Key takeaway: Budget 2026, delivered on 28 October 2026, does not change the headline income tax, capital gains tax or dividend rates. It does raise tax on rental and savings income, halve the Business Asset Disposal Relief limit and introduce a new surcharge on £2 million-plus homes in England. It also confirms that pensions come into inheritance tax. Many of these changes start on 6 April 2027, so there is time to plan.
This guide sets out the tax changes confirmed in the official Budget documents and who they affect: savers, landlords, employees, the self-employed, company owners, business sellers, homeowners, pensioners and families. HMRC's detailed Tax Information and Impact Notes were not yet available when we wrote this, so some technical detail may still follow.
Budget 2026 at a glance
| Who | Main change | From |
|---|---|---|
| Savers and landlords | Savings and property income taxed at 24%, 44% and 49% | 6 April 2027 |
| Business sellers | BADR lifetime limit cut from £1m to £500,000 | 6 April 2027 |
| Founders | New 10% Founders' Relief on up to £10m of gains | 6 April 2027 |
| Company owners | Distributions reform: some extractions taxed as dividends | April 2028 |
| Homeowners in England | High Value Council Tax Surcharge on homes worth £2m+ | April 2028 |
| Families and pension savers | Most unused pensions brought into inheritance tax | 6 April 2027 |
| Pensioners | Pension Tax Allowance for those on around the State Pension | 6 April 2027 |
| Self-employed | Trading allowance up from £1,000 to £3,000 | 6 April 2027 |
What has not changed
Several things stay as they are. For 2027/28, the personal allowance stays at £12,570, the basic rate band stays at £37,700 and the additional rate still starts at £125,140. Main income tax rates remain 20%, 40% and 45%. Dividend rates stay at 10.75%, 35.75% and 39.35%. Capital gains tax stays at 18% and 24%, with a £3,000 annual exempt amount.
The inheritance tax nil-rate band (£325,000) and residence nil-rate band (£175,000) are unchanged, as is the £2.5 million allowance for 100% agricultural and business property relief. Most National Insurance thresholds remain frozen until 2030/31.
Savers and ISA holders
From 6 April 2027, savings interest above your allowances will be taxed at 24% (basic), 44% (higher) and 49% (additional) across the UK. That is four percentage points above the 2026/27 rates and two points above the rates previously legislated for April 2027. Holding cash in an ISA becomes more valuable as a result.
- The cash ISA limit stays at £20,000 from April 2027, within the £20,000 overall ISA allowance. The Junior ISA limit stays at £9,000.
- The government will develop a new incentive for people investing in a Stocks and Shares ISA for the first time.
- A new First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029. It carries a 25% government bonus towards a first home worth up to £450,000. Existing Lifetime ISA holders can carry on under the current rules.
- From 29 October 2026, the Lifetime ISA withdrawal charge for buying a home above the price cap falls from 25% to 20%.
Landlords: new property income rates
From 6 April 2027, property income will have its own rates in England, Wales and Northern Ireland: 24%, 44% and 49%. Scotland and Wales can set their own property rates. Relief for finance costs on residential lettings will stay aligned with the property basic rate. This applies to UK residents and to non-resident landlords with UK rental profits.
Employees
With the personal allowance and bands unchanged for 2027/28, pay rises will continue to pull more income into higher bands. Other changes for employees and employers include:
- Mileage rates: tax-free mileage for using your own car or van for work will be 55p per mile for the first 10,000 business miles and 35p above that. From 6 April 2027 the rate above 10,000 miles rises from 25p to 35p, and the same rates apply to the self-employed simplified mileage rates.
- Employment expenses: from April 2028, the £2,500 threshold that forces people into Self Assessment just to claim unreimbursed work expenses is removed, so more claims can go through PAYE.
- Travel and subsistence: employers' benchmark scale rates will be £20, £60 and £75 for trips over 5, 10 and 24 hours, and overseas scale rates will be simplified, from 6 April 2028.
- Benefits in kind: payrolling becomes mandatory for company cars, vans, fuel and medical benefits from 6 April 2027, and for most other benefits from 6 April 2028.
- Share schemes: from 6 April 2027 the CSOP option limit rises to £120,000, and there are further changes to CSOP and EMI.
