Budget 2026

Main income-tax and dividend rates remain unchanged: The main income-tax rates remain 20%, 40% and 45%, subject to Scotland’s separate regime. The personal allowance remains £12,570, so the continuing threshold freeze can increase liabilities as earnings rise. Dividend rates remain 10.75%, 35.75% and 39.35%, with the £500 dividend allowance retained. There is therefore no further dividend-rate increase in this Budget.

Savings and rental income face higher rates: From 6 April 2027, the following rates will apply to savings income throughout the UK, with corresponding property-income rates announced for England, Wales and Northern Ireland. This adds two percentage points to the rates previously planned for 2027/28, producing a four-percentage-point increase over current savings and rental income rates:

Band	Rate
Basic	24%
Higher	44%
Additional	49%

Cash ISAs are protected; the trading allowance increases (property allowance remains unchanged): The proposed cash ISA limit reduction has been abandoned: £20,000 remains available within the overall annual ISA allowance. Separately, the trading allowance increases from £1,000 to £3,000 from April 2027, alongside the trading-income Self-Assessment reporting threshold. This increases the actual tax relief available for qualifying trading and miscellaneous income (but not property allowance which remains £1,000), as well as simplifying reporting for some small traders.

Targeted pensioner relief and inheritance-tax changes: From April 2027, the Pension Tax Allowance will remove income tax for eligible people above State Pension age whose total income does not exceed approximately £13,037 in 2027/28. Relief tapers away above that level and is scheduled through 2029/30. The previously legislated inclusion of most unused pension funds and death benefits within IHT remains scheduled for April 2027, with further administrative amendments. Separately, trust-liability deduction rules are tightened for deaths and other chargeable events from 28 October 2026.

Corporation tax is stable, but capital allowances change: Corporation-tax rates remain 25%, with the 19% small-profits rate retained with marginal rates in between. The main writing-down allowance falls from 14% to 12% from April 2027, while the main-rate first-year allowance increases from 40% to 50% for qualifying expenditure from 1 January 2027. The £1 million Annual Investment Allowance and full expensing remain available, so the impact depends on the expenditure and relief claimed. Banks face a temporary surcharge increase from 3% to 6%, from January 2027 through March 2028.

Business disposal relief becomes less generous: The BADR lifetime limit falls from £1 million to £500,000 for qualifying disposals from 6 April 2027; the qualifying rate remains 18%. Previous qualifying gains count towards the reduced lifetime limit. Anti-forestalling provisions mean that entering into a contract before April will not necessarily preserve the existing limit. Meanwhile, proposed Founders’ Relief offers a 10% CGT rate on up to £10 million of qualifying lifetime gains for eligible founders and early investors in high-growth, innovative companies. Detailed conditions remain under consultation.

Company profit extraction faces reform: From April 2028, revised distributions rules will target arrangements that extract accumulated company profits under the CGT regime rather than as dividend income. The package also addresses certain overseas-company payments and loans, share buybacks and demergers. Ordinary dividends and straightforward share sales retain their existing treatment. The government intends to protect genuine commercial exits and family succession, with draft legislation expected for technical consultation in 2027.

Important VAT changes for online and overseas services: From October 2027, online marketplaces will collect VAT on qualifying sales by UK businesses that are VAT registered or exceed £90,000 annual sales on an individual platform. Personal sales, second-hand goods and business-to-business transactions are excluded from this extension. From April 2027, the overseas-services reverse charge will apply only where the UK recipient is VAT registered. Overseas suppliers serving non-VAT-registered UK businesses may consequently need to register and charge UK VAT—a relevant change for cross-border service businesses.

Mileage allowances and payroll preparation: The 55p-per-mile rate for the first 10,000 business miles becomes permanent. The rate above 10,000 miles increases from 25p to 35p from April 2027. These changes cover approved employee mileage payments and corresponding self-employed simplified mileage deductions. Earlier plans for mandatory benefits payrolling are also progressing: common benefits, including company cars and medical benefits, enter the phased regime from April 2027.

Business rates and R&D administration: From April 2027, qualifying retail, hospitality and leisure properties in England receive full Small Business Rates Relief up to £18,000 rateable value, with tapering to £21,000. Eligible businesses also receive two years’ protection limiting bill increases to inflation. These higher relief thresholds specifically concern qualifying sectors.

For R&D claims made from 1 April 2027, the Claim Notification Form requirement is removed. The Additional Information Form will be simplified from autumn 2027.

MTD receives another first-year penalty easement: Taxpayers required to join MTD for Income Tax in April 2027 will not receive late-submission penalty points for their quarterly updates for 2027/28. The updates remain compulsory and must be submitted before the annual return can be completed. Further exemptions are announced for specified groups, including those eligible for qualifying care relief and expected non-resident taxpayers.

Tax payments and invoicing will change from 2029: From April 2029, taxpayers making Self-Assessment payments on account will move towards smaller, more regular payments during the year income is earned. Frequency remains undecided. The transition will overlap final payments for the previous year, making cash-flow preparation important. Mandatory structured VAT e-invoicing and requirements to establish VAT and PAYE direct-debit instructions are also planned for 2029. Businesses will retain the ability to pay by other methods before a specified cut-off. These measures warrant advance review of bookkeeping software and payment processes.

Disclaimer.

The above is only intended to be a broad general overview of some of some aspects of the budget and is not intended to be taken as advice. Although care is taken, errors and omissions can occur and as the facts of each case is very important, expert opinion should always be obtained before arriving at a decision. If you would like any additional help or guidance then please do not hesitate to contact us.