Dividends, Interest And Property Income

From 6 April 2026, basic and higher rate tax rates on dividends will increase by 2%, and from 6 April 2027 all (basic, higher and additional) rates for property and savings income will increase by 2%. Relief for finance costs against property income will be given at the property basic rate of 22%.

Taxpayers who prefer to hold cash savings may therefore see a two-fold effect on their savings, with an £8,000 reduction in their cash ISA limit (details below), and a 2% increase in tax rates on savings income.

With the increasing administrative burden of receiving rental income (being quarterly filings under Making Tax Digital for Income Tax, beginning April 2026) and increased income tax rates on property income, individuals may look to cease lettings and/or favour owning property via corporate structures.

Tax Thresholds

The tax-free personal allowance remains frozen for a further three years to April 2031.

It has been fixed at its current level of £12,570 since April 2021, meaning that over the decade from 2021 to 2031, an increasing number of taxpayers have been, or will be, drawn into paying income tax as thresholds fail to keep pace with rising incomes.

For individuals aged 21 and over, the National Living Wage will rise to £12.71 per hour from April 2026 (compared to £8.36 per hour in 2021/22).

For those pensioners who previously only received the state pension income, which was covered by the personal tax allowance, from 2027/28, this will now be subject to income tax, given their state pensions will exceed the personal allowance.

Self-Assessment Tax Liabilities

From April 2029, the Government will require tax currently paid via self-assessment (e.g. on rental profits and savings income), to be collected via PAYE, provided an individual receives income upon which PAYE can be collected.

Further consultation on this matter is expected in early 2026.

The annual ISA allowance will remain at £20,000. However, from 6 April 2027, for individuals under 65, only £12,000 of this can be allocated to a cash ISA with the remainder of £8,000 able to be invested into a stocks & shares ISA. Those aged 65 and over can continue to contribute the full £20,000 to a cash ISA each year.

This change is intended to encourage savers to invest their cash to boost economic growth and increase investors’ returns, provided that taxpayers are comfortable taking a risk with their hard-earned cash.

The TNR legislation seeks to tax certain types of income and capital gains realised within a period of non-residence of fewer than five years. This charge applies in the year an affected individual returns to the UK and tax is charged at the rates applicable at that date.

Currently, the TNR rules do not apply to distributions made from “post departure trade profits” i.e. profits which accrued to a company after the individual left the UK. However, for individuals returning to the UK from 6 April 2026, the concept of “post departure trade profits” will cease, meaning all dividends from a UK close company made to individuals during a period of temporary non-residence will be caught by the TNR legislation.

Where business owners are considering moving overseas, advice should be sought prior to their departure to ensure that any planned distributions, restructuring, or exit strategies are reviewed in light of the forthcoming changes, and to mitigate unexpected UK tax liabilities under the extended TNR rules.

Agricultural Property Relief (APR) And Business Property Relief (BPR) – Transferable Allowance

The £1 million allowance for the 100% rate of APR and BPR will be transferable between spouses and civil partners. This is a minor improvement to the previous announcements in relation to APR and BPR. However, the Chancellor chose not to row-back materially on these changes which will have a very detrimental impact on business owners and farmers from 6 April .

The allowance will apply even where the first death occurred before 6 April 2026, offering flexibility in succession planning.

Anti-Avoidance Measures

UK agricultural property held through non-UK entities will be treated as UK-situated for IHT purposes from 6 April 2026. This is in line with the treatment of UK residential property.

Charity exemptions for IHT purposes will apply only to direct gifts to UK charities and clubs, with changes effective for lifetime gifts from 26 November 2025 and gifts on death from 6 April 2026.

Impact Of Increased Income Tax Rates On Discretionary Trusts

From 6 April 2027, income tax rates on property and savings income will increase by 2%. As the trust rate mirrors the additional rate of income tax, the rate for discretionary trusts will rise from 45% to 47% on property and savings income, while the rate on dividend income remains at 39.35%.

This change also affects the grossing-up calculation for distributions. Currently, a net payment of £5,500 is grossed up at 45%, giving a gross amount of £10,000 and a tax credit of £4,500. From April 2027, the same £5,500 will be grossed up at 47%, giving a gross amount of approximately £10,377 and a tax credit of £4,877. Beneficiaries will therefore report higher gross income on their tax returns, which may impact their overall tax position.

Cap On IHT Charges For Historic Excluded Property Trusts

From 6 April 2025, relevant property charges for excluded property trusts created before 30 October 2024 will be capped at £5 million per trust per 10-year period. The cap applies to the combined 10-year anniversary charge and any exit charges.

