Autumn Budget 2026
In the lead up to John Healey’s first Budget as Chancellor (our eighth Chancellor in ten years), the general view was that it would be relatively quiet and very few announcements would be made; how wrong we all were.
Against a backdrop of global economic storms, the Iran war and the continued Russian invasion of Ukraine, the Chancellor acknowledged that the cost of oil and gas was significantly impacting people’s cost of living, whilst for the government itself, higher interest rates have resulted in an anticipated increase in debt interest of £14 billion this year.
To ease the pressure on families, the VAT reduction to 0% that currently applies is extended through to July 2027, estimating to save every household £50 off their bill. In addition, gas standing charges are to be scrapped during 2027, or as soon as possible thereafter, which aims to save £100 per household. Finally, those homes in council tax bands A to D will be receiving a £100 ‘household energy payment’, which is to be funded through a 3% increase in the tax on banks.
The positive news continued with an extension to the 5p cut in fuel duty until July 2027, and confirmation that the 55p per mile rate applying to the first 10,000 business miles will be made permanent, along with an increase in the rate over 10,000 miles from 25p to 35p.
There were large spending commitments on eradicating rough sleeping by building new council houses, whilst the Chancellor committed to the defensive investment plan, targeting 3.5% of GDP by 2035, with an interim target of 3% by 2030. The defensive spend is largely being funded by a reallocation from other capital projects that will clearly have to wait their turn.
Those in hospitality and retail will benefit from an increase in the small business rates relief from £12,000 to £18,000, although gambling and vape shops will be excluded. HMRC will also be given extra funding to raise monies from those who fail to conform with their compliance and payment obligations.
To balance the books, money needs to be raised, and there were a few scares during his speech, befitting of the time of year, and even more in the small print.
With his predecessor having announced an increase in the savings and property tax rates in the previous year’s budget, to take effect from April 2027, nobody would have predicted the Chancellor was going to add a further 2% on, before the new rates even came into effect. This means those with property rental income, or interest income, will see rates of 24% as a basic rate taxpayer, 44% for higher rate and 49% for additional rate, from next year.
There was some respite in dividend rates not increasing, having done so from April 2026, but then it was announced that there will be changes to the tax on withdrawing monies from limited companies, to ensure fairness. The consultation is ongoing, but changes will be made to restructuring and company purchase of own shares rules to tax more as a dividend, rather than capital.
Capital allowances were once again impacted, by a reduction in the writing down allowance from 14% to 12%, although first year allowances increased from 40% to 50%. However, with most businesses covered by the £1 million annual investment allowance, the first year allowance increase offers little in the way of benefit to the majority.
The lifetime limit for business asset disposal relief is decreasing from £1 million to £500,000 with effect from 6 April 2027. The erosion of its benefit from £1.8 million to what will be £30,000 is stark for entrepreneurs. So, to try to balance this, a new ‘founders’ relief’ is to be introduced, with a £10 million lifetime limit at a rate of 10%, effectively mirroring entrepreneurs’ relief, when it was worth something. However, the qualifying conditions appear to be so onerous that only a very few companies and, therefore, individuals, will likely benefit. The new relief will apply for disposals from 6 April 2027, so any owners should consider whether they may qualify, in which case deferring a disposal until next tax year may be beneficial.
There will also be a change to the frequency of payments under self assessment from April 2029. If the initial consultation is anything to go by, this may result in all those in self assessment paying monthly or quarterly, on a current year basis, whilst still paying the previous years’ tax. It is possible that, between January 2029 and January 2030, 200% tax is effectively paid. Now might be the time to save up, but remember you will end up being taxed heavily on any interest earned.
To combat the bad news, there were some positive announcements. The previously announced restriction on cash ISA limits for the under 65s has been cancelled, allowing everyone to invest £20,000 as they see fit, whilst the trading allowance is to be increased from £1,000 to £3,000. In addition, a new approved share scheme, dubbed EMI2, is to be introduced, however, on closer reading, this is merely an enhancement of the existing company share option plan (CSOP) rules, albeit increasing the limits from £60,000 to £120,000.
There is no doubt many will feel this is a Budget that gave more than it took, and will look forward to the resulting harvest, whilst those who already feel squeezed will continue to feel haunted by HMRC.
