Budget 2026 Update

In Chancellor John Healey’s first Budget, he announced early on that there would be no ‘broad-based tax rises’.  While there are no increases to headline income tax, national insurance and VAT rates, a number of smaller tax measures have been announced and we note in particular, the increase in income tax for savers and landlords from next year.  Below is our summary of the key tax announcements.

Payments on Account

From April 2029, taxpayers who already make Payments on Account for Income Tax Self Assessment (ITSA), will be required to make smaller, more regular contributions towards their tax bill with the aim of tax being paid closer to the time when the related income is earned.  We were expecting this change over the coming years given the new Making Tax Digital (MTD) reporting requirements for landlords and the self-employed.

Trading Allowance

Individuals operating very small self-employed businesses are currently eligible for a £1,000 trading allowance, which means that income up to this amount does not need to be reported on tax returns, nor any tax paid on it.  This allowance increases to £3,000 from 6 April 2027.

Mileage Rate

In a surprise announcement in May 2026, the government announced that the mileage rate for employees and the self-employed who use their vehicles for work would temporarily increase from 45p to 55p per mile for the first 10,000 miles and this was backdated to 6 April 2026.  The increase has now been made permanent and furthermore, the rate for mileage above 10,000 is being increased from 25p to 35p per mile from 6 April 2027.

Business Disposals

The lifetime limit for those disposing of businesses and eligible for Business Asset Disposal Relief (BADR) is being reduced from £1 million to £500,000 from April 2027.

While this relief is being scaled back, a new Founders’ Relief to introduce a 10% capital gains tax rate on up to £10 million of lifetime gains for individuals building and scaling high-growth, innovative UK companies, is being introduced from April 2027.

UK Online Marketplace Sellers and VAT

In 2021, reforms were introduced to ensure that overseas sellers using online marketplaces to sell goods in the UK were registered for VAT.  From October 2027, this will apply to UK online marketplace sellers too and will be implemented by making the marketplaces (e.g., eBay, Amazon etc) responsible for collecting VAT on sales if a seller’s sales through their marketplace exceed £90,000 in a 12 month period.

Business Rates

From April 2027, the Small Business Rates Relief (SBRR) threshold for retail, hospitality and leisure businesses will increase to £18,000 from the current £12,000, which will take an additional 70,000 small businesses in these sectors out of the business rates system.  For those that remain in the business rates system, the rates will be frozen in 2027-28 and 2028-29 for all retail, hospitality and leisure businesses.

National Living Wage and Minimum Wage Increases

From April 2027 the National Living Wage and National Minimum Wages will increase as follows:

Age	From 1 April 2027	Current Rate
21 and over	£13.21	£12.71
18-20	£11.27	£10.85
Under 18	£8.31	£8.00
Apprentice	£8.31	£8.00

Income Tax on Savings and Property Income

Last year’s Budget already increased income tax on savings and property income by 2% across all tax bands from April 2027.  It has now been announced that these rates will now be increased by a further 2% from that date.  The income tax rates on savings and property income will therefore increase as follows:

	From 6 April 2027	Current Rate
Basic Rate	24%	20%
Higher Rate	44%	40%
Additional Rate	49%	45%

ISAs

In the November 2025 Budget it was announced that the cash ISA limit would be reduced from £20,000 to £12,000.  The current Budget cancelled that cut and the cash ISA limit will remain in line with the overall annual ISA subscription limit of £20,000.

A new starter ISA for those investing in a stocks and shares ISA for the first time is being explored, though this is yet to be developed.

Support for first-time buyers includes a new Your First Home scheme and First Time Buyer ISA. The Your First Home scheme will provide 20% equity loans from April 2027 to first-time buyers who would otherwise be unable to buy a property.

From April 2029, a new First Time Buyer ISA will be introduced, helping savers build a deposit for their first home. It will allow contributions of up to £4,000 a year with a 25% government bonus, payable when funds are withdrawn for a qualifying purchase of a first home costing up to the value of £450,000. The new product will have no upper age restriction.

New Pension Tax Allowance

From April 2027 a new pension allowance will be introduced for pensioners with an income at or under the full new state pension.  The allowance will match the full new state pension (expected to be £13,036 in 2027-28) and is being introduced to avoid the burden of pensioners paying small amounts of tax if their state pension exceeds the £12,570 personal allowance.