Trustees who have already accounted for a 10-year charge or exit charge after 6 April 2025 may need to review and amend their returns to reflect the cap.

Anti-Avoidance Measures

The UK Government will introduce rules to prevent manipulation of trust asset status immediately before an exit charge.

Currently, some trusts change the classification of assets shortly before a distribution – for example, converting assets into those qualifying for APR or BPR, or moving assets offshore to make them excluded property. Under the new rules, relief will only apply if the asset qualified throughout the relevant period or for a minimum qualifying period. This will apply to exit charges only.

From April 2028, a High Value Council Tax Surcharge (HVCTS) for residential properties worth £2 million or more will be introduced, based on updated valuations. New charges start at £2,500 per year, rising to £7,500 for properties valued above £5 million, and will be levied on property owners rather than occupiers.

Salary Sacrifice For Pensions

The Budget speech confirmed that, from April 2029, employer pension contributions exceeding £2,000 per employee will be subject to National Insurance, ending the long-standing savings delivered through pension salary sacrifice.

The three-year lead-in period is welcome, giving employers time to steady the ship, to assess the impact of this significant reform, adjust payroll and HR systems, and understand how the new rules flow through wider reward and compensation strategies.

Clear and timely communication will be essential, and throughout the process, coordination between HR, finance and tax advisers will be critical to ensure an organisation is fully prepared for when the reform arrives.

Employee Ownership Trust (EOT) And Capital Gains Tax (CGT) Relief

The relief on qualifying disposals to EOTs will reduce from 100% to 50%. Business owners selling shares to an EOT will therefore pay capital gains tax on half of the gain arising on disposals to EOTs. At current rates that would equate to CGT rates of up to 14% on disposals to EOTs.

This change follows significant growth in the cost of the relief since its introduction given the increasing popularity of EOTs. Whilst this represents a significant reduction in the benefit of the relief, EOTs are still likely to be very beneficial for the right companies.

Share Schemes

Various measures have been introduced or will be the subject of planned consultations, aimed at rewarding entrepreneurship and innovation and ensuring that companies scale up and stay in the UK.

Enterprise Management Incentives (EMIs)

Company eligibility limits for an EMI are increasing significantly, giving greater numbers of growing businesses the ability to use this very tax advantageous scheme to attract talent.

Legislation in the Finance Bill 2025-26 is set to increase the employee limit to 500 people, the gross assets test to £120 million and the company share option limit to £6 million from April 2026. The maximum holding period will increase to 15 years.

Administration will be eased by removing the EMI notification requirement from April 2027.

Enterprise Investment Schemes and Venture Capital Trusts (EIS and VCT)

EIS and VCT limits are increasing, to attract investors to support companies as they grow beyond the start-up phase.

Investment limits for VCT and EIS companies have doubled as they are increased to £10 million (£20 million for knowledge-intensive companies) with a corresponding increase in the lifetime company investment limit to £24 million (£40 million for knowledge-intensive companies). Gross asset thresholds will increase to £30 million before the share issue and £35 million after, from 6 April 2026. This limit increase will allow larger businesses to benefit from both VCT and EIS investment thus improving their access to capital.

However, the rate of income tax relief for VCT investors is reducing from 30% to 20%, also from 6 April 2026.

Incorporation Relief

This is an administrative change and won’t alter the requirements for the relief to apply.

Capital Allowances

The 100% First-Year Allowance (FYA) for qualifying expenditure on zero emission cars and qualifying plant and machinery for electric vehicles has been extended for another year and will remain in place until 31 March 2027.

Businesses should consider the timing of such purchases, where planned, to maximise the extension of this relief.

A new 40% FYA will be introduced from 1 January 2026 for main rate expenditure. There will be reduced restrictions compared to other FYAs and it will be available for items such as assets bought for leasing. It may also extend to background plant for landlords incurred by unincorporated businesses.

From 1 April 2026, main rate writing down allowances will reduce from 18% to 14%.

Businesses with significant capital expenditure should seek professional advice on how these changes might impact them.

Transfer Pricing

From 1 January 2026, legislation will be introduced to simplify the rules for related party transactions, non-resident companies trading in the UK and profits diverted from the UK. There are specific changes that are relevant to certain clients working in the funds sector and HMRC are going to publish a revised Statement of Practice on this when the legislation is published.

The Government will consult on the introduction of legislation requiring in-scope multinationals to submit an International Controlled Transactions Schedule to annually report on cross-border related party transactions expected to take effect for accounting periods beginning on or after 1 January 2027.

