On 26 November 2025, Chancellor Rachel Reeves delivered her second Budget to Parliament. Following the tax-raising Budget of 2024, the government had hoped to avoid introducing further broadly applied tax increases in 2025. However, ongoing economic pressures have led to the announcement of additional tax rises, which will impact the majority of households.
Key announcements included:
- National Insurance (NI) and income tax thresholds will be frozen for a further three years beyond 2028, gradually bringing more taxpayers into higher tax bands.
- Dividend income tax rates will increase by 2 percentage points at the ordinary and upper rates from April 2026.
- Tax rates on savings and property income will rise by 2 percentage points from April 2027.
- From April 2027, the annual cash Individual Savings Accounts (ISA) contribution limit will be capped at £12,000 for individuals under the age of 65.
- A council tax surcharge will be introduced for properties valued at more than £2 million.
- From April 2026, any unused portion of the £1 million agricultural property relief and business property relief allowance will be transferable to spouses and civil partners.
- A new excise duty will be introduced on electric vehicles, charged at 3p per mile for electric cars and 1.5p per mile for hybrid vehicles.
The Budget includes measures affecting both individual taxpayers and businesses. We have outlined the main changes above and would be happy to discuss any of these points in more detail if required.
TAXES ON INCOME – INDIVIDUALS
Personal allowance
The tax-free personal allowance will stay at £12,570 for the 2026/27 tax year. Where income exceeds £100,000, the allowance is gradually reduced, and it is completely removed once income goes above £125,140.
Income tax rates and allowances
In 2026/27, income tax thresholds will remain the same as in 2025/26 and are set to stay frozen through to 2030/31. From 6 April 2026, the only increases will apply to the basic and higher rates of tax on dividend income.
After deducting the tax-free personal allowance, the remaining income in 2026/27 will be taxed across the following bands:
| ‘Other income’ | Savings income | Dividend income | |||
| 2026/27 (and 2025/26) | 2026/27 | 2025/26 | |||
| Basic Rate | £1 – £37,700 | 20% | 20% | 10.75% | 8.75% |
| Higher Rate | £37,701 – £125,140 | 40% | 40% | 35.75% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% | 39.35% |
‘Other income’ refers to income that does not arise from savings or dividends. This category includes earnings such as salaries and bonuses, profits from self-employment or business partnerships, rental income, pension income, and other similar sources. If you are classified as a Scottish taxpayer, different income tax rates apply to this ‘other income’. At the time this document was prepared, the income tax rates for 2026/27 had not yet been announced.
From 6 April 2027, the government will introduce separate income tax bands for property income and will increase the tax rates applied to savings income as follows:
| 2027/28 | |||
| Property income* | Savings income | ||
| Basic rate | £1 – £37,700 | 22% | 22% |
| Higher rate | £37,701 – £125,140 | 42% | 42% |
| Additional rate | Over £125,140 | 47% | 47% |
*The new property income tax rates will apply to taxpayers in England and Northern Ireland, while the Scottish and Welsh Governments will have the authority to set their own property tax rates within their jurisdictions.
You will continue to benefit from a 0% tax rate within both the personal savings allowance and the dividend allowance. The personal savings allowance remains at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, and it is not available to additional rate taxpayers. The dividend allowance continues to be fixed at £500.
Self-employed National Insurance Contributions (NICs)
Self-employed individuals are required to pay Class 4 NICs in addition to income tax. For the 2026/27 tax year, Class 4 NIC rates and thresholds remain broadly in line with those for 2025/26. Specifically, a rate of 6% applies to profits between £12,570 and £50,270, with a reduced rate of 2% on profits above this level.
As with income tax thresholds, Class 4 NIC thresholds will remain frozen until 2030/31.
Voluntary National Insurance Contributions (NICs)
From 6 April 2026, the weekly Class 2 NIC rate will increase from £3.50 to £3.65, while the Class 3 NIC rate will rise from £17.75 to £18.40 per week. The government will remove the option for individuals living overseas to pay voluntary Class 2 NICs. In addition, the minimum period of UK residence or contributions required to make voluntary NIC payments from abroad will increase from three years to ten years. Class 1 NICs for employees and employers are covered separately within the Employment Taxes section.
