Budget 2026: a flotilla of smaller measures

The Autumn Budget announced on 28 October 2026 was the new Chancellor John Healey’s first Budget. The message was one of targeted measures rather than wholesale reform.

Tax increases for businesses included a temporary three percentage point increase in the Bank Corporation Tax Surcharge, from 3% to 6%, for 15 months from January 2027, and an increase in Machine Games Duty from 20% to 25% for higher-stake gambling machines from April 2027.

For private clients the principal announcements included a further two-percentage point increase in the rates of tax on savings and property income, a reduction in the lifetime limit for Business Asset Disposal Relief (BADR) and the introduction of a new capital gains tax (CGT) relief for qualifying business founders.

With regard to internationally mobile individuals, the government has not taken the opportunity to extend the four-year foreign income and gains regime or make substantive changes to the residence-based inheritance tax regime introduced from 6 April 2025. It has, however, indicated that it will continue to assess the regimes and announced targeted measures concerning the CGT exit charge for trusts affected by trustee migration and also proposed to address the potential double taxation of investments in US LLCs and other reverse hybrid entities.

We consider the principal measures affecting private clients in further detail below.

Capital gains tax

Many advisers predicted that CGT would be the headline revenue raiser for the Chancellor in this Budget, with speculation over rate increases and relief cuts. Whilst the Chancellor has left the core framework of CGT broadly intact, the measures announced include several significant changes, together with the introduction of an entirely new relief. The reduction in the availability of BADR and the introduction of Founders’ Relief present something of a mixed message for entrepreneurs and business owners.

Business Asset Disposal Relief

BADR, formerly known as entrepreneurs’ relief, applies a reduced 18% rate of CGT to qualifying gains realised by individuals and trustees on the disposal of business assets, up to the lifetime limit. The government has announced that, for qualifying disposals made on or after 6 April 2027, the lifetime limit will be reduced from £1 million to £500,000. Although the legislation is expected to include some transitional rules for arrangements in place before 6 April 2027, the change is forecasted to raise in excess of £180 million in revenue by 2028-29 and £305 million by 2031-32.

Founders’ Relief

The government has announced it will introduce a new relief from CGT for founders and early investors who have made a significant long-term contribution to the creation and development of the UK’s most high-growth and innovative companies. From 6 April 2027, the relief will offer a reduced 10% CGT rate on up to £10 million of qualifying lifetime gains. There is a consultation underway to explore the practical application of the relief, which closes on 30 November 2026.

Gift of business assets

The government announced last year that it will make changes to the gift hold-over relief rules for qualifying shares and securities. From 6 April 2027, a wider range of company assets will be taken into account when determining the relief available on gifts of business interests. The measure is intended to remove anomalies in the current rules and improve consistency for business succession planning.

Exit charges for temporarily migrated trusts

Under the current rules, a CGT exit charge can arise where a trust ceases to be UK resident, even where its UK residence arose solely because one of its trustees moved to the United Kingdom.

The government has made a welcome amendment which will remove this unintended consequence. From 28 October 2026, no exit charge will arise where a trust becomes UK resident because a trustee moves to the UK and subsequently ceases to be UK resident in the same tax year or the following tax year.

This change recognises that a trustee’s short-term move to the UK should not expose a trust to a CGT charge simply because the trust temporarily becomes UK resident before reverting to non-UK resident status.

Gains of offshore companies attributed to UK residents: protected cell companies

The government has also announced a technical amendment to the CGT rules applying to non-resident close companies.

From 28 October 2026, the existing anti-avoidance provisions will be extended to apply appropriately to protected cell companies. The measure is intended to ensure that these structures cannot be used to fall outside the scope of the current rules.

Whilst unlikely to affect most taxpayers, the change reinforces HMRC’s continuing focus on offshore structures and the integrity of the existing CGT regime.

Capital sums in return for surrender of rights

The CGT treatment of payments received for the surrender, cancellation or loss of contractual rights has long been a source of technical complexity.

