A Budget for “Breathing Space” is how John Healey introduced his first Budget, in recognition of the financial pressures faced by many within the UK. The Chancellor was keen to point to “global storms” such as the ongoing war in Ukraine and conflict in the Middle East as the source of cost pressures for business and individuals alike.
With such limited financial headroom, tax cuts or giveaways were always unlikely. Nonetheless, the Chancellor pointed to the UK’s strong position compared to its G7 peers, emphasising the importance of entrepreneurship in securing long-term success and growth.
The cost of energy has been a constant in the headlines, and the Chancellor announced a £100 Household Energy Payment for households in England in council tax bands A to D. Somewhat predictably, the gov.uk council band checker couldn’t cope with the demand generated by this announcement and swiftly went offline! The temporary 5p cut in VAT on energy price is also extend to July 2027.
Business entrepreneurs will welcome the introduction of a new “founder’s relief” giving a 10% capital gains tax rate on up to £10m of gains on shares in “innovative companies” in which the shareholder has a 25% interest. This comes partly at the expense of business asset disposal relief though, which is reduced from £1m to £500,000 of gains.
The government issued a consultation document in June 2026 concerning the modernisation of distributions from companies and repayments of capital. There is to be a further technical consultation on these changes with a view to revised rules applying from 6 April 2028. A particular focus is shareholders who arrange to extract accumulated profits by way of capital (for example, exchanging shares for loan notes in a new holding company) where there is not a genuine commercial rationale for the transaction.
The Chancellor will no doubt face criticism for not having been bolder in his first Budget and there was no customary “rabbit out of the hat” moment, but there was plenty of detail to absorb. We have summarised the most important announcements in the following pages.
HIGHLIGHTS
Personal taxes
Income Tax and National Insurance
-
- Income tax thresholds: The Chancellor has ruled out rises to income tax and national insurance rates in line with the Government’s manifesto pledge.
- Pension Tax Allowance: low-income pensioners will be shielded from income tax through a new allowance. This will raise their tax-free threshold to £13,036.40 to match the uprated state pension.
- Income Tax Self-Assessment (ITSA): the most significant long-term shift alters how Income Tax Self-Assessment (ITSA) is collected from individuals who mix self-employment or rental profits with standard employment income. From April 2029 tax will be paid more regularly throughout the year.
- Minimum wage: the hourly rate for over 21s will increase from £12.71/hour to £13.20 from April 2026. Workers aged 18 to 20 will see a rise to £11.27.
Property and savings income
An additional 2% income tax on property income and savings income comes into force from 6 April 2027, alongside the 2% increase previously announced at Budget 2025. This increases the rates of income tax on savings and property income to 24%, 44% and 49%.
Dividend rates
There are no changes to the rates of income tax on dividends.
Paternity leave
The self-employed are now eligible for paid leave.
ISAs
-
- A Starter ISA will be introduced to reward first-time investors.
- A First-time Buyer ISA will also be introduced to replace the Lifetime ISA.
- The Cash ISA limit will stay at £20k.
Capital Gains Tax
Capital Gains Tax Reliefs
-
- A new “Founders relief” is to be introduced to reward entrepreneurs. This features a 10% Capital Gains Tax rate on a lifetime limit of gains £10m and will be available for 25% shareholders in trading companies with turnover of at least £10m in the year before the disposal, provided the shares have been held for at least five years.
- Business Asset Disposal Relief is reduced to the first £500,000 of lifetime qualifying gains at a rate of 18% from 6 April 2027.
Businesses
Capital expenditure
First-year allowances on qualifying capital expenditure will be increased from 40% to 50% from 1 January 2027. The rate of writing down allowances on existing expenditure is to be reduced from 14% to 12% from April 2027.
Business mileage rate
The business mileage will stay at 55p per mile for mileage under 10,000 miles. The rate for those who exceed the standard 10,000 miles has increased from 25p to 35p per mile.
Business rates
-
- 100% business rate will be retained by local government by the end of the decade.
-
- 20% of business rates revenue will go to Mayors, and from 2028 a percentage of income tax revenue will also go to Mayors.
Business rate relief
Small business rates relief will be increased from £12,000 to £18,000 for retail, hospitality and leisure businesses, expected to remove 70,000 businesses out of paying business rates.
Annual Tax on Enveloped Dwellings
Payable by companies that own UK residential property valued at more than £500,000 will increase by 3.5% for 2027/28.
Starting out / new ventures
The tax-free trading allowance is tripled from £1,000 to £3,000 from 6 April 2027.
Employee Share Schemes
The value of share options which can be issued under the Company Share Ownership Plan is to be increased to £120,000 from 6 April 2027, making CSOP effectively ‘EMI2’.
Making Tax Digital (MTD) for Income Tax
The government has announced changes to the introduction of Making Tax Digital (MTD) for Income Tax, including temporary penalty easements, and the deferral of the rollout for certain groups of taxpayers.
Taxpayers joining MTD for Income Tax in April 2027 will not receive penalty points for late submission of their first four quarterly updates for the 2027–28 tax year.
Other
VAT
-
- Household energy: the reduction in VAT on electricity bills for households is extended to July 2027, and will save on average £50 off the price cap.
- Online traders: additional powers will be introduced to clamp down on unregistered online traders.
- Taxi companies: VAT rules for larger taxi companies will be tightened to stop firms based outside the UK circumnavigating the tax.
- Land for social housing providers: this will be VAT-free, although there is already a relief for housing associations.
- VAT and PAYE payments: from April 2029, taxpayers will be required to set up a Direct Debit instruction for VAT and PAYE liabilities.
Energy and fuel
-
- Gas standing charges through OfGem these will be removed, with similar reforms to follow for electricity bills.
- Those living in council tax bands A-D, will receive an energy payment of £100 directly into their bank accounts to deal with the rising cost of bills.
- Fuel duty cuts have been extended to July 2027.
Follow up
If you have any queries following this budget, our team of experts would be happy to listen to your position over an initial phone call, and then follow up with a way forward.
Join our BUDGET BULLETIN list and get this update straight to your inbox.