Individual Savings Accounts (ISAs)
Income generated within an ISA remains exempt from income tax, including income from both cash ISAs and stocks and shares ISAs. The overall ISA contribution limit for 2026/27 will remain at £20,000. From 6 April 2027, the annual cash ISA limit will be capped at £12,000, within the overall £20,000 ISA allowance. Individuals aged over 65 will continue to be able to contribute up to £20,000 each year into a cash ISA.
Tax relief for pension contributions
Full income tax relief is generally available on qualifying pension contributions, making pensions a key consideration in many tax planning strategies.
Child Benefit and the High-Income Child Benefit Charge (HICBC)
You may be liable for the HICBC if your income exceeds £60,000 and child benefit is being paid in respect of a child living with you, regardless of whether you are the child’s parent. Where you live with a spouse, civil partner or long-term partner, the charge will only apply to the higher earner.
For 2026/27, the HICBC continues to be calculated at 1% of the child benefit received for every £200 of income above £60,000. As a result, child benefit is fully repaid when income exceeds £80,000.
Qualifying Care Relief
From April 2026, the amount of income tax relief available to foster carers and shared lives carers will increase by 3.8%, in line with inflation measured in September 2025.
Penalty reform: updates to the self assessment penalty regime
A new penalties framework for late submission and late payment will be introduced for all self assessment taxpayers from 6 April 2027. Under this revised system, penalties for late filing will be less severe, while sanctions for late payment will be stricter and are set to increase. Penalties relating to the late payment of income tax under self assessment will therefore rise from April 2027.
Venture Capital Trust (VCT)
From 6 April 2026, the rate of income tax relief available for VCT investments will be reduced from 30% to 20%.
DIGITAL RECORD KEEPING AND QUARTERLY REPORTING REQUIREMENTS FOR TRADERS AND LANDLORDS (“MTD”)
Further updates continue to emerge in relation to HMRC’s Making Tax Digital for Income Tax (MTD for IT) programme. The regime will initially come into effect from 6 April 2026 for sole traders and property landlords whose gross trading and rental income (referred to as “qualifying income”) exceeded £50,000 in the 2024/25 tax year.
Participation in MTD for IT will be compulsory. Individuals within scope will be required to keep digital accounting records using MTD-compatible software and to submit quarterly summaries of their business and/or property income and expenses to HMRC, in addition to filing an end-of-year tax return.
As a positive development, the government has confirmed that for taxpayers who are brought into MTD for IT during the 2026/27 tax year, no penalties will be charged for late submission of quarterly summaries.
MINIMUM WAGE RATES
From 1 April 2026, the statutory minimum hourly rates employers must pay their workers will increase. Employers must ensure that employees are paid at least the applicable minimum wage to avoid penalties, repayment obligations and other regulatory enforcement action.
Where employees are paid at or close to the minimum wage, it is important to ensure that changes such as employee birthdays, actual hours worked and any deductions are accurately recorded and applied. Please contact us if you require assistance with payroll matters, including compliance with minimum wage requirements.
| 1 April 2026 – 31 March 2027 | 1 April 2025 – 31 March 2026 | |
| National Living Wage (for employees aged 21 and over) | £12.71 | £12.21 |
| National Minimum Wage (for employees aged 18-20) | £10.85 | £10.00 |
| National Minimum Wage (for employees aged 16-17 and apprentices) | £8.00 | £7.55 |
EMPLOYMENT TAXES
National Insurance Contributions (NICs)
As we move into the 2026/27 tax year, NIC rates deducted from employee pay will remain unchanged. Employees will not pay NICs on earnings up to £12,570, with a rate of 8% applied to income between £12,570 and £50,270, and a reduced rate of 2% on earnings above this threshold.
For employers, the NIC rate will continue to be set at 15% on earnings above the first £5,000* paid to each employee. The employment allowance available to eligible employers to offset this cost will remain at £10,500.
*A higher earnings threshold of £50,270 applies to employees under the age of 21 and apprentices under 25. Other specific variations may also apply.
Salary sacrifice for pension contributions
From 6 April 2029, the NIC exemption for employee pension contributions made through salary sacrifice arrangements will be limited to £2,000 per year. Any salary sacrifice pension contributions above this amount will be subject to both employer and employee NICs. Employees will still be able to make pension contributions of any amount, including via salary sacrifice, and these will remain exempt from income tax, subject to the usual limits.