Self-employed and sole traders
- The trading allowance rises from £1,000 to £3,000 from 6 April 2027, and the Self Assessment reporting threshold for trading income rises with it.
- Making Tax Digital: people joining MTD for Income Tax in April 2027 will not receive late submission penalty points for quarterly updates in 2027/28. Updates must still be sent before the tax return.
- Capital allowances: the main rate first-year allowance rises to 50% for expenditure from 1 January 2027, and the main writing-down allowance falls to 12% from April 2027.
- Self Assessment payments: from April 2029, people who make payments on account will have to pay more regularly during the year. Payments will be automated, with an option to pay through PAYE.
Company owners and directors
The government is going ahead with modernising the distributions framework, which mainly affects UK-resident individual shareholders. Draft legislation will be published in 2027 and the new rules start in April 2028. Some ways of taking value out of a company that are now taxed as capital gains, or not taxed at all, will be taxed as dividend income. The government's example is inserting a new holding company that then buys back the shareholder's shares.
Purchase-of-own-shares relief will be modernised, including for staged, company-funded exits on family succession. Demerger relief will be widened and anti-avoidance rules updated. Ordinary dividends, sales to third parties and dividend and CGT rates are not affected. Separately, proposed new reporting of company payments to participators will not go ahead for now.
Selling a business and founders
The Business Asset Disposal Relief lifetime limit falls from £1 million to £500,000 for disposals on or after 6 April 2027. The 18% BADR rate is unchanged, and higher-rate taxpayers pay 24% on gains above the limit. Special rules cover contracts entered into before 6 April 2027 that have not completed by then, and some share reorganisations and exchanges. Investors' Relief keeps its £1 million limit.
A new Founders' Relief will charge CGT at 10% on up to £10 million of lifetime gains for qualifying founders and early investors in high-growth, innovative companies, for disposals from 6 April 2027. Any BADR or Investors' Relief claimed from that date uses up part of the limit. The consultation closes on 30 November 2026. Gift holdover relief on qualifying shares will also be modernised from 6 April 2027.
Homeowners: the High Value Council Tax Surcharge
From April 2028, owners of homes in England worth £2 million or more (at a 2026 valuation) will pay an annual surcharge on top of council tax. The owner pays it, not the occupier. Charges will rise with CPI from 2029/30.
- £2m–£2.5m: £2,500
- £2.5m–£3.5m: £3,500
- £3.5m–£5m: £5,000
- £5m and above: £7,500
A 100% premium applies to homes left empty and unfurnished for 12 months or more. Deferral is available in some circumstances, such as low household income or disability. ATED charges for homes held in companies rise by 3.5% from 1 April 2027.
Pensions, inheritance tax and families
- Pensions in inheritance tax: from 6 April 2027, most unused pension funds and death benefits form part of the estate for inheritance tax. This is already in Finance Act 2026. New technical changes will let a prospective personal representative ask the scheme to pay the tax due.
- Two-year rule removed: tax-free death benefits will no longer become taxable just because they are paid more than two years after the scheme learns of the death. This applies to payments on or after 28 October 2026.
- Excess lump sum death benefits will be taxed on beneficiaries at their marginal rate under a new standalone process.
- Defined benefit surplus: from 6 April 2027, schemes will be able to pay surplus directly to members, taxed as pension income where the conditions are met.
- Trusts: new rules stop certain liabilities funded with value from a beneficiary's own estate from reducing inheritance tax on trust property. They apply to deaths and chargeable events on or after 28 October 2026.
No change was announced to the pension lump sum allowance. With pensions coming into the estate, now is a good time to review nominations, wills and lifetime gifting.
Pensioners: the Pension Tax Allowance
From 2027/28 the full new State Pension (£13,036.40) will exceed the £12,570 personal allowance. To stop pensioners on modest incomes facing small tax bills, a Pension Tax Allowance will apply from 2027/28 to 2029/30. If you are over State Pension age with total income up to the full new State Pension, it removes the tax (worth up to about £94 in 2027/28). It then tapers by £1 for every £3 of extra income and disappears at £13,319. It is applied automatically.
