Budget 2026

The new Chancellor, John Healey, delivered his inaugural Autumn Budget on 28 October 2026, announcing a range of tax increases, new reliefs and changes to the way some taxes are administered.

John Healey pledging to deliver a Budget that would provide -breathing space for today and fresh hope for the future.’ He reiterated the Labour Party manifesto pledge not to raise taxes on working people. I’m sure lots of working people have bank interest, which will now be taxed at 24%, and possibly a rental property, that will also be taxed at 24% from 6 April 2027.

The headline rates of income tax, national insurance, capital gains tax and VAT remain unchanged.

Income tax

The personal allowance, thresholds and the main rates of tax remain the same at the 2022-23 amounts until the end of 2030-31.

The tax-free personal allowance is £12,570, above where individuals start to pay the main basic rate of income tax at 20%. The 40% higher rate tax band starts at £50,270 with the 45% additional rate band starting at £125,140. The £12,570 personal allowance is tapered away, reducing by £1 for every £2 of taxable income over £100,000 until it reduces to zero once income exceeds £125,140. In this £25,140 tapering band, the effective marginal income tax is 60%.

Savings and property rates of tax

One of the biggest changes affects income tax on savings and property income. From 6 April 2027, the tax rates on these types of income will increase by a further 2%, on top of the extra 2% increase announced in the 2025 Budget. Therefore the basic, higher and additional rates of income tax will increase to 24%, 44% and 49% respectively on taxable savings and property income.

These changes only affects private landlords and savers. It does not affect limited company landlords, who pay corporation tax rather than income tax on their profits.

Basic rate taxpayer receive the first £1,000 of their interest tax free, which is covered by the savings allowance, though this reduces to £500 for higher rate taxpayer and £nil for 45% taxpayers.

Some individuals, with low non-savings income, may be able to avoid paying tax on their savings income, up to another £5,000, through the 0% starting rate for savings income. This applies up to £5,000 of savings income if a taxpayer’s non-savings income, e.g. from salary, rental and pensions, is between a threshold of £12,570 and £17,570. A taxpayer with salary, rental and pensions under £12,570 can receive £6,000 of interest and dividends tax free. The £6,000 ‘allowance’ reduces to £nil if salary, rental and pensions exceed £17,570. This is before the introduction of the new pension tax allowance, though that only increases tax free allowances by a few hundred pounds.

The property allowance, of £1,000 remains at that level, despite the self-employment trading allowance increasing from £1,000 to £3,000 from 6 April 2027.

For many years, a taxpayer has been able to allocate their personal allowance against whatever types of income they wish. Normally, this would be by using the allowance against sources of income that incur the highest rates of tax i.e. against salary, profits and rents, chargeable at 20% basic rate tax, rather than say dividends chargeable at 10.75% basic rate tax.

From 2027-28, the personal allowance, the basic and higher rate tax bands are allocated in the following order; general income (e.g. salary, self-employment profits), then property income, then savings income (i.e. interest) and then dividends.

Small self-employment income allowance

The trading allowance, of £1,000, was initially introduced to avoid self-employed individuals, and those earning a small amount of miscellaneous income, from having to report the income to HMRC and prepare a Tax Return each year when only a small amount of tax would be due.

It’s estimated that around one-half of all UK adults, under 25 years, earn extra income through side hustles.

Small unincorporated businesses, or those with ‘side hustles’  may claim the trading allowance. This will increase from £1,000 to £3,000 on 6 April 2027. This allows self-employed individuals to earn up to £3,000 of trading income without paying income tax on it. Alternatively, they can claim up to £3,000 of business expenses against their self-employment income, instead of their actual expenses.

More complexity

The tax rate changes, and how income is allocated to these rates, will from 6 April 2027 increase the complexity of tax calculations even further. This means that two individuals, with similar amounts of total income, but received from say salary or rents, may have very different annual tax bills.

Cash ISA allowance

The £20,000 annual cash ISA allowance will be retained, abandoning the previously announced, Budget 2025, reduction to £12,000 for individuals under 65 years of age.

Pension contributions

There were no changes to the reliefs available for pension contributions.

The maximum (25%) tax-free lump sum remains at £268,275 unless the person is entitled to certain historical protections. The Lifetime Allowance remains at £1,073,100.

Company cars and vans

Annual increases in the rates for use of the car have already been set up to 2029-30. The high benefit in kind rates are designed to provide a strong incentive for individuals and businesses to use electric vehicles. As usual, the budget increased the company car rates by a further 1% on all cars with a CO2 emission rating. The benefit in kind rate for zero emission cars will increase from 4% in 2026-27 to 10% in 2030-31.