Removal of tax relief on non-reimbursed home-working expenses
From 6 April 2026, employees will no longer be entitled to claim tax relief on additional household costs incurred while working from home where these expenses are not reimbursed by their employer. Previously, relief could be claimed at a flat rate of £6 per week. Employers will, however, still be able to reimburse qualifying home-working expenses without triggering income tax or NIC charges.
Enterprise Management Incentive (EMI) company eligibility expansion
For EMI options granted on or after 6 April 2026, several eligibility thresholds will increase. The total value of share options a company can grant will rise from £3 million to £6 million, the gross assets limit will increase from £30 million to £120 million, the employee headcount limit will rise from 250 to 500, and the maximum qualifying holding period will be extended from 10 to 15 years.
These enhanced limits may also apply retrospectively to existing EMI arrangements that have not already been exercised or expired. In addition, the requirement to notify HMRC of EMI grants will be removed from April 2027.
Expanding workplace benefits relief
From 6 April 2026, the income tax and NIC exemption for employer-provided benefits will be widened to include reimbursements for eye tests, home-working equipment and flu vaccinations.
Company car tax
The inclusion of employee car ownership schemes (ECOS) within the benefit in kind (BIK) regime has been postponed from 6 April 2026 to 6 April 2030, giving the sector additional time to prepare for the change. Transitional arrangements will apply until April 2031.
A temporary BIK easement will apply to plug-in hybrid electric vehicles (PHEVs) from 1 January 2025 to 5 April 2028. This measure prevents significant increases in the tax charge arising from updated emissions testing standards by applying a deemed nominal CO₂ figure when calculating the BIK. Transitional provisions will continue to apply to certain PHEVs until 5 April 2031. From April 2026, the BIK charges for vans, as well as for car and van fuel, will increase in line with inflation.
Mandatory payrolling of benefits
Draft interim legislation and guidance have been published to support employers in preparing to report benefits in kind (BIKs) in real time through payroll software from April 2027. This represents a deferral from the original implementation date of April 2026. Employers are strongly encouraged to begin preparations as early as possible to minimise costs and disruption, with HMRC emphasising that sufficient time will be required to ensure payroll systems and processes are robust.
PAYE changes for umbrella companies
Umbrella companies act as employment intermediaries, employing workers on behalf of recruitment agencies and end clients. From 6 April 2026, employment agencies—or end clients where no agency exists in the supply chain—will become jointly and severally liable for any PAYE amounts due.
Loan charge review
Disguised remuneration schemes are regarded as tax avoidance arrangements and have been repeatedly considered by the courts. Although legislation was introduced to address these schemes, resolution of related tax liabilities has often been complex and lengthy. Following an independent review, the government has accepted a recommendation to introduce a settlement opportunity aimed at encouraging individuals who have not yet settled their loan charge liabilities to do so on more favourable terms.
Under this settlement arrangement, individuals who come forward will receive a £5,000 reduction in their outstanding liabilities, significantly lowering the amount payable. For most taxpayers who choose to settle, liabilities could be reduced by at least 50%, and around 30% of individuals may be able to settle without making any payment at all. This measure will apply retrospectively from 5 April 2019.
CAPITAL GAINS TAX (CGT)
Looking ahead to the 2026/27 tax year, most disposals of capital assets will remain subject to CGT at a rate of 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. From 6 April 2026, the CGT rate applicable to business asset disposal relief (BADR) will increase from 14% to 18%. As the timing of disposals can be critical, particularly for business assets, we recommend seeking advice to ensure your tax position is optimised prior to any sale. The Budget announced on 26 November introduced two notable CGT changes.
Employee Ownership Trusts
With immediate effect, CGT relief on disposals to an Employee Ownership Trust has been reduced from 100% to 50%. As a result, half of any gain will be chargeable to CGT at the time of disposal. The remaining 50% of the gain will not be taxed immediately but will be held over and brought into charge if the trustees subsequently dispose of the shares.
In a further adverse change, the taxable portion of the gain will no longer qualify for BADR or investors’ relief (IR), meaning it will be taxed at the full applicable CGT rate.