Internationally mobile and non-resident taxpayers
For people moving to or from the UK, the Budget leaves the main frameworks alone. There is no change to the Statutory Residence Test, split-year treatment, temporary non-residence, the four-year foreign income and gains regime, the Temporary Repatriation Facility, Overseas Workday Relief, residence-based inheritance tax, or the 2% non-resident SDLT surcharge. Points to note:
- Non-resident landlords face the new 24%, 44% and 49% property rates on UK rental profits.
- Overseas companies: from April 2028, distributions from non-UK companies to UK-resident shareholders will be aligned with UK-company rules, and a temporary, repayable charge will apply to loans from overseas close companies to UK-resident participators.
- Voluntary National Insurance for 2027/28 will be £3.80 a week (Class 2) and £19.05 a week (Class 3).
- Expected non-resident customers are exempted from MTD for Income Tax until further notice.
- Doctors practising abroad will be able to give evidence for serious ill-health pension lump sums where the member lives in that country.
- Trusts that briefly become UK resident because a trustee moves to the UK escape the CGT exit charge if they leave again that year or the next, from 28 October 2026.
HMRC compliance and penalties
HMRC is getting more resources and powers. From 2029/30 it expects to be able to recover established lower-value debts directly from the bank accounts of people who repeatedly fail to engage. Direct debit becomes mandatory for VAT and PAYE liabilities from April 2029. A new requirement to correct errors in returns starts on 1 April 2028. There will be a consultation on reforming offshore penalties, and the UK will join automatic exchange of real-estate information from January 2029. If anything has been left undeclared, it is better to put it right early.
Key dates
| Date | Change |
|---|---|
| 28 October 2026 | Two-year rule removed for pension death benefits; IHT trust-liability rules; trust exit charge easement |
| 29 October 2026 | Lifetime ISA withdrawal charge for over-cap homes cut to 20% |
| 30 November 2026 | Founders' Relief consultation closes |
| 1 January 2027 | Main rate first-year allowance rises to 50% |
| 1 April 2027 | ATED charges rise 3.5% |
| 6 April 2027 | Savings and property rates 24/44/49%; BADR limit £500,000; Founders' Relief; pensions in IHT; Pension Tax Allowance; £3,000 trading allowance; 35p higher mileage rate |
| 1 April 2028 | Requirement to correct errors in returns |
| April 2028 | Distributions reform; High Value Council Tax Surcharge; £2,500 expenses threshold removed |
| April 2029 | More regular Self Assessment payments; First Time Buyer ISA; direct debit for VAT and PAYE |
| 2029/30 | HMRC direct recovery of lower-value debts (expected) |
Frequently asked questions
Has income tax gone up in Budget 2026?
Main rates and the personal allowance are unchanged for 2027/28. Tax on savings and property income rises to 24%, 44% and 49% from 6 April 2027.
Is the cash ISA limit being cut?
No. The cash ISA limit stays at £20,000 from April 2027, and a new incentive for first-time Stocks and Shares ISA investors is being developed.
Should I sell my business before 6 April 2027?
Until then, up to £1 million of qualifying gains can benefit from BADR; afterwards the limit is £500,000. Contracts exchanged before but completed after that date are subject to special rules, so take advice on timing.
Who pays the new "mansion tax"?
Owners of homes in England worth £2 million or more pay it from April 2028, at £2,500 to £7,500 a year. Empty and unfurnished homes face a 100% premium.
Will my pension be subject to inheritance tax?
From 6 April 2027, most unused pension funds and death benefits will count towards your estate. Review your nominations and wider estate plan now.
I am moving abroad. Has anything changed for me?
The residence rules and the four-year FIG regime are unchanged. If you keep UK rental income or own an overseas company and may be UK resident, the new rates and the distributions reform may affect you.
Official sources
- Budget 2026 (Red Book), HM Treasury
- Budget 2026: Overview of tax legislation and rates (OOTLAR), HMRC
- Modernisation of the UK's distributions framework: factsheet
- High Value Council Tax Surcharge
- Pension Tax Allowance explainer
Disclaimer: this article is general information, not personal tax advice. It reflects Budget documents published on 28 October 2026, and details may change as legislation progresses.