Cars available for private use by an employer are subject to a sliding scale of benefit in kind, from 0% to 37%, depending on the CO2 emissions of the car, with the relevant percentage multiplied by the original list price of the car when first registered.

The fixed sum amounts used to calculate benefits in kind for 2027-28 will be as follows:

• £30,200 for free use of business fuel for private journeys

• £4,310 for a van provided for more than incidental private use

• £825 if a company provided an employee with van fuel for private use.

Pensioners’ tax

The state pension is taxable income, but it is paid without deducted of tax at source. Therefore, a pensioner with mainly state pension, or small amounts of other income, just over the personal allowance, of £12,570, could have a small tax liability. Unlike a private or business pension, there is no mechanism to collect any income tax due through PAYE.

Pensioners with low income, over £12,570, may have to pay small amounts of income tax, probably through the Simple Assessment system. This requires work by HMRC to collect the tax, and possibly worry to a pensioner, with little tax benefits.

Pensioners receive no equivalent of a tax year end P60, showing their annual taxable state pension for the year, making it harder to check HMRC’s tax calculation.

A new pension tax allowance will be introduced from 6 April 2027. Pensioners will not need to claim the allowance. It will automatically apply to those above state pension age and those reaching state pension age during the tax year.

The allowance will apply whether or not the pensioner’s income comes from the state pension or other sources of income, e.g. a private pension, employment, self-employment income, savings, property or dividend income, or a combination of these. Income generated within an ISA is tax exempt, and does not count towards your total income for tax or the new pension tax allowance.

Therefore, eligible individuals over 65, whose total taxable income does not exceed the full annual value new flat rate state pension amount, will not have to pay small amounts of income tax. As most of those affected will not have a tax adviser, it is to be hoped that HMRC’s systems will cope with the calculations.

The pension tax allowance will be withdrawn at £1 for every £3 of income above the new (post 6 April 2016) flat-rate state pension amount.

• From 6 April 2027, the full annual value of the new State Pension will be £13,036.

• If your total income is below the £12,570 Personal Allowance you are not liable for any tax.

• If your total income is between £12,570 and £13,037, you will receive the full pension tax allowance, worth up to £94 of tax i.e. 20% of £13,037 - £12,570.

• If your total income is between £13,037 and £13,319, you will receive some pension tax allowance and pay less income tax than you otherwise would.

• If your total income is £13,319 or more, you will not receive any pension tax allowance.

Because the allowance tapers, HMRC requires accurate amounts of a person’s state pension and any other sources of taxable income, e.g. bank interest and dividends, even if below the basic rate £1,000 savings allowance or £500 dividend allowance.

Sometimes, because of estimated or duplicate bank interest received by HMRC, it makes checking HMRC‘s tax figures on annual PAYE ‘P800’, simple assessments ‘PA302’ tax calculations and PAYE codes troublesome.

The pension tax allowance is being introducing to reduce the administrative burden for some pensioners who would otherwise have a small amount of tax to pay. However, I do not think that the new pensioners’ tax allowance is going to simplify the tax system or making it any easier for people to check or understand documentation received from HMRC.

The allowance will be the same amount as the full new state pension annual amount and the allowance will rise each year until at least April 2030.

The existing triple lock continues for the remainder of this Parliament, before the mechanism changes from April 2030.

There is no overhaul of pension tax relief or taxation of tax-free lump sums

The previously announced change, to bring most undrawn private pension funds on death into estates for IHT from 6 April 2027 will remains stay.

Dividend tax

The dividend allowance is unchanged at £500. It exempts the first £500 of annual dividend income from income tax.  Dividends up to £500 are still taxable income, and charged to tax at 0%. Dividends do, however, still use part of an individual’s income thresholds.

For 2026-27 and onwards, the basic, higher and additional rates on dividend income exceeding £500 are unchanged at 10.75%, 35.75% and 39.35% respectively. The first of these two rates increased by 2% in 2026-27, rom 8.75% and 33.75% respectively.

Corporation tax

Rates of corporation tax

The main corporation tax rates remains at 19% (first £50,000 of profit), 26.25% (profits £50,000 to £250,000) and 25% (profits over £250,000)

R&D tax credits

Limited companies claiming research and development tax relief will not have to submit a Claim Notification Form from April 2027. The Additional Information Form will be simplified later in the year.