Incorporation relief
For business transfers taking place on or after 6 April 2026, incorporation relief will only be available where a formal claim is made. This relief applies to individuals, partners in a partnership and trustees transferring a business to a company in exchange for shares.
Previously, incorporation relief applied automatically unless an election was made to opt out. From 6 April 2026, claimants must submit a claim as part of their self assessment tax return for the year of transfer. The claim must include brief details of the transaction, relevant tax calculations and the nature of the business transferred.
INHERITANCE TAX (IHT)
Inheritance tax may arise on certain lifetime gifts and on the value of an individual’s estate on death. The standard nil rate band remains at £325,000, with an additional residence nil rate band of £175,000 available in certain circumstances where a main residence is left to direct descendants. After applying available nil rate bands, reliefs and exemptions, any remaining value is subject to IHT at a maximum rate of 40%.
The IHT nil rate band will remain frozen at £325,000 for a further year, until 2031. Similarly, the residence nil rate band will stay at £175,000 until 2031. The residence nil rate band continues to be reduced for estates with a net value above £2 million, tapering away at a rate of £1 for every £2 over this threshold. Where the residence nil rate band is not restricted, a married couple may continue to benefit from a combined IHT allowance of up to £1 million.
IHT reliefs for business owners and farmers
The government is pressing ahead with planned reforms to inheritance tax agricultural property relief (APR) and business property relief (BPR), which will take effect from 6 April 2026. At present, qualifying assets can benefit from up to 100% relief with no monetary cap. From 6 April 2026, however, this full relief will be limited to a combined maximum of £1 million of qualifying agricultural and business property. Any value above this threshold will attract relief at a reduced rate of 50%.
From the same date, any unused APR or BPR allowance will become transferable to a surviving spouse or civil partner. As a result, a couple may be able to pass on up to £3 million free from inheritance tax where their estates contain agricultural and/or business assets.
In addition, from 6 April 2026, the level of BPR available on AIM shares and similar investments will be reduced from 100% to 50%. The £1 million BPR allowance will not apply to AIM shares. These changes require careful planning, as transitional provisions mean that making gifts before 6 April 2026 may not always produce the intended tax outcome. We recommend seeking advice on the most effective way to structure estates that include business or agricultural assets.
Paying tax by instalments
As further agricultural and business assets are brought within the scope of inheritance tax, overall IHT liabilities are expected to increase. From April 2026, the option to pay inheritance tax in interest-free instalments over a period of up to 10 years will be extended to cover all property qualifying for APR and BPR.
Pension funds
From April 2027, the value of unused pension funds will be included within an individual’s estate for inheritance tax purposes, regardless of whether arrangements have been made to place the pension into trust. This measure is intended to address the government’s concern that pensions are increasingly being used as a tax planning vehicle rather than solely as a means of funding retirement.
CAPITAL ALLOWANCES
For the 2026/27 tax year, the annual investment allowance (AIA) will be maintained at £1 million, and the full expensing regime will continue to apply to companies.
The writing down allowance (WDA) rate for expenditure in the main pool will reduce from 18% to 14% with effect from 1 April 2026 for companies and 6 April 2026 for unincorporated businesses. Where a business has an accounting period that spans the change date, a blended rate will apply. There are no proposed changes to the 6% WDA rate for expenditure allocated to the special rate pool.
A new 40% first year allowance (FYA) will be introduced for qualifying expenditure incurred on or after 1 January 2026 and will be available to both companies and unincorporated businesses. This allowance can be claimed on leased assets (excluding overseas leasing) but will not apply to cars or second-hand assets. It is expected to be most relevant where the AIA or other FYAs cannot be used.
