2026 Budget Summary

Chancellor John Healey delivered his first Budget on 28 October 2026. While there were no increases to the headline rates of Income Tax, National Insurance or VAT, several important changes will affect savers, landlords, pensioners, employees and business owners over the coming years.

Some of the biggest changes will not take effect immediately. April 2027 will bring changes to savings and property income tax, business allowances and payroll reporting. Further changes to Self Assessment payments, salary sacrifice and electronic invoicing are planned for 2029.

There is also some positive news, particularly for ISA savers, first-time buyers and small businesses.

Here is a breakdown of the main announcements, who they affect and what you should consider doing now.

Savers and landlords: higher tax from April 2027

One of the biggest changes is a further increase in Income Tax on savings interest and rental property income.

The November 2025 Budget had already announced a two-percentage-point increase. The October 2026 Budget adds a further two percentage points, taking the total increase to four percentage points compared with the original rates.

Tax band: Basic rate | Wages and pensions: 20% | Savings and property income: 24%

Tax band: Higher rate | Wages and pensions: 40% | Savings and property income: 44%

Tax band: Additional rate | Wages and pensions: 45% | Savings and property income: 49%

The changes to savings income apply across the UK. The separate property income rates apply in England, Wales and Northern Ireland, with arrangements for devolved tax powers.

The Personal Savings Allowance remains unchanged:

• Basic-rate taxpayers: £1,000.
• Higher-rate taxpayers: £500.
• Additional-rate taxpayers: £0.

The £5,000 starting rate for savings also remains available for eligible people with lower incomes.

A change to how your income is taxed

From April 2027, the order in which certain tax allowances and reliefs are applied will change.

The general order of income taxation will be:

1. Income that is not property, savings or dividend income, such as wages, pensions and trading income.
2. Property income.
3. Savings income.
4. Dividend income.

Allowances and reliefs must generally be applied to other income before property, savings and dividend income.

This could increase the amount of tax payable by people with several different income sources.

Frozen tax thresholds: fiscal drag continues

The personal allowance remains £12,570 and the higher-rate threshold remains £50,270 for England, Wales and Northern Ireland.

These thresholds are frozen until 5 April 2031.

When wages increase but tax thresholds remain unchanged, more people can find themselves paying tax at higher rates. This is known as fiscal drag.

High Income Child Benefit Charge

The existing thresholds remain unchanged:

• The charge starts when the higher earner's adjusted net income exceeds £60,000.
• All Child Benefit is effectively clawed back when adjusted net income reaches £80,000.

It is the higher earner's individual income that matters, not the combined household income.

Practical tip: Pension contributions can reduce adjusted net income and may help families avoid or reduce the High Income Child Benefit Charge. Eligible Gift Aid donations can also reduce adjusted net income.

The good news: ISAs and first-time buyers

Cash ISAs

There is good news for savers. The Government has reversed the previously planned reduction to the cash ISA allowance.

The annual cash ISA allowance will remain at £20,000 from April 2027.

Other allowances remain:

• Overall annual ISA allowance: £20,000.
• Junior ISA allowance: £9,000 per child.

Interest earned within an ISA remains tax-free, making ISAs particularly valuable as savings tax rates increase.

A new First-Time Buyer ISA from April 2029

A new First-Time Buyer ISA will be introduced in April 2029, replacing the Lifetime ISA for new savers.

• Contributions of up to £4,000 per year.
• A 25% Government bonus.
• A maximum lifetime bonus of £20,000.
• A qualifying first-home purchase price of up to £450,000.
• No upper age restriction.

The bonus will be calculated on the final account balance when funds are withdrawn for an eligible first-home purchase.

Existing Lifetime ISA holders will be able to continue using and contributing to their accounts under the existing rules.

The new First-Time Buyer ISA is not yet available, so anyone considering opening a savings account should check the current Lifetime ISA rules and the forthcoming product arrangements.

