UK Budget 2026 explained for business owners.

John Healey delivered his first Budget on 28 October. The week before, he said it would be a Budget for "bloody-minded entrepreneurs", the ones who keep going through the pressures of doing business. Having read the whole thing, I think it has done the opposite for a lot of them.

On the face of it there isn’t a big change for anyone earning a salary, however the government has an extra £14bn a year of debt interest to cover and the money is coming from somewhere.

If you have savings outside an ISA, a rental property, a company you might one day sell, or a pension you plan to leave to someone, it is coming from you.

I’ve gone through the full Budget and pulled out what changed for sole traders and company owners, what was already announced last year, and when it reaches you.

The hidden tax rise that wasn't announced

There's something unspoken that has the biggest impact of all of this budget that you need to be aware of.

The personal allowance has been £12,570 since April 2021. The higher rate kicks in at £50,270 and has done since the same year. Last year's Budget froze both until April 2031 and it wasn't revisited this year.

In the meantime wages have gone up, so every year more of your income sits above those thresholds without any rate changing.

Take someone on £48,000 who gets a 5% pay rise. £2,400 extra, and £130 of it lands above £50,270, so that slice is taxed at 40% plus 2% National Insurance instead of 20% plus 8%.

The same thing is happening at £100,000, where the personal allowance starts to disappear and the effective rate between £100,000 and £125,140 is 60%. That threshold has been fixed since 2010.

It is also happening to pensioners. The full new state pension goes up 3.9% in April 2027 to £13,037 a year, which is £467 above the personal allowance. The government has introduced a Pension Tax Allowance from April 2027 to April 2030 so that anyone whose total income is at or below the full state pension pays no tax. It tapers away quickly above that, so anyone with a private pension on top gets nothing from it.

None of this was in the speech, and it is likely to raise more over the next five years than most of the measures that were.

April 2027: your savings

From 6 April 2027, interest on savings held outside an ISA is taxed at 24% for basic rate taxpayers, 44% for higher rate and 49% for additional rate.

The headlines said 2%, and that is the bit this Budget added. However, last year's Budget had already added 2% from the same date, so the full move is 20% to 24%. Savings interest will be taxed 4 points above earnings.

The Personal Savings Allowance hasn't moved. You still get £1,000 of interest tax-free as a basic rate taxpayer and £500 as a higher rate taxpayer, and nothing as an additional rate taxpayer. The government's own figure is that 88% of people will pay no more tax on their savings as a result.

The 12% who do pay more are the ones with a decent amount of cash sitting outside a wrapper. A higher rate taxpayer with £50,000 in an easy access account at 4.5% earns £2,250 a year. Take off the £500 allowance and £1,750 is taxable. That is £700 of tax today and £770 from April 2027.

The same £50,000 inside an ISA pays nothing.

The cash ISA allowance stays at £20,000. Last year's Budget cut it to £12,000 for anyone under 65 from April 2027, and that has been reversed. So the tax on interest outside the wrapper has gone up, and the wrapper is as big as it was. The maths on using the full £20,000 every year just got better.

Two smaller things for anyone saving for a first home. From midnight on 29 October 2026, if you use a Lifetime ISA to buy a property above the £450,000 cap, the withdrawal charge drops from 25% to 20%, which means you no longer lose any of your own money on the way out. And from April 2029 a new First Time Buyer ISA replaces the Lifetime ISA for new savers, with the same £4,000 a year and 25% bonus, no withdrawal charge and no upper age limit. Existing Lifetime ISA holders carry on as they are.

April 2027: rental income

Rental profit on property you hold in your own name follows the same path as savings. From 6 April 2027 it is taxed at 24%, 44% and 49% in England, Wales and Northern Ireland, 4 points above earnings once both Budgets are counted.

For landlords it hurts more than the headline number, because of how mortgage interest works. Since 2020 you can't deduct the interest from your rent. You get a 20% tax credit on it instead, and that credit stays at 20% while the rate on the rent goes up.

