Chancellor of the Exchequer John Healey presented his first Budget on 28 October 2026, promising ‘Breathing Space now, Hope for the Future’.
Alongside the continued freeze on Income Tax thresholds, taxes on property and savings income will rise next year. The Budget extended the VAT cut on domestic electricity and the 5p Fuel Duty cut to July 2027 and announced a £100 Household Energy Payment this winter for households in Council Tax bands A to D in England. For the high street, the Small Business Rate Relief threshold will rise so that a further 70,000 retail, hospitality and leisure businesses pay no business rates.
Mr Healey said that ‘my choice in the Budget today is to give families and businesses some breathing space now, and to begin the radical reform of energy to reduce bills in the future’.
Personal Tax
Tax bands and rates
The basic rate band remains at £37,700, with the higher rate threshold remaining at £50,270. The additional rate threshold remains at £125,140. The freeze of these thresholds until 5 April 2031 is unchanged.
National Insurance contributions (NICs) thresholds and limits are unchanged up to 5 April 2031 as well.
Scottish residents
The tax rate on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income.
The rates and bands for 2027/28 will be announced in the Scottish Budget. Scottish taxpayers are entitled to the same Personal Allowance as individuals in the rest of the UK.
Welsh residents
Since April 2019, the Welsh Government has had the right to vary the rates of Income Tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2026/27 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. This will continue for 2027/28 subject to the Welsh Budget.
Personal Allowance
The Income Tax Personal Allowance is fixed at the current level of £12,570 and will remain frozen until 5 April 2031. It tapers away for incomes over £100,000, disappearing completely at £125,140.
Married Couple’s Allowance and Blind Person’s Allowance will rise from April 2027 by the CPI rate for September 2026 of 3.5%.
Property income
The rates of Income Tax applicable to property income will increase by 2% from the previous rates announced at Budget 2025. The separate tax rates for property income from 2027/28 are:
- 24% for basic rate taxpayers
- 44% for higher rate taxpayers
- 49% for additional rate taxpayers.
The government has also legislated to allow the Scottish and Welsh governments to set their own rates of taxation for property income for 2027/28. It remains to be seen whether either government decides to do so.
Savings income
From 6 April 2027, the previously announced 2% increase in the applicable tax rates increases by a further 2%. The basic rate will be 24%, the higher rate will be 44% and the additional rate will be 49%.
Tax on dividends
The £500 Dividend Allowance is retained for 2027/28.
The rates applicable to dividend income above the allowance will be unchanged:
- 10.75% for basic rate taxpayers
- 35.75% for higher rate taxpayers
- 39.35% for additional rate taxpayers
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Income Tax ordering rules
As announced at Budget 2025, the Income Tax ordering rules will change from 6 April 2027. The Personal Allowance will be deducted from employment, trading or pension income first. Currently, individuals can choose which income the allowance is offset against.
Pension tax limits
Pension Tax Allowance
The government will introduce a Pension Tax Allowance from 6 April 2027. It will initially be available for tax years 2027/28 to 2029/30.
The allowance ensures that pensioners whose total income is up to the value of the full new State Pension do not pay Income Tax. The Pension Tax Allowance will operate as a tax reducer at 20% of the value of the allowance.
The full tax allowance will effectively be the value of the new State Pension at £13,037. This will be tapered away where income exceeds that level, so that it is removed for income of £13,319 or more.
For tax years 2028/29 and 2029/30, the allowance will be uprated in line with the full annual value of the new State Pension.
Trading Allowance
From 6 April 2027, the Trading Allowance will increase from £1,000 to £3,000. This provides relief for trading and miscellaneous income.
Individual Savings Accounts
ISA limits will remain frozen until 5 April 2031.
From April 2027, the previously announced reduction in the cash ISA limit will not happen, and the limit will remain at £20,000 for all savers 18 years old or over. The government will work with industry to explore a new ISA incentive for people investing in a stocks and shares ISA for the first time.
A new First-Time Buyer ISA will be launched in April 2029. It will replace the Lifetime ISA for new savers. It will provide a 25% bonus on the final account balance up to a maximum of £20,000, paid on withdrawal, towards a purchase of a first home costing up to £450,000.
Existing Lifetime ISA holders will be able to continue contributing to and using their accounts under the current rules. There will also be an immediate reduction in the withdrawal charge for purchases of properties above the Lifetime ISA property cap from 25% to 20%.
Self Assessment payments on account
From April 2029, taxpayers who make payments on account will be required to make more regular in-year payments towards their final tax bill. The payments will be automated and eligible taxpayers will be able to choose to pay through Pay As You Earn (PAYE).
Making Tax Digital
The following groups will be exempted from MTD until further notice:
- those eligible for qualifying care relief
- non-UK resident foreign entertainers and sportspeople
- expected non-resident customers
Employment
National Insurance contributions
Employees
Employee and employer rates, and the point at which employers become liable to pay NICs on an individual employee’s earnings, remain unchanged for 2027/28 and will do so until 5 April 2031.
The self-employed
The rates of Class 4 self-employed NICs will remain at 6% and 2%.
Other NIC points
The government will increase the Lower Earnings Limit (LEL) from 2027/28. For those paying voluntarily, Class 3 NICs will increase for 2027/28.
The LEL will be £6,916 per annum (£133 per week). The Class 3 rate will be £19.05 per week.
The remaining NIC limits and thresholds will, as previously announced, be maintained at current levels until 5 April 2031.
