The famous red briefcase revealed its barely kept secrets yesterday. The scale of new tax measures and consultations is so vast that it will take days, if not weeks, to unravel all the detail, but we have set out an initial review to highlight the key areas of change and their impact.
Following the £40 billion tax rise last year, which included £25 billion of increased employers' National Insurance Contributions, a further £26 billion will be raised this time mostly from workers, savers and property owners. Business taxes are relatively untouched and there are rays of light for entrepreneurs, including an expansion of the EMI scheme.
In terms of enabling economic growth, the concern will be that the new tax measures add too many shackles, with freezes to personal tax thresholds, NICs on salary sacrificed pension contributions, a council tax surcharge, higher dividend, savings and property income tax rates and CGT at a 12% effective rate on sales to Employee Ownership Trusts. Not forgetting milkshakes and lattes too. Thankfully, there are some growth shoots to explore, including expanded EMI eligibility, doubling the investment thresholds and gross assets test of Venture Capital Schemes and a new UK Listing Relief so that for the first three years of a company's UK listing its shares are exempt from stamp duty reserve tax.
In many cases, the new tax changes will not take effect until 2028. This timing is important to understand, and the deferral is helpful, although from an economic perspective there will be concern that the major spending increases are made in 2026-2028, while tax receipts to fund them are not made until 2028-31. We can only hope we are not back again next year reviewing further tax rises before this year's take effect.
Here is our spotlight on the most relevant changes and their impact:
Property tax changes
The headline is that there are no relevant changes to CGT or SDLT.
As expected, a new mansion tax (to be less catchily named The High Value Council Tax Surcharge, "HVCTS") will apply to owners of residential property in England worth £2 million or more in 2026. It will take effect from April 2028 to allow time for property revaluations to take place. Homeowners, rather than occupiers, will be liable to the surcharge of £2,500 per year for properties between £2-2.5 million, on a scale rising to £7,500 per year for properties valued at or above £5 million. This is to raise £430 million per year, although the rate might be increased (and/or thresholds lowered) over time to increase the tax revenue. Further consultation will occur to design a deferral scheme and reliefs. It appears some form of deferral until sale may be available to ease cash payment concerns. Social housing will not be within scope.
Feared impacts of the mansion tax are the dampening of the prime residential market (especially in London), accelerated landlord exits and increased rents. The Chancellor would counter that the annual charge is not yet set high enough to have a dramatically adverse effect.
Alongside the mansion tax is a 2% rise in the income tax rates for property income. This means private property income from letting land and buildings will, from April 2027, be taxed at rates of 22% (basic), 42% (higher) and 47% (additional). Finance cost relief will be provided at the 22% basic rate. The way property income is reported will remain the same. This further tightens private landlord returns and would be expected to limit growth in the market before and after April 2027.
Other property tax changes include enhanced powers for HMRC to revoke gross payment status under the construction industry scheme in fraud cases and, helpfully, a change to allow claims for Annual Tax on Enveloped Dwellings to be made without time limit. There are capital allowances changes too, including a first-year allowance of 40% for main rate expenditure. There is no change to SDLT, despite the introduction of the council tax surcharge and the other property tax increases.
The Budget paper also includes a note that the government will shortly consult on the reform of VAT rules to incentivise the development of land for social housing. We hope the opportunity will be taken to accelerate the point that zero-rating can be accessed (before the golden brick stage) in order to unlock supply and build confidence in the housing market.
Income tax and NIC increases
There is a wide array of other income tax and NIC increases.
These include the freeze to income tax and national insurance thresholds from 2028-2031 which is expected to raise £12 billion. The previous government had frozen the thresholds from 2022 to 2026 and then extended that freeze to 2028. Now it will extend to 2031.
Dividend income will be subject to 2% higher ordinary and upper rates from April 2026 (rising to 10.75% and 35.75% respectively). The additional rate will remain at 39.35%. Tax on savings income will increase by 2% across all bands (rising to 22%/42%/47%) from April 2027.
The government is also changing how salary sacrifice for pension contributions works. From April 2029, the amount that is exempt from NICs will be capped at £2,000 per year for employee contributions. Contributions above this amount will be subject to employer and employee NICs like other employee workplace pensions contributions. The rationale for the cap is that relief through salary sacrifice disproportionately favoured higher income earners, but it will cause concern that less is saved into pensions, reducing financial security.
Another unwelcome tax rise is the reduction of Employee Ownership Trust (EOT) relief. This reduces the amount of CGT relief available on qualifying disposals of shares to trustees of an EOT on or after 26 November 2025 from the current 100% relief down to a 50% relief, so that the effective CGT rate on disposals to an EOT will be 12%. The rationale is fairness, to ensure founders pay some tax, noting the value of relief granted is more than anticipated when introduced in 2014. This is a disappointing move, because government policy has played a catalytic role in making employee-ownership a trusted path for business succession in the past decade and this type of entrepreneurial activity ought to be supported. A 50% CGT relief is still attractive, but it risks slowing the uptake of a model that has been innovative and successful.
Business tax measures
There are some rays of light in the business tax measures.
The Enterprise Management Incentives (EMI) option scheme will be expanded from 6 April 2026 so that the eligibility limit on company options doubles from £3 million to £6 million, gross assets increases from £30 million to £120 million and the number of employees increases from 250 to 500. The limit on the exercise period will also be increased from 10 years to 15 years. This is positive. It extends the scheme to scale-up companies as well as start-ups and should help them to attract and retain high-calibre candidates. This should have wide appeal.
There is also a measure to increase the existing annual, lifetime and gross assets limits for companies receiving investment under the EIS or VCT scheme. This is a positive step to encourage entrepreneurship.
Additionally, a UK Listing Relief will provide an exemption from the 0.5 stamp duty reserve tax charge on agreements to transfer securities of a company whose shares are newly listed on a UK regulated market. The exemption will apply for a 3-year period from the listing of the shares.
Entrepreneurs and businesses should explore the opportunities afforded by these new incentives as a way to offset the impact of the tax rises.
Other areas of change in business tax that will be relevant include the changes to benefit in kind reporting principles, PAYE changes for the umbrella company market, the requirement to claim incorporation relief, research and development tax relief clearances, the changes to the capital gains avoidance rules that apply to share exchanges and company reconstructions, VAT grouping changes and the measures targeting marketed tax avoidance schemes.
In the charity tax space, the government is introducing amendments to rules governing tainted donations, approved charitable investments and attributable income for charities.
Overall, it is a wide-ranging and high-taxing Budget, with new opportunities for entrepreneurs to be explored. We will be looking at the detail closely and look forward to discussing your queries.
This article is created on a general basis for information only and does not constitute legal or other professional advice.