To provide greater certainty, legislation will be introduced to confirm that capital sums received under a contract in respect of the loss of rights under that contract fall within the scope of the CGT regime. The measure will take effect from 28 October 2026.

Although a relatively niche change, it should provide greater clarity for taxpayers receiving compensation or similar payments in return for giving up contractual rights.

Late filing penalties for returns for disposals of UK land

Currently, penalties for failing to submit a UK property disposal return can continue to accrue even where the disposal has subsequently been reported on a self-assessment tax return.

From 28 October 2026, this position will change. Once the disposal has been reported through self-assessment, further penalties will no longer accrue in respect of the outstanding property return. This is a sensible practical reform which recognises that continuing penalties serve little purpose where HMRC already holds the relevant information relating to the disposal.

Inheritance tax

There were no significant new inheritance tax announcements in this year’s Budget, which may come as a welcome respite following a period of substantial change. Recent reforms are either now taking effect or are due to come into force over the coming months. By way of a recap:

Business and farming property

Restrictions on Agricultural Property Relief (APR) and Business Property Relief (BPR) have already been introduced, reducing the scope of 100% relief for larger holdings. Broadly, individuals now have a combined £2.5 million allowance eligible for 100% relief across qualifying APR and BPR assets, with value above that threshold generally attracting relief at 50%. Any unused part of the £2.5 million allowance is transferable between spouses and civil partners, broadly mirroring the existing nil-rate band regime. Equivalent changes have also been introduced for relevant property trusts, significantly affecting succession planning for farming and business-owning families.

Pensions

From 6 April 2027, most unused defined contribution pension funds and death benefits will form part of the deceased’s estate for IHT purposes. Spouse and civil partner exemptions will continue to apply, but many estates that previously fell outside the inheritance tax net may face increased exposure.

There were two key important announcements in the Budget relating to how the new regime will work in practice.

The first proposed amendment will allow a prospective Personal Representative to direct pension scheme administrators to pay the inheritance tax due to HMRC when certain conditions are met. It aims to provide practical support to Personal Representatives where an estate may not have immediate funds to pay IHT before a grant of probate is obtained and ease cash flow issues associated with this problem.

The second proposed amendment will allow Personal Representatives to choose whether pension property forms part of an estate’s general component or is treated as a separate component when calculating entitlement to the reduced IHT rate of 36% where at least 10% of the estate is given to charity. This flexibility should help prevent the unintended inclusion of pension wealth within existing charitable arrangements and assist with the application of the relief to estates.

Both changes will take effect from 6 April 2027.

Nil rate band

The nil-rate band remains frozen at £325,000 and the residence nil-rate band remains frozen at £175,000, with the freeze continuing until 2031. This ‘fiscal drag’ will bring more estates into charge.

These previously announced reforms to APR, BPR and pension death benefits are expected to have a significant impact on many families and family-owned businesses, particularly where substantial value is tied up in illiquid assets. While the Chancellor made a commitment elsewhere in the Budget to support “families passing their businesses down to the next generation”, many business-owning and farming families continue to face difficult choices around funding future inheritance tax liabilities. Similarly, individuals will have needed to consider their IHT position following the change from a domicile based to a residence basis system with effect from 6 April 2025. Early succession planning is therefore likely to remain a key area of focus over the coming years.

The sole substantive inheritance tax announcement is a package of measures aimed at restricting the circumstances in which liabilities connected with settled property may reduce the value of trust assets for inheritance tax purposes.

The government has announced that Finance Bill 2026-27 will introduce a statutory framework for taking trustee liabilities into account when valuing settled property, align the treatment of trust-related liabilities with the rules applicable to personally owned assets, and extend existing debt-deduction restrictions and anti-avoidance provisions to certain trust arrangements. The changes will apply to deaths and other chargeable events occurring on or after 28 October 2026.

Trusts continue to feature prominently in discussions around long-term succession and estate planning. At present, it is not clear precisely which arrangements the government considers to give rise to unintended deductions from the value of trust property for inheritance tax purposes. Trustees, settlors and testators whose planning involves borrowing or other debt arrangements may therefore wish to review their position once draft legislation becomes available. However, given the negligible revenue expected to be raised by the measure, it appears more likely to represent a targeted integrity measure than the start of any broader review of the taxation of trusts. For now, therefore, the focus for most clients is likely to remain on adapting to the substantial inheritance tax reforms already announced rather than preparing for a further round of change.