Take one buy-to-let owned by a higher rate taxpayer. £15,000 of rent, £3,000 of costs, £6,000 of mortgage interest.

The taxable profit is £12,000, because the interest doesn't come off. Today that is £4,800 of tax at 40%, less a £1,200 credit for the interest, so £3,600.

From April 2027 it is £12,000 at 44%, which is £5,280, less the same £1,200 credit, so £4,080.

The actual cash profit after interest and costs is £6,000. So the effective tax rate on the real profit goes from 60% to 68%, and the bill goes up £480 a year. Half of that was announced last year, half of it on 28 October.

Capital gains tax on selling a rental property hasn't changed. It is still 18% and 24%.

Property held inside a limited company is untouched by this. Corporation tax stays at 19% and 25%, mortgage interest is fully deductible in a company, and dividend rates didn't move. That gap between personal and company ownership has widened again, and for some landlords incorporation may be worth reviewing. It needs a proper calculation first, because moving property into a company can trigger capital gains tax and stamp duty on the transfer, and lenders price company mortgages differently.

HMRC is also consulting on collecting rental data directly from letting agents, deposit schemes and platforms, and the UK is joining an international exchange of property data from 2029, so rental income that hasn't been declared will be a lot easier for them to spot.

If your property is in Scotland, the rate on rental income is set in Edinburgh and this rise doesn't apply. The savings rate does.

April 2027: selling your business

Business Asset Disposal Relief is the reduced rate of capital gains tax you get when you sell a business you've built. The rate is 18%. The lifetime limit on gains that qualify drops from £1 million to £500,000 for disposals from 6 April 2027.

On a £1 million gain, today you pay 18% on all of it, which is £180,000. From April 2027 you pay 18% on the first £500,000 and 24% on the rest, which is £210,000. The most the change can cost any one person is £30,000.

The limit was £10 million until March 2020. It went to £1 million that year and is now £500,000, so in seven years the relief has shrunk by 95%. The government's line is that three quarters of people who claim it will still get it on their whole gain, and for a small business sale that is true.

For anyone selling an agency for £2 million to £5 million, the relief is now worth £30,000 against a tax bill in the hundreds of thousands. It no longer changes how a deal should be structured.

If a sale is already in motion, the date that matters is the date contracts go unconditional, and a sale exchanged before 6 April 2027 uses the £1 million limit even if it completes after. Each spouse has their own limit, which still matters where shares are held jointly.

There is a new relief alongside it. Founders' Relief, from 6 April 2027, gives a 10% capital gains rate on up to £10 million of lifetime gains for founders of high-growth, innovative companies. The draft conditions include holding at least 25% of the shares when the company started trading, holding them for five years, and five years of UK residence, plus tests on the company's growth and what it does. The consultation is open, and on the current draft most owner-managed businesses will fall outside it. It is designed for venture-backed scale-ups.

One useful change for anyone with a share scheme. The Company Share Option Plan is being renamed EMI2 from 6 April 2027, the individual limit doubles from £60,000 to £120,000, and it no longer eats into the £250,000 EMI limit. For growing companies that have outgrown EMI, that is a better way to give staff a stake.

April 2027: VAT on overseas software and ad spend

This got almost no coverage and it will catch a lot of small businesses.

At the moment, if your business isn't VAT registered and you buy a service from a company outside the UK, there is no VAT on the invoice. Google Ads, Meta Ads, Shopify, Adobe, Canva, Notion, Zoom, AWS, Upwork fees, an overseas contractor billing through a platform, all of it arrives with no VAT and you pay the net amount.

From 1 April 2027 that stops. Overseas providers selling services to UK businesses that aren't VAT registered have to charge UK VAT at 20%, and because you aren't registered you can't claim it back.

So a £500 a month software and ad stack becomes £600 a month, and the extra £100 is just a cost. The government expects to raise £70 million to £75 million a year from it, which gives you an idea of how many small businesses are buying from overseas tech companies.

If you are VAT registered, nothing changes. You carry on accounting for the reverse charge and recovering it as you do now.

