Budget 2026: What It Means for You

The Budget has a lot in it, and most of the changes take effect from April 2027. Here’s what’s most likely to affect you.

Income tax

From 6 April 2027, your savings income will be taxed at 24%, 44% or 49%, up from 20%, 40% or 45%. If you rent out property in England, Wales or Northern Ireland, your rental income moves to the same higher rates, so it’s worth thinking about your 2027-28 position now.

The Trading Allowance rises from £1,000 to £3,000. If your side income is under £3,000, you may no longer need to report it or pay tax on it.

If you’re a pensioner, a new Pension Tax Allowance will apply from 2027-28 to 2029-30. If your total income is no more than the full new State Pension, you won’t have to pay small amounts of tax through Simple Assessment. Above that level, the allowance reduces by £1 for every £3 of extra income.

Cash ISAs

The Cash ISA limit stays at £20,000 a year. The previously announced reduction to £12,000 will not go ahead.

With savings income now taxed at higher rates from April 2027, it’s even more important to use your ISA allowance. Interest earned inside an ISA is tax-free, so it’s worth checking that you’re making full use of it each year.

Buy-to-let mortgage interest

The finance cost relief rate for residential property is increasing from 22% to 24%, in line with the new property income rates. This is the tax credit you receive in place of deducting mortgage interest from your rental income.

However, relief is only given at this basic rate, however much tax you pay. Because the interest isn’t deducted when working out your taxable profit, it can be taxed on more than you actually make. Combined with the higher rates above, there may be many situations where a buy-to-let mortgage has a punitive tax outcome.

• The higher the loan-to-value (LTV), the worse it gets. Interest takes up more of your rent, so your taxable profit moves further away from your real profit.
• The effect compounds. The extra taxable profit can push you into a higher tax band, and a higher band means a higher rate on the whole of your rental profit.
• Highly geared landlords are most exposed. Your effective tax rate on the cash profit you actually keep can be far higher than the headline rate.

If you have buy-to-let borrowing, especially at a high LTV, it’s worth reviewing your position before April 2027. We can model it for you.

Capital gains tax

If you’re planning to sell a business, the relief you can claim is being cut. The lifetime limit for Business Asset Disposal Relief falls from £1m to £500,000 for disposals made on or after 6 April 2027. If you’re selling a large stake, it may be worth taking advice on timing.

As an example, if the 18% rate stays in place, the most you could save on a £1m gain falls from around £60,000 to around £30,000. Your sale could also complete before 6 April 2027 if you’re in a position to do so.

For founders and early investors in high-growth companies, a new Founders’ Relief will give a lower rate of CGT on qualifying share disposals from 6 April 2027. It is subject to a lifetime limit of £10m.

National Insurance

The main NI thresholds are rising by 3.5% in line with inflation. For 2027-28:

• You’ll start paying Class 1 NI once you earn £6,916 a year.
• The Small Profits Threshold for the self-employed rises to £7,355.

Most other NI thresholds stay the same until 2030-31.

National Minimum Wage

The National Living Wage, the minimum hourly rate for workers aged 21 and over, rises from £12.71 to £13.21 an hour from April 2027. If you employ staff, it’s worth budgeting for the higher payroll cost now, as it also feeds through to employer NI and pension contributions.

Company tax

If you run a company, the main Corporation Tax rate stays at 25% and the small profits rate stays at 19%. Most small businesses won’t notice much change, because the Annual Investment Allowance covers most of their spending on equipment and machinery. However, if you invest more than the £1m AIA in a year, the rest will be written off more slowly:

• The main rate of writing-down allowance falls to 12%.
• The first-year allowance on main rate spending rises to 50% from 1 January 2027.

Company cars, benefits and mileage

From 2030-31, the tax on electric company cars rises by one percentage point. If you’re considering a company car, it’s worth factoring that in.

From April 2027, your employer will need to report most benefits in kind, such as company cars and medical benefits, through payroll. Other benefits follow in April 2028.

If you use your own car for work, the mileage rates are changing from 6 April 2027.

From April 2028, electric cars will also pay a new Electric Vehicle Excise Duty:

• Electric cars: 3p per mile
• Plug-in hybrids: 1.5p per mile

If you drive an electric car, it’s worth factoring this into your running costs.

VAT

From April 2027, if you buy services from an overseas supplier and you aren’t VAT registered, the supplier will have to charge you UK VAT. If you use overseas consultants or digital services, check how this affects your costs.

Employee share schemes

If your employer offers share options, the rules are becoming more generous from 6 April 2027. The CSOP limit rises to £120,000, and you’ll have longer to exercise options. If you leave in certain circumstances, you’ll also have 180 days to exercise EMI options, up from the current window.

Tax admin

Some of the changes will affect how you pay tax.

From April 2029, if you pay tax through Self Assessment, you’ll move to making regular payments during the year rather than two larger payments on account. These will be set up automatically, and you can choose to pay through PAYE.

Also from April 2029, you’ll need a Direct Debit in place for VAT and PAYE payments, although there will be some exceptions.

Making Tax Digital: if you’re new to Making Tax Digital for Income Tax from April 2027, you won’t receive late submission penalties for your 2027-28 quarterly updates. You still need to send them before filing your return.

E-invoicing is coming too. From April 2029, you may need to issue and receive VAT invoices electronically. It’s worth starting to look at your invoicing software now.

If you have questions about how any of this affects you, get in touch.