Property matters

From 6 April 2027 the rates of income tax applicable to property rental profits will increase by 2%, and this is detailed further below.

Annual Tax on Enveloped Dwellings (ATED)

The annual ATED charges payable by companies and other corporate entities holding high-value UK residential property will increase by 3.5% from 1 April 2027.

ATED generally applies to UK residential properties valued at more than £500,000 that are owned by companies and other corporate entities, although a range of exemptions and reliefs may be available. Owners of affected properties should review the position to ensure any available reliefs are claimed or restructuring undertaken.

High Value Council Tax Surcharge (‘mansion tax’)

The government has now published its response to the consultation on the High Value Council Tax Surcharge (HVCTS). No significant changes have been made to the policy originally announced at the 2025 Budget. The surcharge will be introduced from April 2028 and will apply to residential properties in England valued at £2 million or more, with an annual charge of between £2,500 and £7,500 in addition to a property’s existing council tax charge.

The government has confirmed that liability will generally fall on the legal owner of the property, including freeholders, long leaseholders, companies and trustees. A deferral scheme will be available for certain individuals with limited means, allowing payment to be postponed until a change of ownership. Eligibility will broadly depend on income, savings or disability-related criteria.

A number of exemptions and discounts will be available, including for properties used for certain charitable purposes, social housing, diplomatic accommodation and farmhouses used in connection with working farms. Owners will generally need to apply for any available discounts.

The government has also abandoned its earlier proposal for a premium on non-UK resident owners. Instead, a 100% premium will apply to properties that are substantially unfurnished and have been unoccupied for at least 12 months. Further details on the operation of the regime, including exemptions, discounts and deferred payment arrangements, are expected in secondary legislation. Local authorities are expected to begin issuing HVCTS bills from March 2028.

Owners of high-value trust properties should consider the potential annual surcharge and whether any reliefs or deferral arrangements may be available. Estates and trusts holding residential property valued at more than £2 million should consider the position and factor the HVCTS into future administration and succession planning.

Stamp Duty Land Tax (SDLT)

The Budget does not introduce any changes to the standard residential SDLT rates or thresholds. There is one notable change introduced an anti-avoidance rule limiting group relief from 29 October 2026 where the purchasing company leaves the group within the usual three year clawback period and the vendor is wound up.

Wealth tax

There was no announcement regarding the introduction of a wealth tax.

Prior to the Budget, there had been speculation that the Government might introduce a tax on individuals’ net wealth, such as property, investments and other assets, or make further changes affecting high net-worth individuals. However, no such measures were announced. Instead, the Government appears to have continued its approach of targeting specific asset classes, including high-value residential property through the HVCTS, rather than introducing a broader annual wealth tax.

Sovereign wealth funds

The government has published a further consultation on proposals to reform the taxation of foreign sovereign investors. From 1 January 2029, it is proposed that the existing sovereign immunity regime would be replaced by a new statutory regime, bringing certain UK property income and gains of foreign sovereign investors within the scope of UK taxation. The proposals would also provide qualifying investors with bespoke access to the UK Real Estate Investment Trust (REIT) regime, allowing them to benefit from a reduced 15% tax rate on property income distributions. The consultation closes on 20 January 2027, with further legislative detail expected in due course.

Income tax

The Budget introduces several income tax measures, increasing the tax burden on some taxpayers whilst providing targeted relief for others.

Savings income and ISAs

From 6 April 2027, income tax on savings income will increase by a rate of 2% across all tax bands. This increase is in addition to the 2% increases announced with the same timing in the previous budget. As a result, income tax on savings interest will be charged at 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers. This measure is likely to have the greatest impact on pensioners and cash-reliant savers.

