Budget 2026: Key Tax Changes and What They Mean

Chancellor John Healey presented the 2026 Budget on 28 October, aiming to provide families and businesses with temporary relief from rising costs. While headline Income Tax, National Insurance and VAT rates remain unchanged, the government expects its tax measures to raise approximately £7 billion annually by 2031-32. Many changes take effect from April 2027 onwards, making early planning important.

Individuals and Employees

The Personal Allowance remains frozen at £12,570 for 2027–28, while most Income Tax and National Insurance thresholds remain unchanged until 2030–31. Consequently, wage increases may push more income into taxation. From April 2027, Income Tax on savings interest and property income will rise by four percentage points, increasing costs for savers and landlords. Dividend tax rates remain unchanged.

The annual cash ISA allowance will remain £20,000. A new First Time Buyer ISA is planned for April 2029, allowing contributions of up to £4,000 annually and offering a 25% government bonus, subject to conditions. The Trading Allowance will increase from £1,000 to £3,000 from April 2027, while the Property Allowance remains £1,000.

The National Living Wage will rise by 3.9% to £13.21 per hour from April 2027. Approved mileage rates for business travel above 10,000 miles will increase from 25p to 35p per mile. Employers must also prepare to report tax on company cars, fuel and medical benefits through payroll from April 2027.

Households in England in Council Tax bands A to D will receive a £100 Household Energy Payment from January 2027. The temporary zero-rate VAT on domestic electricity will continue until June 2027, while the 5p fuel duty reduction will end on 30 June 2027.

Businesses and Property Owners

Self-employed individuals and landlords with qualifying gross income above £30,000 in 2025–26 will generally need to join Making Tax Digital for Income Tax from April 2027. This requires digital records and quarterly submissions to HMRC.

Business owners should review capital investment plans. The Annual Investment Allowance remains £1 million, but the main Writing Down Allowance falls from 14% to 12% from April 2027. First Year Allowances increase from 40% to 50% for qualifying expenditure from January 2027.

Business Asset Disposal Relief will become more restrictive from April 2027, with its lifetime qualifying gains limit halved from £1 million to £500,000. A proposed Founders’ Relief may offer qualifying founders a 10% Capital Gains Tax rate, subject to strict conditions.

Corporation Tax rates remain unchanged. However, reforms expected from April 2028 will bring certain company profit distributions currently taxed as capital gains into Income Tax. Business rates relief will expand for qualifying retail, hospitality and leisure properties, pubs and social clubs.

From October 2027, certain online marketplaces will become responsible for collecting VAT on qualifying sales made through their platforms. VAT-registered businesses must also prepare for mandatory electronic invoicing from April 2029.

Wealth, Pensions and Inheritance

From April 2027, most unused pension funds and pension death benefits will be included in estates for Inheritance Tax purposes. This could increase liabilities and reduce the residence nil-rate band where estates exceed £2 million. Existing inheritance tax thresholds remain frozen, with the standard nil-rate band at £325,000 and the maximum rate at 40%.

Capital Gains Tax rates remain 18% and 24% for most disposals, with an annual exemption of £3,000. Eligible stablecoins will receive different tax treatment from April 2027.

Conclusion

The Budget offers some immediate support but introduces significant future changes affecting savings, rental income, business sales, pensions and payroll. Individuals should review savings and property arrangements, business owners should consider disposal and investment timing, and employers should prepare for payroll changes.

Many measures still require legislation or consultation, so details may change. Reviewing personal and business finances before April 2027 can help taxpayers prepare and make informed decisions.

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