First year allowances providing 100% relief for qualifying expenditure on electric vehicles and charging infrastructure were scheduled to end in April 2026 but have now been extended to April 2027.
| 2026/27 | 2025/26 | |
| Plant and machinery | ||
| Writing down allowance – main rate | 14% | 18% |
| Writing down allowance – special rate | 6% | 6% |
| Annual investment allowance (AIA)* | £1 million | £1 million |
| AIA rate for eligible purchases* | 100% | 100% |
| First year allowance (FYA) rate for qualifying expenditure incurred on or after 1 January 2026 | 40% | 40% |
| First year allowance (FYA) rate for electric vehicles and charging points** | 100% | 100% |
| ‘Full expensing’ FYA – main rate*** | 100% | 100% |
| ‘Full expensing’ FYA – special rate*** | 50% | 50% |
| Structures and buildings | ||
| Structures and buildings allowance~ | 3% | 3% |
*The annual investment allowance (AIA) can generally be claimed on most items of business equipment, including vans and other commercial vehicles, but it does not apply to cars. Where there is a corporate group or where an individual operates more than one business, the AIA may need to be shared between those businesses. In addition, certain business structures – such as partnerships that include a corporate partner – are not entitled to claim the AIA at all.
**First year allowances (FYAs) at 100% remain available for brand-new electric cars, electric vehicle charging points and certain other less common asset categories. Capital allowances can still be claimed on cars that are not new or electric; however, these are given at the main or special writing down allowance rates depending on whether the vehicle’s CO₂ emissions are up to, or exceed, 50g/km respectively.
***For limited companies and a small number of other business structures, ‘full expensing’ continues to be available. This offers an effective unlimited 100% first year allowance on most new plant and machinery acquisitions (excluding cars and assets used for leasing). A reduced 50% first year allowance applies to special rate assets, broadly covering fixtures and systems that form an integral part of a building. Full expensing is particularly beneficial for companies that do not have access to the AIA.
~The structures and buildings allowance applies only to expenditure incurred under construction contracts entered into on or after 29 October 2018 and may be more suitable for certain types of business than others.
VAT
From 1 April 2026, the VAT registration threshold will remain at £90,000 and the deregistration threshold at £88,000. There are no changes to VAT rates, and the standard rate will continue to apply at 20%.
BUSINESS MATTERS
Business rates
As announced in the 2024 Budget, two new reduced business rates multipliers will be introduced from 1 April 2026 for eligible retail, hospitality and leisure (RHL) properties with a rateable value below £500,000. Each new multiplier will be set 5p lower than the standard multiplier for properties of an equivalent rateable value.
These new multipliers will replace the 40% relief available to RHL businesses in 2025/26 and will be funded through a higher multiplier applied to properties with a rateable value above £500,000. Legislation and local authority guidance confirming eligibility criteria have already been issued.
Transitional relief may be available for eligible properties where bills increase due to the 2026 business rates revaluation or because of the loss of Small Business Rates Relief, Rural Rates Relief or RHL relief. Businesses currently benefiting from the 2023 Supporting Small Business Relief Scheme will also qualify for the 2026 scheme, which will run until 31 March 2027.
Electronic invoicing
The government intends to make electronic invoicing mandatory for all VAT invoices from 2029, with a detailed implementation roadmap expected at Budget 2026.
The introduction of real-time reporting (RTR) is also under consideration. This would involve invoice data being shared automatically with HMRC, potentially at the point an invoice is issued to a customer. However, the government has confirmed that RTR will not be introduced in 2029 and would only be considered once electronic invoicing is widely established.
Local visitor levy in England
A consultation has been launched on granting Mayors, and potentially other local leaders in England, the power to introduce a local visitor levy. The aim of the levy would be to support economic growth and enhance locations as places to visit, live and do business. In Scotland and Wales, local authorities already have the power to introduce such a levy.
Where adopted, the charge would apply to short-term overnight stays in commercially let visitor accommodation. No changes have been implemented at this stage, but accommodation providers should monitor developments arising from the consultation.
LAND AND PROPERTY
In addition to the new property income tax rates outlined earlier, property owners will also be affected by the introduction of a high-value council tax surcharge, commonly referred to as the “mansion tax”. This surcharge will apply in addition to existing council tax and will affect properties valued at more than £2 million.
The charge will range from £2,500 to £7,500 depending on the value of the property, with valuations taking place prior to implementation. The liability will rest with the homeowner rather than the council tax payer.
Together, these measures are likely to increase costs for landlords and may result in higher rents for tenants. If you are concerned about these potential changes, whether as a landlord or tenant, please contact us to discuss your position.
