Introduction

The Government hopes this year’s Budget strikes a careful balance between fiscal responsibility and targeted support for growth. Pre-Budget speculation centered on the possibility of significant tax hikes to address the so-called black hole. However, the “black hole,” turned out to be much smaller than predicted and consequently the measures announced were less severe than many had feared.

Headline tax rates remain largely unchanged. Targeted adjustments will increase tax revenues in some areas, with the aim of balancing stability with investment and innovation. Individuals face the continued impact of frozen thresholds and incremental increases in taxes in various areas including savings, property income, property taxes and pension contributions, reinforcing the need for proactive financial planning.

What was billed as a potentially transformative Budget ended up being a collection of incremental changes. The intense pre-Budget speculation about sweeping reforms proved unfounded, underscoring the importance of separating noise from substance.

Business Taxes

Corporation Tax Rate

The main rate of corporation tax remains at 25%, providing stability for business planning and reinforcing the UK’s competitive position.

Capital Allowances

Changes to capital allowances will affect investment strategies. A new 40% first-year allowance for main-rate assets will be introduced from January 2026, accelerating tax relief for qualifying investments. Full expensing for plant and machinery continues, allowing businesses to deduct the entire cost of qualifying investments in the year of purchase. From April 2026, the main rate of writing down allowances (WDA) will decrease from 18% to 14%.

Electric Vehicle Excise Duty (eVED): From April 2028, a new mileage-based charge for electric and plug-in hybrid cars will be introduced, set at about half the fuel duty rate for petrol/diesel cars. Changes to benefit-in-kind rules for Employee Car Ownership Schemes are delayed until April 2030.

Advance Tax Certainty Service

Launching in July 2026, the Advance Tax Certainty Service will provide major investment projects with advance certainty on their tax treatment. This initiative offers businesses the opportunity to engage with HMRC early, secure binding tax positions, and de-risk significant transactions.

R&D Tax Relief

No major changes were announced to the merged R&D tax relief scheme, offering a period of stability for innovative businesses. The government continues to support key sectors such as life sciences, automotive, and aerospace through targeted funding.

A pilot advance assurance service for R&D claims is announced to be launched beginning Spring 2026 with an objective of providing greater certainty to small and medium-sized enterprises (SMEs) on R&D projects.

Business Rates

Permanent lower business rates for retail, hospitality, and leisure sectors will benefit over 750,000 properties, providing much-needed relief to high street businesses.

A new high-value multiplier will apply to properties with a rateable value over £500,000, increasing liabilities for larger commercial properties. Transitional relief and targeted support will help businesses adjust to new valuations, balancing support for smaller businesses with the need for a sustainable tax base.

Capital Gains Tax

The standard CGT rates, scope as well as annual exemption remains unchanged.

Capital Gains Tax Relief: The budget introduced immediate reduction in CGT relief for disposals to employee benefit trusts—only 50% of the gain is now exempt, making Employee Ownership Trusts (EOTs) less tax-advantaged.

The Budget introduces tighter anti-avoidance rules for CGT (and Corporation Tax) in relation to certain share exchanges, reorganisations and reconstructions, effective immediately (i.e. from 26 November 2025).

Tax Administration

From 1 April 2026, the government will double the penalty for late filing of Corporation Tax returns.

Indirect Taxes

Customs Duty: The government is removing the customs duty relief on goods imported into the UK valued at £135 or less, making them subject to customs duty from March 2029 at the latest, and will be consulting on implementing a new set of customs arrangements for these goods.

Goods to Charities: From 1 April 2026, a new VAT relief will apply to business donations of goods to charities. This relief will cover goods donated for distribution to individuals in need or for use in delivering the charity’s services, in addition to goods donated for resale.

Other Business Measures

Transfer Pricing & International Tax (Pillar Two): The government will legislate in Finance Bill 2025-26 to simplify the taxation of related party transactions, non-resident companies trading in the UK, and profits diverted from the UK. These reforms will apply for chargeable periods beginning on or after 1 January 2026, aiming to modernise and streamline the UK’s approach to international corporate tax compliance.

Employment Taxes

Employer’s National Insurance Contributions (NICs) 

No changes to main Class 1 secondary NIC rate of 15% which applies to all employee earnings above the Secondary Threshold; the Secondary Threshold will remain at £5,000 until April 2031.

Pensions and Salary Sacrifice

A significant change is on the horizon for salary sacrifice pension arrangements. From April 2029, the government will introduce a cap on the amount of employer and employee NICs relief available through salary sacrifice pension contributions, limiting the relief to £2,000 per year per employee. Any contributions above this threshold will be subject to Class 1 NICs in the usual way.

The £2,000 cap will generally only impact employees earning over £40,000 a year, as salary sacrifice schemes for employees with a salary below this threshold will remain unchanged if they sacrifice no more than the 5% mandatory employee contribution level under pension auto enrolment.

This measure is expected to have the greatest impact on higher earners and will also result in additional costs for businesses that offer enhanced salary sacrifice pension contribution arrangements as part of their employee benefits package.

Other Employer & Employment Tax Updates

• From April 2026 employees will no longer be able to claim a deduction from earnings (currently £6 per week) where they have incurred additional household costs when being required to work from home.
• The Income Tax and NI exemption for employer-provided benefits will be extended from April 2026 to cover reimbursements for eye tests, home working equipment, and flu vaccinations.
• Further guidance was published regarding the previously announced mandatory payrolling of benefits from April 2027, reinforcing the likelihood of this being implemented within this timescale without additional delays.
• Minimum wage for over-21s rises to £12.71 per hour; for 18 to 20-year-olds, to £10.85 per hour.