National Living Wage and National Minimum Wage
From April 2027, the National Living Wage rises in line with the recommendation of the Low Pay Commission to £13.21 per hour for those aged 21+, with increases for younger workers and apprentices with the minimum rate £8.31.
Taxable benefits for company cars
As previously announced, company car tax rates increase by 1% from 2027/28 for zero and low emission cars, with zero-emission cars taxed at 5%. Increases are published some years in advance, to provide certainty over a typical company car ownership cycle.
Benefits in Kind
As previously announced, reporting benefits in kind via payroll will become mandatory for specified benefits from April 2027.
Employee share schemes
The government will introduce legislation to make changes to the Company Share Option Plan (CSOP), referred to as “EMI2”, and Enterprise Management Incentives (EMI) schemes:
- the CSOP individual option limit will be increased to £120,000
- the interaction between the CSOP and EMI individual options limits will be removed
- the CSOP exercise period will be extended to 15 years
- the period for certain tax-advantaged and non-tax advantaged shares and share options reserved by third parties to be excepted from the disguised remuneration rules will also be extended to 15 years
- the exception for Employee Ownership Trusts (EOTs) in the EMI rules will be extended to companies arranging to be controlled by an EOT
- the EMI exercise window following disqualifying events will be extended to 180 days.
The changes will take effect from 6 April 2027.
Image rights payments
The government will introduce legislation to clarify that image rights payments related to an employment are treated as taxable employment income, subject to Income Tax and NICs.
The changes will take effect from 6 April 2028 rather than 6 April 2027 as previously announced.
Income Tax: certificate of sponsorship fee and immigration skills charge
The government will introduce legislation to exempt from Income Tax an employer’s payment of a fee for a certificate of sponsorship or an immigration skills charge, which employers are required to pay when sponsoring a worker under the Skilled Worker route. The changes will apply immediately.
Approved Mileage Allowance Payments and Self-Employed simplified mileage rates
The government had previously announced that Approved Mileage Allowance Payments and simplified mileage rates for business mileage up to 10,000 would be increased from 45p per mile to 55p from 6 April 2026.
The government has now announced that for business mileage above 10,000 miles the rates will be increased from 25p per mile to 35p from 6 April 2027.
Reform of Benchmark Scale Rates and Overseas Scale Rates
The government will reform and simplify Benchmark Scale Rates (BSRs) and Overseas Scale Rates (OSRs), which are used by employers to reimburse their employees for domestic and overseas travel and subsistence expenses without the need to check receipts.
BSRs will be modernised to better reflect current subsistence costs. The OSRs will be simplified replacing the more than 200 destination-specific OSRs with a simplified tiered approach that links to the updated BSRs.
This will be implemented from 6 April 2028.
Reforming how taxpayers claim for employment expenses
The government will remove the £2,500 Income Tax Self Assessment expenses threshold from April 2028, allowing more taxpayers to claim tax relief on non-reimbursed expenses through PAYE.
This change will simplify the process for taxpayers by removing the need to enter Self Assessment solely to claim employment expenses, and ensure more tax relief claims are subject to evidence before relief is issued.
Capital Taxes
Capital Gains Tax
The Capital Gains Tax (CGT) rates and annual exemption remain unchanged for 2027/28.
Business Asset Disposal Relief
The rate will remain at 18%. For qualifying disposals made on or after 6 April 2027, the lifetime limit will be reduced from £1 million to £500,000. There will be special provisions applied to contracts entered into before 6 April 2027 but not completed, as well as certain share reorganisations and exchanges that have not completed by 6 April 2027.
Founders’ Relief
The government is launching a consultation for a new CGT relief for founders of and significant early investors in high-growth, innovative UK companies. Founders’ Relief will take effect for qualifying disposals made on or after 6 April 2027.
The relief will apply a 10% CGT rate to qualifying disposals of shares with a lifetime limit of £10 million of gains per individual.
The consultation seeks views on how the proposed individual, company and growth and innovation qualifying conditions will work in practice.
Inheritance Tax
Inheritance Tax nil rate bands
The nil rate bands will continue to be frozen until 5 April 2031.
Agricultural Property Relief and Business Property Relief
For 2027/28, agricultural and business property will continue to benefit from the 100% IHT relief up to a limit of £2.5 million. The limit is a combined limit for both agricultural and business property. Such property in excess of the limit will benefit from a 50% relief.
There may be a further £2.5 million allowance for trusts in certain situations but the rules are complex.
The £2.5 million limits for both individuals and trusts will be frozen until 5 April 2031.
Other Matters
High Value Council Tax Surcharge
The Budget confirmed that, from April 2028, residential properties valued at £2 million or more will be liable to an additional charge, the High Value Council Tax Surcharge.
Electric Vehicle Excise Duty
From 1 April 2028, the Electric Vehicle Excise Duty will apply to Battery Electricity Vehicles (BEVs), Plug-in Hybrid Electric Vehicles (PHEVs) and Hydrogen Fuel Cell Electric Vehicles (HFCEVs). The rates of tax will be 3p per mile for BEVs and HFCEVs and 1.5p per mile for PHEVs.
As always, our tax team are on hand to assist with any tax planning queries that you may have - either as a result of this year's budget announcements or on any other matter. Please contact us on tax.team@shorts.uk.com and a member of our team will be in touch.
Mark Trevenna
As a Private Client Senior Manager at Shorts and Chartered Tax Adviser (CTA), Mark regularly advises individuals and trustees on tax compliance and improving the tax efficiencies of the trusts and their estates. Mark has over 17 years of experience advising clients on Inheritance Tax and Capital Gains Tax.
View my articlesTags: Autumn Budget 2026