STAMP DUTY LAND TAX
England and Northern Ireland
No changes to stamp duty land tax (SDLT) were announced in the Autumn Budget. The main SDLT threshold remains at £125,000, and higher SDLT rates will continue to apply to additional residential properties such as second homes.
First-time buyers will continue to benefit from SDLT relief, with no SDLT payable on purchases up to £300,000 and a 5% rate applying on the portion between £300,000 and £500,000.
Scotland and Wales
SDLT does not apply to property purchases in Scotland or Wales. In Scotland, buyers pay Land and Buildings Transaction Tax, while in Wales purchasers pay Land Transaction Tax. Rates in both jurisdictions remain unchanged.
COMPANIES
Rates from 1 April 2026
There will be no changes to corporation tax rates or thresholds for the financial year beginning 1 April 2026. The main rate will remain at 25% for companies with profits over £250,000, while a small profits rate of 19% will continue to apply where profits do not exceed £50,000. Profits between these limits are subject to a marginal rate of 26.5%. Where companies form part of a group or have associated companies, the profit thresholds are shared between them.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
From 6 April 2026, substantial increases to the qualifying limits for companies using the EIS and VCT regimes are proposed. The gross assets threshold will rise from £15 million to £30 million before the share issue and from £16 million to £35 million immediately after. The annual investment cap will increase from £5 million to £10 million, or from £10 million to £20 million for Knowledge-Intensive Companies (KICs). The lifetime investment limit will also double, increasing from £12 million to £24 million, or from £20 million to £40 million for KICs.
At the same time, the rate of income tax relief available to VCT investors will reduce from 30% to 20%. This reduction does not apply to investments made under the EIS.
DEALING WITH HMRC
Penalties
Late filing penalties for corporation tax returns will double for returns with filing deadlines on or after 1 April 2026. A late return will attract a £200 penalty, increasing to £400 if more than three months late. Where deadlines are missed for three consecutive returns, the penalty will rise to £1,000, or £2,000 if the return is more than three months late.
The government will also shortly consult on wider reforms to HMRC’s penalty framework, with the aim of encouraging prompt correction of errors while taking tougher action against deliberate non-compliance.
Digital communications
From spring 2026, users of HMRC’s digital services will receive correspondence digitally by default rather than by post, although it will remain possible to opt out.
Reporting serious tax evasion
HMRC is introducing a strengthened reward scheme for individuals whose information leads to the recovery of at least £1.5 million in unpaid tax. While eligibility is restricted and rewards are not guaranteed, successful informants may receive between 15% and 30% of the tax recovered.
UK resident cryptoasset users
From spring 2026, UK-based cryptoasset service providers will be required to report tax-relevant information to HMRC for UK-resident cryptoasset users. Similar rules already apply to non-UK residents and mirror existing bank reporting obligations. This reflects increased international cooperation between tax authorities to monitor cryptoasset activity.
Tax debt
HMRC continues to explore measures to reduce unpaid tax and accelerate collections. These include considering mandatory Direct Debit payments for PAYE and VAT, increasing staffing levels for debt recovery teams and making greater use of debt collection agencies for older or more difficult cases.
Easier way to pay the Child Benefit Tax Charge and claim pension relief
From 2025, many taxpayers will no longer need to complete a Self Assessment tax return solely to pay the High Income Child Benefit Charge (HICBC) or to claim higher- or additional-rate pension tax relief. Instead, HMRC can adjust PAYE tax codes to collect the HICBC or grant pension relief automatically. This provides a simpler, administrative-free option for individuals whose income exceeds £60,000 and who receive child benefit, or who make relief-at-source pension contributions. Further information is available via HMRC guidance, and we would be happy to help you check whether you are eligible.
IN CONCLUSION
With the 2026/27 tax year fast approaching, many individuals and businesses will already be assessing the impact of this Budget on their personal and commercial affairs. Despite commitments to economic growth, inflation control and easing the cost of living, the measures announced mean that most people will contribute more over time. Continued freezes to income tax thresholds, alongside higher taxes on savings, dividends and property income, will inevitably increase tax costs for many.
It may therefore be timely to review both personal and business strategies for 2026 and beyond to ensure they remain as tax-efficient as possible. We are here to support you in navigating these changes and safeguarding your long-term success. Please do get in touch if you would like to discuss any aspect of this update.