Business tax

Capital allowances

From April 2027, the main rate of writing down allowances, on pooled plant and equipment, will reduce from 14% to 12%. A hybrid rate, between 14% and 12%, will apply to tax periods spanning 1 April 2027 for Corporation Tax and 6 April 2027 for Income tax.

The rate is still 18% until 5 April 2027, but had been 20% for many years before that. The writing down allowance reduction slows tax relief for every business with an existing pool of unrelieved capital expenditure from earlier years.

The special-rate on certain items, e.g. integral plant, remains unchanged at 6%.

The main rate for first-year allowance rises from 40% to 50% from 1 January 2027 for qualifying expenditure incurred after that date. The first-year allowance cannot be used for purchases of cars and second-hand assets.

Most small businesses receive 100% tax relief for expenditure on plant and equipment purchased up to £1m pa through the annual investment allowance.

Mileage rates for own car use

The tax-free mileage allowance for individuals who use own personal vehicles for work will remain at 55p per mile for the first 10,000 miles. This rate increase, from 45p, was introduced on 6 April 2026. The secondary rate, for work miles over 10,000 miles pa, will increase from 25p to 35p.

National living and minimum wages

The national living wage, for people aged 21 and over, will increase by 3.9% from £12.71 ph to £13.21 ph.

The national minimum wage, for people aged between 18 to 20, will also increase by 3.9% from £10.85 ph to £11.27 ph on 6 April 2027. There is an expectation that the age limit may reduce from 21 to 20 in 2027, but nothing has been confirmed as yet.

The rates for those under 18, and above school leaving age, will increase from £8.00 ph to £8.31 ph.

The new rates increase for the first full pay reference period that starts on or after 1 April 2027, which is unlikely to actually be from Thursday 1 April 2027.

Payrolling of benefits in kind

Taxable benefits in kind must start to be processed through the payroll from 6 April 2027 rather than being dealt with after the tax year end through a Form P11D. Until this date, payrolling of benefits has been voluntary.  PAYE tax coding adjustments for employees, for estimated benefits in kind, should not be required as the actual benefit in kind will be processed through the payroll each pay period.

From 2027-28, employer’s Class 1A National Insurance, on payrolled benefits, will be payable each pay period, rather than on 19 July after the end of the tax year.

Nearly all benefits in kind benefits were to be subject to mandatory payrolling from 6 April 2027. However, only company cars, vans, fuel and medical benefits will be compulsory payroll3d rom 6 April 2027.

From 6 April 2028, mandatory payrolling should apply to all benefits, with the exception of beneficial interest rate loans and accommodation for private use.

National Insurance

For Class 1 National Insurance, employee 8%, employer 15% remain the same, as do the Primary Threshold and the Upper Earnings Limit for employee contributions that are both linked to the income tax personal allowance and the start of the higher rate tax band. The employer’s (secondary) threshold for employer’s National Insurance remains at £5,000.

All bands and rates remain the same in 2027-28 except for the following changes:

• Class 2 (self-employed) voluntary flat rate, if profits below £7,355, increases to £3.80 pw

• Class 3 voluntary flat rate increases to £19.05 pw.

Class 4 (self-employed) remains at 6% on trading profits between £12,570 and £50,270 and 2% on profits over £50,270.

Capital gains tax

Rates and bands

There were no changes to general rate, of 18% and 24%, of capital gains tax or the £3,000 annual exemption.

Business Asset Disposal Relief

The lifetime limit for Business Asset Disposal Relief will be reduced from £1 million to £500,000 for disposals from 6 April 2027.

The (BADR) relief provides an 18% capital gains tax rate on qualifying business disposal gains.

A new Founders' Relief was announced, providing a 10% CGT rate on up to £10 million of lifetime gains for qualifying founders of high-growth, innovative companies. Such companies must generate turnover of at least £10 million pa. It will therefore not affect smaller businesses.

Value Added Tax

Rates and thresholds

There are no changes to the VAT registration thresholds, of £90,000, and the £88,000 VAT deregistration threshold or VAT rates.

Online marketplaces

A change will affect businesses selling to private customer, B2C business-to-consumer sales through online marketplaces. From October 2027, marketplaces will become responsible for collecting VAT on sales made by UK VAT-registered businesses, as well as on other UK businesses with annual sales of at least £90,000 through a particular platform.

Private sales (customer-to-customer), second-hand goods and business-to-business transactions through online marketplaces will be excluded from the scheme.

The extension to the temporary 0% VAT rate on domestic electricity will continue until 1 July 2027.