Lifetime ISA withdrawal charge

From 29 October 2026, the withdrawal charge on a Lifetime ISA used towards an otherwise qualifying first home costing more than £450,000 reduces from 25% to 20%.

This change protects the value of the individual's own contributions, although the Government bonus is still effectively recovered. The standard 25% charge continues to apply to other unauthorised withdrawals.

Side hustles and small businesses: a bigger tax-free allowance

There is some welcome news for people earning additional income through small trading activities.

From 6 April 2027, the trading allowance increases from £1,000 to £3,000.

This means individuals can earn up to £3,000 in qualifying trading or miscellaneous income without paying Income Tax on that income.

Examples include:

• Selling handmade crafts.
• Small online businesses.
• Other occasional trading activities.

The Self Assessment reporting threshold for this trading income will also increase to £3,000.

If your gross trading income exceeds £3,000, you can generally choose to deduct the £3,000 trading allowance instead of claiming actual business expenses. You cannot claim both the trading allowance and actual expenses against the same income.

The separate £1,000 property allowance remains unchanged.

Remember that other reasons for completing a Self Assessment return may still apply.

Self-employed people and business owners

More regular Self Assessment tax payments from April 2029

One of the biggest changes for self-employed people and landlords concerns when Income Tax is paid.

Currently, people who are required to make payments on account generally pay twice a year, in January and July, based on the previous year's tax bill.

From April 2029, those who currently make payments on account will move to smaller, more regular payments throughout the tax year in which the income is earned.

Key points:

• The changes affect Self Assessment taxpayers who are required to make payments on account, not everyone who submits a tax return.
• Payments will be automated, for example through Direct Debit.
• Payments will initially be based on the previous year's tax liability.
• Taxpayers will be able to update their payments online if their circumstances change.
• People with sufficient PAYE income from employment or a private pension can choose to pay through their tax code instead.
• Annual Self Assessment tax returns will still be required.

The Government has not yet finalised how frequently payments will be collected.

There will also be a transition year in 2029/30, when taxpayers will need to settle their previous year's tax while beginning the new payment arrangements.

What should business owners do? Start putting money aside regularly for tax rather than relying on the traditional January and July payment dates. This will help avoid cash-flow problems when the new arrangements begin.

Selling your business? Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) allows qualifying business owners to pay a reduced rate of Capital Gains Tax when selling qualifying business assets.

The lifetime limit reduces from £1 million to £500,000 from 6 April 2027. The qualifying rate is 18%.

The maximum potential tax saving compared with the main 24% CGT rate will therefore fall to £30,000 per person.

A new Founders' Relief will also be introduced from April 2027. This offers a 10% Capital Gains Tax rate on up to £10 million of qualifying lifetime gains for eligible founders of high-growth, innovative companies.

This is subject to specific qualifying conditions, and detailed rules are being developed.

Anyone considering selling a business should seek professional advice before agreeing a sale, as the timing and structure of a disposal can have significant tax consequences.

Capital allowances: changes for business investment

The Budget introduces two important changes to capital allowances.

First-year allowance: The main rate First Year Allowance increases from 40% to 50% for qualifying expenditure incurred from 1 January 2027.

Writing-down allowance: The main rate writing-down allowance reduces from 14% to 12% from April 2027.

The new 12% rate applies from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.

These changes relate to qualifying plant and machinery expenditure and should not be confused with the separate rules for business cars.

Businesses considering significant equipment purchases should review the timing and eligibility of expenditure with their accountant.

Making Tax Digital

Making Tax Digital for Income Tax continues to be introduced in stages.

The existing timetable brings taxpayers with qualifying gross income over £50,000 into the system from April 2026, followed by those with qualifying income over £30,000 from April 2027.

The Budget also confirms that taxpayers joining in April 2027 will not receive late submission penalty points for their first four quarterly updates during the 2027/28 tax year.

This is a temporary first-year easement, not an exemption from keeping records or submitting quarterly updates.

Some later rollout groups have also been deferred until further notice.

Employers: Benefits in Kind move into payroll

Employers need to prepare for changes to the way employee benefits are reported.