Research & Development (R&D)

A targeted advance assurance service will be piloted from Spring 2026, enabling SMEs to confirm key aspects of their R&D claims before formally submitting them to HMRC. A summary of responses to the advance clearance consultation will also be released.

Given the increased scrutiny on R&D claims from HMRC in recent years, this is a welcome introduction.

R&D And Creative Industries

Legislation will be introduced for payments made on or after 26 November 2025 to set out the treatment of intra-group payments made in return for surrendered Research & Development Expenditure Credit, Audio-Visual Expenditure Credit and Video Games Expenditure Credit.

Late Filing Penalties

Corporation tax late filing penalties will double for returns due for filing on or after 1 April 2026.

Corporate Interest Restriction (CIR)

The Government will legislate in Finance Bill 2025-26 to simplify administration in relation to reporting companies under CIR. Most of the changes take effect for periods ending on or after 31 March 2026.

The legislation will amend the rules for appointment of reporting companies to simplify matters. Businesses will be responsible for ensuring the reporting company has been appointed for a period, with details of the appointment disclosed in the interest restriction return.

There will be no automatic rollover of the appointed company, so groups will need to inform the reporting entity each period and ensure that more than 50% of the group have consented to the appointment.

£4.3 billion of business rates support is to be provided over the next three years with the burden being shifted from smaller businesses and the retail, hospitality and leisure sectors to larger companies.

VAT On Ride-Hailing Apps

From 2 January 2026, ride-hailing platforms (such as Uber and Bolt) will be prevented from using Tour Operators Margin Scheme (TOMS) to reduce the VAT payable on journeys. This change follows ongoing appeals about whether TOMS applies under current law.

Under TOMS, they would have been able to account for VAT only on the margin between the amount they pay to drivers and the fare charged to customers. The new rules mean VAT will be due on the full fare, significantly increasing the tax liability for affected businesses.

Operators should review their pricing models and compliance processes well ahead of the implementation date to mitigate the impact and ensure readiness.

E-invoicing

From April 2029, all VAT-registered businesses will be required to issue electronic VAT invoices for every business-to-business supply. This forms part of the Government Digitalisation strategy to streamline VAT compliance, improve accuracy, and reduce fraud.

Businesses should start preparing their systems and processes well ahead of the deadline to ensure compatibility with mandatory e-invoicing standards.

VAT On Goods Donated To Charities

From 1 April 2026, eligible goods donated by businesses to charities will qualify for the zero rate of VAT where the goods are either (i) used by the charity in its activities or (ii) donated onwards by the charity. This measure builds on an existing VAT relief for charities that sell, hire out or export donated goods.

The extension aims to encourage corporate donations and reduce costs for charities, supporting their ability to deliver services and aid.

Businesses should review their donation policies to ensure proper documentation to benefit from the zero rate.

Motability Scheme

From 1 July 2026, a 20% VAT charge will apply to top-up payments made under the Motability Scheme or equivalent qualifying schemes where the payment exceeds the standard Motability allowance. This measure will not apply to vehicles adapted for wheelchair or stretcher access.

The policy reflects the Government’s view that the Motability Scheme should be geared towards aiding mobility for the elderly and disabled rather than funding premium upgrades.

Business and scheme participants should review their arrangements and pricing structures to ensure compliance and to budget for the additional VAT costs where applicable.

Cross-Border VAT Groups

From 26 November 2025, HMRC’s policy on cross-border VAT groups reverts to its previous position, allowing overseas establishments to be included within a UK VAT group, as set out in R&C Brief 7/2025.

VAT groups that amended their VAT accounting procedures to HMRC’s 2015 guidance may now be entitled to reclaim VAT that was incorrectly charged over the past four years.

Businesses should act promptly and submit claims to avoid losing entitlement as VAT periods fall outside of the claim window. This change provides an opportunity for groups to review historic transactions, update internal processes and ensure compliance with the reinstated policy.

Air Passenger Duty (APD): Rate Increases and Private Jet Expansion

From 1 April 2027, private jets weighing over 5.7 tons will be subject to the higher band of APD.

Customs Duties: Removal of Low-Value Consignment Relief

From January 2027, the £135 de minimis threshold for duty-free imports from non-EU countries will be abolished. Low-value goods will face standard customs duties (0–12% on Importers and platforms should integrate duty calculations into checkout processes and audit supply chains for compliance.

Soft Drinks Industry Levy: Expanded Scope

From April 2026, the soft drinks levy will extend to milk-based drinks like sweetened lattes and milkshakes, ending their previous exemption. On-site cafe servings remain exempt. The expansion supports public health objectives and combats hidden sugars.

Manufacturers should review their arrangements and pricing structures to take account of the changes.