or SDLT rates. Equally, there is no immediate change to tax thresholds which remain largely frozen by previous Budgets.

ISAs: The cash ISA limit will remain at £20,000 p.a. from April 2027 (presumably a quid-pro-quo to the above); a new First Time Buyer ISA will replace the Lifetime ISA from April 2029, plus new incentives will be explored for first-time stocks and shares ISA investors.

Inheritance tax on pensions: there are (minor, but welcome) tweaks to the rules previously announced which bring unspent pension pots into the scope of IHT for deaths after 5 April 2027. Pension scheme administrators may be directed to pay the tax in certain cases (which is helpful since the estate’s PRs are not generally in control of pension funds); plus, there will be scope to decide whether a gift to charity of 10% of an estate includes the notional pension property or not (which may help to obtain the lower rate of IHT on the taxable estate).

Lump sum death benefits: where a pension scheme member dies before age 75, in a helpful relaxation, the two-year deadline for distributing the funds tax-free is abolished for payments made on or after Budget day.

Wealthy taxpayers – compliance: HMRC have published a report on modernising their approach to compliance by ‘wealthy’ taxpayers (defined as individuals with income over £200k or assets over £2m). The key themes are moves towards continuous, data-driven surveillance of a wealthy person’s assets and finances, use of AI to spot discrepancies and apply early interventions and continued risk-based assessment across different categories of wealthy taxpayer (e.g. with a focus on offshore and complex ownership structures).

For businesses and property owners, the changes were also modest:

Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief):  The lifetime limit will fall from £1 million to £500,000 for qualifying disposals from 6 April 2027. At an 18% BADR rate compared with the 24% main CGT rate, the maximum tax saving will therefore be only £30,000. This is substantially cut from a high point of £10 million taxed at 10% from 2011 to 2020.

Founders’ Relief:   Qualifying founders and early investors in high-growth innovative companies will be able to benefit from a new 10% CGT rate on up to £10 million of lifetime gains from 6 April 2027. The potential benefit is substantial, but the proposed qualifying conditions are demanding, including a 25% ownership requirement and 5-year holding period, UK residence and business conditions, turnover and employee thresholds, demanding compound annual growth tests, and qualifying R&D expenditure. It appears there will be no requirement for the shareholder to be a director or employee of the company.

Employee share incentives: The tax-advantaged regimes are being made more generous. From 6 April 2027 the CSOP individual option limit will rise from £60,000 to £120,000, and the interaction between the CSOP and EMI individual limits will be removed. The CSOP exercise period will increase from 10 years to 15 years (to match the extended EMI period already in force from April 2026), and the EMI exercise window following a disqualifying event will also be extended to 180 days. Companies will also be able to notify EMI option grants through their end-of-year returns, rather than submitting separate notifications.

Capital allowances: Full expensing will remain in force for qualifying plant and machinery, but for other expenditure the main rate first-year allowance will increase from 40% to 50% for expenditure incurred from 1 January 2027, while the main rate writing-down allowance will reduce from 15% to 12% from April 2027.

Company distributions: The government intends to proceed with previously trailed reforms affecting the tax treatment of distributions and capital share transactions, to make the tax treatment of different transaction structures more consistent. The effect will be to tax more capital returns as income, while preserving capital treatment for genuine changes of ownership such as family business succession. Consultation on the detailed legislation will continue, but the current intention is for the reforms to apply from April 2028.

Reverse hybrid entities: As previously announced, reforms will be introduced to allow double tax relief for UK resident individuals with interests in US LLCs and other reverse hybrid entities, to address the mismatch arising where the individual is taxed on the entity’s income overseas but the UK currently treats the entity as a company with its own tax position. Further consultation will take place before legislation is introduced with effect from April 2028.

Securities transfer tax: The new securities transfer tax, which is to replace stamp duty on shares and SDRT, is now expected to be introduced in late 2027.

Property income: From 6 April 2027, income tax rates on property income such as rents will increase by a further 2%, resulting in rates of 24%, 44% and 49%.

High value council tax surcharge (HVCTS): The government is pressing ahead with the HVCTS from April 2028 for homes in England worth more than £2 million. The proposals include a deferral scheme and a series of discounts and exemptions, together with a 100% premium for properties left empty and unoccupied for 12 months or more.

For trusts:

Inheritance tax: new (quite technical) anti-avoidance rules apply to the deduction of certain liabilities for settled property for IHT charges arising on and after Budget day. These include complex rules designed to close a loophole exposed in a recent case concerning the (now largely defunct) ‘home loan scheme’, bringing IHT charges on qualifying interest in possession trusts into line with anti-avoidance rules for individual estates.

Capital gains tax:  from Budget day the ‘exit charge’ that applies when trustees cease to be UK resident won’t apply if a trust becomes UK resident because one or more trustees move to the UK, and the trust then ceases to be UK resident later that year or in the following year. This is another quite narrow provision, but one to be welcomed.