What was always going to be an incredibly difficult Budget for Rachel Reeves became a whole lot worse when the Office for Budget Responsibility’s mistaken early release of its Budget Report occurred – so much so that everyone was reading the prematurely released OBR Report (until the link was removed!) when Rachel Reeves commenced her speech. This was obviously difficult and proved understandably uncomfortable for the Chancellor (and the OBR in the subsequent press conference).
Given the amount of speculation, fuelled by the very late Budget date, the Budget was not particularly eventful. There appears to have been contentment in the markets, which have not reacted in any dramatic fashion – which is welcomed given some of the pre-Budget pre-emptive movements.
Headline Tax Announcements
The headlines will be that income tax and NIC thresholds are frozen for a further 3 years until April 2031 (creating a huge amount of fiscal drag) and a 2% income tax-rate increase on property income (2% increase on all bands from April 2027), dividend income (2% increase on the basic-rate (10.75%) and higher-rate (35.75%) bands from April 2026) and interest income (2% increase on all bands from April 2027).
This all may prompt reconsideration of structures and whether a limited company structure would be worth considering. The dividend income tax changes should also prompt reviews of strategies around cash extraction from limited companies.
Inheritance Tax
Inheritance tax thresholds will be frozen for a further year until April 2031 – pulling more estates within the scope of the emotive tax. This is in the context of the standard nil-rate band not increasing since 6 April 2009!
The previously announced inheritance tax changes to Agricultural Property Relief and Business Property Relief proceed as planned (contrary to rumours about an increase of the £1m cap). However, it has been announced that any unused £1m cap/allowance will now be transferable between spouses – which was not the case before. This is a relief and will simplify some planning for clients (who were trying to ensure both spouses used their £1m cap/allowance to ensure that it was not lost), albeit only marginally.
Employment and Wages
The national living wage for workers aged 21+ will increase from £12.21 to £12.71 per hour. As ever, all businesses will need to review the impact of this and factor the increase into their projections and cash-flow forecasts.
Business Rates
Permanent lower business rates for retail, hospitality and leisure properties with rateable values under £500k effective from April 2026 has been announced (in the form of permanently lower business rates multipliers). This is extremely welcome for many of our clients in a prominent sector for the County. We suggest seeking specialist business rates advice for a review of the impact for your business.
Capital Allowances
The main rate of capital allowances writing down allowances will reduce from 18% to 14% from April 2026. A new permanent first-year allowance of 40% will also be introduced – which, in practice, is only of benefit if the Annual Investment Allowance or Full Expensing isn’t available – which won’t be common.
Salary Sacrifice Restrictions
Another tax hike comes in the form of the heavily expected curtailment to salary sacrifice on pension contributions. This restriction means that NIC relief would only be obtained up to £2,000, effective from April 2029. This won’t impact many of our clients, but will impact some. We suggest that employees review how they are contributing to their pension and check the impact of these changes.
Personally, I find it short-sighted to put hurdles up for working people saving for their retirements, when working people funding their retirement is a real, generational issue.
High Value Council Tax Surcharge
A High Value Council Tax Surcharge was announced to be introduced for properties worth more than £2m from April 2028. These charges start at £2,500 per year and rise to £7,500 for properties valued in excess of £5m.
ISA Changes
ISA limits are effectively reducing for cash ISAs for the under 65s to £12,000, with £8,000 (the overall £20,000 limit continuing) needing to be invested in non-cash investments. This seems sensible to drive investment; however, I am unsure why the need for the differentiation based on age.
Self Assessment – Automatic Payments
The Budget documentation includes a commitment that “The government is also taking steps to ensure income tax Self Assessment taxpayers pay tax automatically via regular payments throughout the year.” There is no further detail and thus uncertainty about what this means; however, we assume it is a form of direct debit system. We will provide more information when it is available.
Other Measures Announced
- Corporation tax return late filing penalties are increasing from 1 April 2026 – broadly, each of the current penalties will double.
- VAT registered businesses will be required to issue all VAT invoices as e-invoices from April 2029. I personally think this is needed for the UK to keep up with the VAT administration of many other countries and believe April 2029 is too far away as an implementation date.
- The qualifying limits for companies to qualify for the Enterprise Investment Scheme and Venture Capital Trust (VCT) schemes and the investment limits for the schemes will increase from April 2026 so that they can apply to equity investments in larger companies. This is welcome and may be a consideration for those seeking to continue to benefit from 100% inheritance tax Business Property Relief to diversify some of their existing AIM listed investments (that will only receive 50% Business Property Relief from 6 April 2026) – obviously then needing to consider investment factors (such as risk appetite etc). However, the VCT income tax relief will reduce from 30% to 20%.
- The qualifying company limits and limit on the value of options under the Enterprise Management Incentive (EMI) scheme will increase from 6 April 2026. This is welcome, as the EMI scheme can be a really useful tool to incentivise key staff to take on more responsibilities and/or drive growth of a business.
- Restricting the capital gains relief on gains arising on disposals to Employee Ownership Trusts (EOTs) to 50%, reduced from 100% – EOTs have become very popular and in my opinion, sometimes implemented in situations where it is not always the best structure for the client and business. Sometimes a sizeable driver is the capital gains relief. I think that this restriction, coupled with the increase to the limit for the HMRC approved EMI scheme (see above), may provide an arena for a more considered approach of the options available to business owners and their management teams.
- An Electric Vehicle Excise Duty (eVED) is to be introduced for electric (3p per mile) and plug-in hybrid cars (1.5p per mile) from April 2028, in the form of a new mileage charge. It is difficult to see how this will be administered, but it was inevitable with the move away from petrol and diesel cars and the inevitable hit to fuel duty.
- The soft drinks levy has been extended to high sugar content drinks, including milk-based drinks (I had to get that in there to make the title relevant)!
Measures Not Announced (Despite Rumours)
- Other than the above capital allowances changes, the corporation tax regime is untouched in line with the “roadmap” the government previously announced.
- The removal of the inheritance tax exemption for the values of pension funds on death from April 2027 proceeds will proceed as proposed. Many clients are considering their inheritance tax positions in light of this change, and the changes to APR and BPR above with specialist advice from us. Additionally, I think the pension change will drive more executors to want to rely on probate and estate administration experts – which our solicitors in our sister probate and estate administration business, RRL Probate Limited, are.
- There was no cap on lifetime gifting for inheritance tax purposes announced – this makes inheritance tax and succession planning more simple than it would have been if such a limit/cap was implemented. Additionally, no change was announced to the existing 7 year period for lifetime gifts.
- No changes were announced to the 25% tax-free lump sum for pensions or income tax relief on pension contributions – which is welcome.
- No capital gains tax changes were announced around rate increases or restrictions to Principal Private Residence relief for higher-value properties, that was rumoured.
- No changes to the VAT registration threshold were announced – something that is always mooted.
If you’d like to discuss how any of these changes could affect you or your business, we’re here to help.
This is your headline summary of today’s announcements, giving you the key points you need to know now.
Keep an eye out tomorrow for our full, in-depth breakdown covering every detail from today’s Budget.