The government has, however, abandoned the proposal announced in the 2025 Budget to restrict the amount that individuals under the age of 65 could pay into cash ISAs from 6 April 2027. Accordingly, the annual ISA subscription limit will remain at £20,000.

In addition, the government has confirmed that it is exploring a new investment incentive for first-time investors in stocks and shares ISAs to encourage greater participation.

The government has also announced plans to introduce a new first time buyer ISA from 6 April 2029. The product will replace the Lifetime ISA (LISA) for new savers and provide a 25% government bonus, paid on withdrawal, towards the purchase of a first home worth up to £450,000. From midnight on 29 October 2026, the government will also reduce the withdrawal charge from 25% to 20% for existing LISA holders who use their savings to purchase a first home above the £450,000 property price cap. The charge for unauthorised withdrawals will remain at 25%.

Property rental income

The government will increase the rates of income tax applying to property income by 2% from 6 April 2027. This increase is in addition to the 2% increases announced with the same timing in the previous budget. The rate of tax for basic, higher and additional rate taxpayers will be 24%, 44% and 49% respectively.

This measure will further increase the tax burden on individual landlords, who have already faced a series of recent reforms affecting the residential property sector. For those with significant property portfolios, the increased rates may prompt a review of existing ownership structures and wider succession planning arrangements. Some landlords may also reconsider the viability of continuing to hold investment properties, which could place further pressure on the supply of rental accommodation if properties are withdrawn from the market.

Income tax self-assessment

The government has also announced plans to reform the payment timetable for income tax Self-Assessment taxpayers who make payments on account. From April 2029, affected taxpayers will be required to make smaller, more frequent payments towards their final tax liability rather than settling larger amounts twice yearly.

The reform is intended to spread tax payments more evenly across the year, reducing taxpayers’ reliance on larger periodic payments under the current system. This may assist taxpayers and advisers in managing tax liabilities on an ongoing basis throughout the year, though may also increase the administrative burden associated with tax payments.

Pensions tax allowance

The government has announced that a new Pension Tax Allowance (PTA) will apply automatically from 6 April 2027 until 5 April 2030. The PTA is intended to ensure that individuals over State Pension age with income up to the value of the full new State Pension will not pay income tax. This is intended to address the interaction between the frozen personal allowance (which remains at £12,570 until April 2031) and increases in the state pension under the triple lock. The allowance will be tapered (gradually withdrawn) for pensioners with income above the full new state pension amount. Further details are expected in the Finance Bill 2026-27.

Registered pension schemes

The Budget also confirms that with effect from 28 October 2026, beneficiaries will no longer be subject to income tax solely because a lump sum death benefit from a deceased person’s registered pension scheme is paid more than two years after death. This removes a longstanding issue whereby administrative delays may result in beneficiaries losing access to the more favourable tax treatment that would otherwise have applied had the benefits been paid within the two-year period. This announcement is most relevant if members of registered pension schemes die before the age of 75, since beneficiaries are generally subject to income tax on pension benefits received if a scheme member has died after the age of 75.

Previously announced pension measures remain unchanged. By way of a reminder, from April 2029 the National Insurance contribution (NIC) exemption for employee pension contributions made through salary sacrifice arrangements will be restricted so that only the first £2,000 of contributions each tax year will remain free of NICs. Income tax relief on pension contributions and the NIC treatment of employer pension contributions will also remain unchanged.

International individuals

For international and internationally mobile clients, the announcements made were relatively simple compared to previous Budgets.

The Foreign Income and Gains regime

There were no changes announced to the existing Foreign Income and Gains (FIG) regime introduced from 6 April 2025. Under this regime an individual with at least ten consecutive years of non-residence can access the FIG regime and claim relief on qualifying foreign income and gains during their first four UK-resident tax years.

Despite hopes that these time limits could be extended to become more attractive to individuals considering relocation to the UK, no changes have yet been announced. Instead, the government has made a general commitment that it “will continue to assess whether the residence-based regime is striking the right balance between international competitiveness, fairness and support for the public finances”. This hopefully signals an intention to review the regime.