From 6 April 2027, mandatory payrolling will apply to:

• Company cars.
• Company car fuel.
• Company vans.
• Van fuel.
• Employer-provided medical benefits, including private medical insurance.

These benefits will need to be reported through payroll software and Real Time Information (RTI).

Most remaining benefits in kind will move to mandatory payrolling from April 2028.

Employers should review their payroll systems and procedures ahead of these changes.

VAT e-invoicing from April 2029

VAT-registered businesses will need to issue VAT invoices in a specified electronic format from 1 April 2029.

The Government has published an implementation roadmap, with further details on the technical and policy requirements expected by April 2028.

Businesses should start considering whether their existing accounting and invoicing software will support the new requirements.

Pensions and Inheritance Tax

Pensions brought into Inheritance Tax

From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of an individual's estate when calculating Inheritance Tax.

This is a previously announced measure which is already legislated for.

Personal representatives will generally be responsible for reporting and paying any Inheritance Tax due on these pension benefits. Certain benefits are excluded, including qualifying death-in-service benefits.

The rules are complex, so pension holders should review their pension arrangements and estate planning.

Inheritance Tax thresholds

The main Inheritance Tax thresholds remain frozen until April 2031.

Allowance: Nil-rate band | Amount: £325,000

Allowance: Residence nil-rate band | Amount: £175,000

The residence nil-rate band may be available when passing a qualifying home to direct descendants, subject to the relevant conditions.

The Business and Agricultural Property Relief reforms also provide a combined £2.5 million allowance for qualifying assets, with unused allowance potentially transferable to a surviving spouse or civil partner.

Pension death benefits: the two-year rule

The Budget removes the two-year rule for certain pension lump-sum death benefits.

This means beneficiaries will no longer be taxed solely because qualifying benefits are paid more than two years after the member's death.

The change applies to payments made on or after 28 October 2026.

This is separate from the Inheritance Tax changes affecting unused pension funds.

Salary sacrifice and pension contributions

A previously announced change will affect pension salary sacrifice arrangements from April 2029.

The National Insurance exemption will be capped at £2,000 a year for employee pension contributions made through salary sacrifice.

Contributions above £2,000 will attract employee and employer National Insurance.

Pension salary sacrifice arrangements can continue; Income Tax relief on pension contributions remains unchanged, subject to the usual rules; and traditional employer pension contributions remain exempt from National Insurance.

Employers operating salary sacrifice schemes should review their payroll arrangements before April 2029.

Property: the Mansion Tax and Stamp Duty

High Value Council Tax Surcharge

The new High Value Council Tax Surcharge, commonly referred to as the Mansion Tax, will come into effect in April 2028.

It applies to owners of residential properties in England valued at £2 million or more, based on the April 2026 valuation exercise.

Property value: £2m–£2.5m | Annual surcharge: £2,500

Property value: £2.5m–£3.5m | Annual surcharge: £3,500

Property value: £3.5m–£5m | Annual surcharge: £5,000

Property value: £5m and above | Annual surcharge: £7,500

 The annual charge is payable by the property owner rather than the tenant, in addition to existing Council Tax.

A 100% premium will apply to properties left substantially unfurnished and unoccupied for 12 months or more.

There will also be a deferral scheme for qualifying homeowners who meet one of the following conditions:

• Annual household income of £35,000 or less.
• Capital savings of £16,000 or less.
• A household member meets the relevant disability criteria.

Deferred payments will become payable when ownership changes, with interest added.

Stamp Duty on rental properties

The Government has confirmed that rent paid under assured tenancies in England will not be subject to Stamp Duty Land Tax.

This change is effective retrospectively from 1 May 2026.

What hasn't changed?

The Budget left several important tax rates and allowances unchanged:

• Headline Income Tax rates on earnings.
• National Insurance rates on earnings.
• VAT headline rates.
• The £90,000 VAT registration threshold.
• Corporation Tax headline rates, including the 25% main rate.
• The £500 dividend allowance.
• The £3,000 annual Capital Gains Tax exemption.
• Pension tax relief, subject to existing rules.
• The overall annual ISA allowance of £20,000.