Inheritance Tax

The Inheritance Tax nil rate band remains at £325,000, which was last increased on 6 April 2009. The allowance  will remain the same until at least 5 April 2031.

The £175,000 ‘residential nil rate band’, available if the family home is passed down to a blood descendant also remains the same.

A married couple can pass up to £1m to their descendants free of IHT i.e. up to £325,000 and £175,000 from each parent.

From 6 April 2027, for Inheritance Tax purposes, unused pension funds will be included for the first time in deceased individual’s estate. Due to the interaction with income tax, as well as 40% Inheritance Tax, beneficiaries will also have to pay income tax at their marginal rates on the remaining 60% after Inheritance Tax. This can result in 67% rates of tax on inherited assets for a 45% additional rate income taxpayer.

Tax administration

Electronic invoicing

Electronic invoicing will become mandatory for VAT registered business from 1 April 2029 with VAT invoices issued in a specified digital format. An implementation roadmap, setting out the key elements of the e-invoicing regime will be issued by April 2028 with full details provide on the policy and technical design of e-invoices.

Self Assessment payments on account

From April 2029, changes to the way tax is collected through the Self Assessment system will arise. Those who make Self Assessment six-monthly payments on account, will be required to make smaller, more frequent payments, through direct debit by default, throughout the year, rather than the current six-monthly system.

Mandatory direct debit to pay VAT and PAYE

From April 2029, mandatory direct debit arrangements will be introduced for payment of PAYE and VAT return liabilities. Businesses will still be able to pay by other methods before the normal due payment dates.

HMRC stated that the compulsory direct debit mandate will only be used as a safeguard to collect any VAT and PAYE liabilities which remains unpaid at the due date. This permits businesses the flexibility in how they pay their VAT and PAYE before the due date.

Making Tax Digital for Income Tax – late quarterly filing relaxation

Making Tax Digital (MTD) for Income Tax will be extended to sole traders and landlords with combined gross income over £30,000 from April 2027. From April 2028, those with combined gross income over £20,000 will be required to use MTD for Income Tax.

For those joining the quarterly filing Making Tax Digital for Income Tax from 6 April 2027 (with qualifying aggregate gross self-employment / rental income, not profits, up to £30,000 pa), there will be a first-year relaxation, in 2027-28, for quarterly filing penalties. This will replicate the current relaxation of no MTD late filing penalties, for those who were required to use the MTD system (over £50,000 of gross self employment / rental income) from 6 April 2026. No penalty points will arise for late submission of the first four quarterly updates.

HMRC powers to collect outstanding tax directly from bank accounts

HMRC will be given new powers, from July 2029, to collect certain unpaid tax debts directly from taxpayers' bank accounts through instalments. This will affect those who can afford to pay their tax, but ignore repeated contact and requests from HMRC.

Other measures

Business rates

A previously cut of 20% off business rates for certain entertainment venues had already been announced from 1 April 2027. The threshold for small business rate relief for retail, hospitality, and leisure businesses will now increase from £12,000 to £18,000 pa for 100% business rates relief. The threshold for tapered relief will increase from £15,000 to a rateable value of £21,000.

Council Tax

Households in Council Tax bands A to D will, in January 2027, receive a £100 Household Energy Payment which will be paid directly into their bank accounts this coming winter to help with rising energy bills.

The above £100 is in addition to the annual tax-free Winter Fuel Payment, of £100 to £300, to help eligible households with winter heating costs. To qualify for the Winter Fuel Payment, you have to be born on or before 27 June 1960. If your total income exceeds £35,000, HMRC will take back your Winter Fuel Payment. Your spouse’s / partner’s income does not count towards your £35,000.

Receiving the Household Energy Payment does not disqualify you from receiving the Winter Fuel Payment or vice-versa

Gas and electric bills

The gas standing charges, a fixed daily amount added to gas bills, costing around £108 annually, will be removed from 2027. The electricity standing charge should be removed in the future. The unit rate of gas and electricity will be increased. Therefore, users of low levels of gas and electricity will benefit as the unit charge will not increase by more than the reduction in the fixed daily standing charge.

Around 60% of households should save an average of £45 pa.

Reforming how taxpayers claim for employment expenses

From 6 April 2028, the £2,500 threshold, requiring an employee to file a Self Assessment Tax Return, to claim tax relief on work related employment expenses will be removed. Instead, employees can claim tax relief on their expenses by completion of HMRC‘s Form P87 or the PAYE expenses service. Unlike with Self Assessment, supporting evidence must be provided to HMRC to support the P87 claim.