Personal Tax & Savings

Frozen Income Tax Thresholds

It was confirmed that income tax thresholds would be frozen until April 2031, with the tax-free Personal Allowance (£12,570), Basic Rate (up to £37,700, after PA), Higher Rate (£37,701 to £125,140) and Additional Rate (over £125,141) bands maintained at their current levels until 5 April 2031.

These limits had been frozen at this level since 2021 and were set to increase from April 2028 in line with the Consumer Price Index (CPI), but that has now been delayed another 3 years.

Freezing income tax thresholds without tax rates increasing has been branded a “stealth tax”, as the government collects more revenue without having to pass a law to raise tax rates. It is also known as fiscal drag, as more people are pulled into paying tax, or into paying tax at a higher rate when their pay has only increased in line with inflation. The OBR estimates, a further 920,000 people will be brought into the higher rate band as a result of this additional three-year extension and since the thresholds have been frozen a further 4.8 million people will be paying tax at the higher rate by 2030/31.

Higher Taxes on Savings, Dividend & Property Income

Basic and Higher income tax rates on dividend income will increase by 2% from April 2026, and on savings and property income from April 2027.  The Additional rate for savings and property income will also increase by 2%, but the additional rate on dividends will remain unchanged.  This will raise the tax burden for individuals with significant investment or rental income.

Savings

From April 2027, the annual cash ISA limit will be reduced from £20,000 to £12,000 for savers under 65, while the stocks and shares ISA limit remains at £20,000.

Venture Capital Trust (VCT) & Enterprise Investment Scheme (EIS)

The Budget brings welcome news for scaling businesses and their investors, with significant increases to the investment limits for both the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS). Company investment limits have been raised to £10 million per year (and £20 million for Knowledge Intensive Companies), while lifetime limits now stand at £24 million (or £40 million for KICs). The gross assets test has also been increased to £30 million before share issue and £35 million after, broadening the pool of companies that can benefit from these schemes.

However, from 6 April 2026 the income tax relief for VCTs will be reduced from 30% to 20%, a move intended to balance incentives for investors. While this change may affect the relative appeal of VCTs compared to EIS or other investment vehicles, the increased limits mean that investors can now support companies well beyond the startup phase, and ambitious businesses have greater access to the capital they need to scale.

Clients should review their fundraising strategies and investor communications in light of these changes, ensuring they are well positioned to maximise the benefits of the updated VCT and EIS regimes.

New High-Value Property Surcharge (“Mansion Tax”)

From April 2028, owners of residential properties in England valued at £2 million or more will face a new council tax surcharge.  Charges will start at £2,500 per annum, rising to £7,500 per annum for properties valued over £5 million.

Other Measures

• The two-child benefit cap will be scrapped from April 2026.
• State pension payments increase by 4.8% from April 2026.
• The Help to Save scheme is extended and expanded beyond 2027.

What It Means for You

• Wage-earners: The freeze on tax and NIC thresholds means more people will be pulled into higher tax bands as earnings rise, reducing take-home pay.
• Homeowners/Prospective Buyers: Owners of high-value properties (over £2 million) should factor in the new annual council tax surcharge.
• Savers/Investors/Landlords: Higher tax rates on savings, dividends, and rental income will increase the effective tax burden.
• Pension-savvy workers: The attractiveness of salary-sacrifice pension contributions will diminish after 2029, especially for higher-value contributions.

Impact on Innovators & Investors

Enterprise Management Incentives (EMI)

The EMI scheme is expanded from April 2026, with the employee limit rising to 500 (from 250 pre-budget), the gross assets test to £120 million (currently £30 million), and the company share option limit to £6 million (currently £3 million). The maximum holding period will also be extended to 15 years (currently 10 years), and the notification requirement is removed from April 2027 – enabling more high-growth businesses the ability to offer tax-advantaged share options to their employees and a welcomed simplification of the annual reporting requirements.

Stamp Duty Relief

A temporary three-year exemption from Stamp Duty Reserve Tax (SDRT) for companies listing on a UK regulated market offers a short-term cost saving for those considering a London IPO.

British Business Bank

With a permanent financial capacity of £25.6 billion and at least £5 billion for growth-stage funds and scale-ups, the BBB is set to play a key role in supporting ambitious companies. The new Venture Link initiative will help pension funds invest in UK venture capital, and the BBB is exploring guarantees for IP-backed loans to support innovation-led businesses.

R&D Funding & Missions

Annual government R&D investment will grow to £22.6 billion by 2029–30. UKRI will direct £9 billion over four years to growth sectors, with £4.5 billion for innovative UK companies. Innovate UK’s Growth Catalyst and R\&D Missions Accelerator, as well as new enterprise fellowships and doctoral training schemes, will further strengthen the UK’s innovation ecosystem. The government will also pilot a targeted R\&D Advance Assurance Service from spring 2026, providing SMEs with greater certainty on R\&D tax relief claims.

Visa Reform

Streamlined High Potential Individual, Innovator Founder, and Global Talent visas, along with a new Global Talent Taskforce, will make it easier for top international talent to work and innovate in the UK.

Conclusion

This year’s Budget delivers a mix of stability and change for UK businesses, investors, and entrepreneurs. While the government has avoided sweeping tax hikes, the cumulative effect of threshold freezes, higher taxes on investment income, and new property surcharges will be felt by many. At the same time, targeted support for innovation, expanded incentives for high-growth companies, and new funding initiatives signal a continued commitment to the UK’s entrepreneurial ecosystem. As always, we recommend reviewing your financial and business strategies in light of these changes to ensure you are well positioned for the year ahead.

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