Dividend tax rates increased in April 2026 and were not increased again in this Budget:

Tax band: Basic rate | Dividend tax rate: 10.75%

Tax band: Higher rate | Dividend tax rate: 35.75%

Tax band: Additional rate | Dividend tax rate: 39.35%

The Government also confirmed that there would be no new wealth tax announced in this Budget.

Key dates: what happens and when?

Date: 1 January 2027 | Main change: Main rate First Year Allowance increases to 50%

Date: 6 April 2027 | Main change: Higher tax rates on savings and property income

Date: 6 April 2027 | Main change: New income tax allowance ordering rules

Date: 6 April 2027 | Main change: Trading allowance increases to £3,000

Date: 6 April 2027 | Main change: Business Asset Disposal Relief lifetime limit reduces to £500,000

Date: 6 April 2027 | Main change: Pension funds brought into Inheritance Tax

Date: 6 April 2027 | Main change: Mandatory payrolling of specified benefits in kind

Date: 6 April 2027 | Main change: Main rate writing-down allowance reduces to 12% for Income Tax

Date: 1 April 2027 | Main change: Main rate writing-down allowance reduces to 12% for Corporation Tax

Date: 1 July 2027 | Main change: Temporary 5p fuel duty reduction ends

Date: April 2028 | Main change: High Value Council Tax Surcharge begins

Date: 1 April 2029 | Main change: VAT e-invoicing requirements begin

Date: April 2029 | Main change: First-Time Buyer ISA launches

Date: April 2029 | Main change: More regular Self Assessment payments begin

Date: April 2029 | Main change: £2,000 salary sacrifice NIC exemption cap begins

Date: 5 April 2031 | Main change: Current Income Tax threshold freeze is due to end

 Five practical steps you can take now

1. Review your savings. Consider making full use of your ISA allowance, particularly if you have substantial savings outside tax-free accounts.

2. Review pension contributions. Pension contributions may provide valuable tax relief and can reduce adjusted net income for certain tax calculations.

3. Plan ahead for business tax payments. If you are self-employed or a landlord, start putting money aside regularly. More frequent payments from April 2029 could change your cash-flow planning.

4. Review your business expenditure. If you are planning to invest in equipment, review the new capital allowance rules and consider the timing of qualifying purchases.

5. Review payroll and pension arrangements. Employers should prepare for mandatory payrolling of benefits in kind and the future salary sacrifice changes.

Final thoughts

The October 2026 Budget contains several changes that will affect households and businesses over the next few years.

Although there were no increases to the headline rates of Income Tax, National Insurance or VAT, the changes to savings, rental income, pension arrangements and business taxation could have a significant impact on certain individuals.

For business owners, the changes to capital allowances, payroll reporting, Self Assessment payments and electronic invoicing are particularly important.

The key is to understand what is changing, when it takes effect and whether it applies to your circumstances.

This article provides general information based on Budget 2026 announcements and official Government publications available on 12 November 2026. Some measures are subject to further legislation, consultation or detailed implementation guidance. It should not be relied upon as individual tax or financial advice. Please speak to a qualified professional about your circumstances.

Official sources

• HM Treasury – Budget 2026: https://www.gov.uk/government/publications/budget-2026-document
• HMRC – Budget 2026 tax-related documents: https://www.gov.uk/government/collections/budget-2026-tax-related-documents
• HMRC – Budget 2026 tax legislation and rates: https://www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar
• HMRC – Timely payments in Income Tax Self Assessment: https://www.gov.uk/government/publications/fiscal-events-2026-factsheets/timely-payments-in-income-tax-self-assessment-factsheet--2
• HM Treasury – First Time Buyer ISA consultation: https://www.gov.uk/government/consultations/first-time-buyer-isa-consultation/first-time-buyer-isa-consultation