After a low-key build up, the Chancellor's Budget speech gave way to a record wave of new policy measures and proposals. This fits the pledge to "drive growth in every tax code", assuming we heard that correctly!
The individual headline tax increases appear smaller this year but are immense in the aggregate. There are more than 50 costed tax policy decisions, raising a total of £20.9 billion over the forecast period. This includes increasing the bank corporation tax surcharge from 3% to 6% for 15 months, to raise £1.5 billion. The higher machine games duties will raise £720 million.
It is the less publicised changes, however, that raise the largest sums. For example, "measures to close the tax gap" is to bring in £7.85 billion. Reducing the main rate writing-down allowance from 14% to 12% from April 2027 raises over £5 billion. Adding another 2% to rates on property and savings income raises £4 billion. Making the foreign permanent establishment exemption mandatory is £2.5 billion. Reducing the business asset disposal relief lifetime limit adds £1 billion.
In the detail, there are some positive incentives and opportunities. There is "fresh hope" for entrepreneurs (or "founders" at least) and businesses with incentive schemes such as EMI and CSOP. Social housing developers received the welcome news that the new VAT zero-rating relief for sales to registered providers will take effect in April 2027. There is also good news by omission, as there is no rise in the CGT rate.
In this article, we have picked out the measures which are most relevant to highlight. We will be happy to discuss your comments and queries.
Income tax savings and property rates
Last year's Budget added 2% to the rates of income tax on savings and property income from 2027. This year's another 2%. to make it a 4% uplift next year. This means private property income from letting land and buildings will, from April 2027, be taxed at rates of 24% (basic), 44% (higher) and 49% (additional). This further tightens private landlord returns and would be expected to limit growth in the market. A less obvious, but important, consequence of this rise in the basic rate is that the rate of interest withholding tax on a payment of UK source yearly interest will also be 24% (unless an exemption or a relief applies).
Changes to employee share schemes
There are positive steps to enhance EMI and CSOP schemes from 6 April 2027. The CSOP individual option limit will increase to £120,000 and the exercise period will be extended to 15 years (matching the extension to EMI options last year). The EMI exercise window following disqualifying events will be extended to 180 days. Helpfully also, the existing employee ownership trust (EOT) exception to the EMI independence requirement will be extended to companies transitioning to employee ownership. This gives a further boost to these popular incentives.
As announced at Budget 2025, the requirement for a company to submit a separate notification of a grant of EMI options will be removed. It will be replaced with a requirement to notify the grant through the end-of-year return, for options granted from 6 April 2027.
New capital gains tax (CGT) relief for "founders"
The government is introducing a new CGT relief for business founders. This looks a bit like the old Entrepreneurs' Relief, with reduced eligibility. Founders will be defined as 25%+ ordinary shareholders at the time the company commences trading (or prepares to commence trading). It will apply a 10% CGT rate on disposal, up to a lifetime limit of £10 million, provided the shares have been held for five years and all other conditions are met, including a UK tax residence requirement.
This is very welcome for start-ups, but needs to be viewed in the context that the existing Business Asset Disposal Relief for owner entrepreneurs is being diluted to a £500,000 life-time limit, at an 18% CGT rate. The new Founders' Relief will have limited application to entrepreneurial owners in general, given it only applies to the original founders at the time the company commences trading. It is a boost for new start-ups therefore, but not for scaling-up businesses looking to attract entrepreneurial owners after they have started trading.
VAT treatment of land for social housing
A personal highlight of the Budget speech was when the Chancellor announced: "I'm making all land sold to social housing providers VAT free!" This relates to the consultation earlier this year, to which we contributed. The outcome is that the government will provide VAT relief to any land sold to registered providers, rather than being conditional on its later use. Legislation for the new zero rate at the point of land sale (instead of the delayed "golden brick" time point) will land in early 2027, to take effect from 1 April 2027. This is excellent news for the social housing sector, and we look forward to reviewing the draft law.
Sovereign tax status regime
A new consultation will propose a "sovereign tax status" for states, heads of state and other sovereign vehicles. Notably this will propose that they become taxable on income from UK land and chargeable gains on disposals of land and property rich vehicles. State-operated overseas pension funds will be exempt in line with overseas pension schemes.
The Budget paper suggests the UK will remain globally competitive for foreign sovereign investment in the UK, including through bespoke rules to access REITS for investments in UK real estate. But this will be a concerning development for sovereign investors in the UK real estate industry who have long held immunity and invested heavily. The proposal may also make trading income of sovereign entities taxable in limited circumstances. We will be looking at the consultation carefully and contributing our views. Any changes would be made in early 2029.
Temporary increase in the bank surcharge
The rate of the corporation tax surcharge on banking companies will increase from 3% to 6% for 15 months, with effect from 1 January 2027. There is concern this will impact the price and availability of credit in a tough economic environment. The surcharge was reduced from 8% to 3% in 2023 to partially offset the rise in corporation tax from 19% to 25%, resulting in the combined rate moving from 27% to 28%. It will now be 31% temporarily. This is a significant increase to raise £1.5 billion.
Online marketplace liability extension
From October 2027, online marketplaces will be responsible for collecting VAT on sales by UK VAT registered businesses with a minimum annual sales threshold per platform of £90,000. The rules will not apply to personal sales, second-hand goods, or business-to-business sales.
Tax treatment of stablecoins
New legislation from April 2027 will treat certain stablecoins more like money for tax purposes, exempting disposals of eligible stablecoins from CGT and taking interest-like returns from lending eligible stablecoins as savings income for income tax. Companies will be taxed on certain transactions invoicing the stablecoins based on their accounts for corporation tax, and the interest withholding tax rules will be extended to cover interest-like returns paid under eligible stablecoin debt. This is a material change, as most disposals of stablecoins are currently subject to CGT as an asset disposal and this creates a barrier to the use of stablecoins in daily transactions.
New oil and gas revenue levy
A new, permanent additional 35% oil and gas revenue levy will apply to exceptional oil and gas revenues arising during periods of high prices.
Modernising the distributions framework
Following recent consultation, the government will change the rules that determine how distributions from companies to their individual (non-corporate) shareholders are taxed, pending further technical consultation in 2027 ahead of expected implantation in April 2028.
R&D claims process
The requirement to submit a Claim Notification Form for R&D claims will be removed from 1 April 2027, and there will be a new process to "simplify and rationalise" the information required in the form.
High value council tax surcharge
The surcharge known as the "mansion tax", announced in Budget 2025, will retain a £2 million threshold and take effect from April 2028.
Stamp duty and stamp duty land tax
The new Securities Transfer Tax, replacing stamp duty on shares and stamp duty reserve tax, will now come into force "in late 2027".
A change to SDLT group relief rules will take effect from 29 October 2026, so that a winding up of a vendor does not prevent clawback within the usual three-year period if the purchasing company leaves the group.
Overall, it is an expansive and high-taxing Budget, with some 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.