For anyone trading under the £90,000 threshold with a heavy software or ad spend, this changes the maths on registering voluntarily. If your customers are businesses that reclaim VAT anyway, registering lets you recover the 20% on your costs and costs your customers nothing. If your customers are consumers, it is a trade-off between the VAT you recover and the VAT you'd have to add to your prices, and that needs working through properly.

If you run an agency you are probably registered and unaffected, and your smaller clients may not be. Expect questions about why their Meta invoice has changed, and bear in mind that a client's media budget effectively shrinks by a sixth.

April 2027: pensions and inheritance

There were no new inheritance tax measures in this Budget. Plenty of people expected one and it didn't come.

The biggest change to inheritance tax in a generation arrives anyway, in five months, because it was announced in 2024. From 6 April 2027, any pension you haven't spent counts as part of your estate for inheritance tax.

Until now a pension has sat outside the estate, which is why a lot of people have been told to spend other savings first and leave the pension untouched. From April that logic may reverse. If you die after 75, the pot can face 40% inheritance tax and then income tax in the hands of whoever inherits it, which on a higher rate beneficiary is a combined rate of up to 67%.

The nil-rate bands stay at £325,000 and £175,000 for the main home, frozen until April 2030. With a house, a pension and some savings, a couple in the South East is now paying inheritance tax.

For business owners, the cap on Agricultural and Business Property Relief that started in April 2026 stays as it is. 100% relief on the first £1 million of qualifying business value, 50% above that, so an effective 20% charge on the excess.

Two small wins. The two-year rule on pension death benefits has gone for payments on or after 28 October 2026, so a beneficiary is no longer taxed just because the scheme took more than two years to pay out. And the planned rewrite of how company distributions are taxed, which I cover below, specifically protects families passing a business down.

One thing that was already announced and is still coming: from April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance.

If you are over 55, or your parents are, the pension change alone may be worth a conversation before April. Gifting out of surplus income is the most under-used relief I see and it becomes more relevant once the pension is inside the estate.

April 2028: taking money out of a company

The government is rewriting the rules on how money leaving a company is taxed, so that similar transactions get the same treatment whatever legal route they take. Draft legislation comes in 2027 and the new rules apply from April 2028. The Treasury expects it to raise about £800 million a year once it settles, which tells you how much behaviour it expects to change.

The government has said it will protect genuine changes of ownership, including families passing a business down, and in some cases make demergers easier. Members' voluntary liquidations, where you close a company and take the cash out as capital, aren't named anywhere in the Budget. Nothing has been closed yet, and I would watch the draft legislation closely when it lands next year.

If you have been thinking about a buyback, a demerger, a holding company or an exit by liquidation, 2027 is the year to do it under the current rules or to plan properly for the new ones.

Inside the business

The headline rates for companies are stable. The changes below affect cash flow and admin.

What you get back

There is genuine support in this budget tied to energy, but it's temporary.

The Office for Budget Responsibility expects real household disposable income per person to fall 0.8% this year and rise 0.1% next year, with inflation peaking at 3.8% in early 2027. Most people will feel slightly worse off next year regardless of the measures above, and anyone holding assets personally will feel it a bit more.

When it reaches you

What I'd look at before April

Three things, in order of how many people they touch.

Cash outside an ISA. If you have more than £20,000 or so sitting in ordinary savings, the £20,000 allowance you keep is worth using in full before 5 April and again after it, and the case for doing so got stronger on 28 October.

Property held in your own name. The effective rate on a geared rental is heading towards 68% for a higher rate taxpayer. Whether a company makes sense depends on the mortgage, the gains built up so far and how long you plan to hold, and it is worth knowing the answer before April rather than after.

Anything that moves money out of your company. A sale, a buyback, a demerger, a holding company or a liquidation. BADR halves in April 2027 and the distributions rules change in April 2028, so 2027 is the year those decisions need making.

And if you are over 55, or your parents are, the pension and inheritance position before 6 April 2027.