US LLCs reform

A significant international tax measure announced alongside the Budget concerns UK resident individuals who invest through certain overseas entities that are treated differently for tax purposes in other jurisdictions, including United States Limited Liability Companies (US LLCs) and other reverse hybrid entities. This change may also apply to other entities such as US corporations taxed transparently in the US, Jersey LLCs and French Societes Civiles Immobilieres. The government has acknowledged that these differences can result in unintended double taxation for affected individuals.

According to the consultation, reverse hybrids are entities that are treated as tax transparent in their jurisdiction of establishment, with members taxed directly on income, profits and gains as they arise. This is in contrast to the UK, which treats US LLC entities as opaque for tax purposes, meaning the UK only taxes a UK resident member of an US LLC entity as dividends are paid to the member. The government noted that, for UK resident individuals investing through US LLCs and similar structures, mismatches in tax treatment between the US and UK, potentially result in punitive levels of tax with an effective rate of taxation of 75% for affected individuals.

Following consultation, the government has addressed this issue by introducing a new foreign tax credit mechanism for tax paid in the US, by which the affected UK resident member of the US LLC entity can use this to be offset against their UK tax liabilities from 2028. The government has resisted calls to change the taxable basis of LLCs to a transparent, arising basis, on UK resident individual members as it considered this would ‘require a significant amount of new technical architecture, which would be complex to navigate and integrate poorly with the wider tax system’. Instead, it has decided to pursue this credit-based relief mechanism.

The Budget also stated that the government would take action to ‘make it easier for people with existing trusts to move to the UK.’ The details of this were not announced, but it may be an indication that the LLC approach to double taxation might be extended to foreign trusts, as these can similarly lead to double taxation of UK resident beneficiaries.

Trusts and CGT exit charge

Prior to the Budget, the government had announced a review of the personal tax offshore anti-avoidance legislation, including the transfer of assets abroad rules, the settlements legislation and the CGT attribution rules. The aim is for a simplification of these rules. This was confirmed with the announcement today that changes will be introduced into legislation which effect the CGT exit charge on temporarily migrated trusts with the government hoping this will make it easier for globally mobile talent to relocate to the UK more quickly. A further general commitment was made to “make it easier for people with existing trusts to move to the UK” and we wait for any additional announcements on this.

Prior to the Budget, a consultation on the inward re-domiciliation of companies has been announced. The consultation closed on 19 June 2026 and although there were no formal announcements on Budget day, we expect any changes in relation to this to be available in due course.

Together, these announcements may hint at a recognition that the UK tax system may need to adapt to ensure it attracts foreign talent and wealth and that it incentivises home-grown talent and wealth creators to remain.

On the other hand, the 2% additional income tax rate discussed may be of more concern to internationally mobile individuals, at least those owning rental properties in the UK. For those who do not rent out their property, the ‘occupation’ criteria in relation to the unoccupied homes surcharge may be critical.

HMRC compliance and investigatory powers

The government has published an important document detailing its approach to wealthy taxpayers and their interaction with the taxation process entitled Modernising HMRC’s approach to wealthy compliance.

The new plan describes wealthy individuals as those with income exceeding £200,000 or assets exceeding £2 million in any of the previous three years. HMRC recognises that the affairs of wealthy individuals can be particularly complex, potentially involving multiple jurisdictions, foreign entities, trusts and offshore income. Its increased use of third-party data, including information relating to trusts and overseas entities, may make discrepancies in taxpayers’ affairs more readily identifiable.

The Budget also confirmed further investment in HMRC to strengthen its ability to tackle non-compliance and collect unpaid tax, including the recruitment of an additional 670 compliance officers by 2029–30. In addition, it confirmed proposed reforms to HMRC’s civil information and inspection powers, including changes to the rules governing information notices. The government has also confirmed a further consultation on offshore tax penalties, expected later in 2026.

For our clients, this reinforces the importance of maintaining accurate and contemporaneous records, including, where relevant, residence calendars, travel records, trust accounts, foreign tax returns, workday schedules and source-of-funds documentation, rather than seeking to reconstruct this information only once an HMRC enquiry has commenced.