Chancellor John Healey delivered the first Budget of Prime Minister Andy Burnham’s Labour government today (28 October), setting out its approach to the public finances amid continued global economic uncertainty and pressure on households and businesses.
While the Budget avoids broad-based increases to the main rates of Corporation Tax, Income Tax, National Insurance and value added tax (VAT), it does introduce a range of targeted measures affecting employers, banks, investors, landlords and online businesses. It also includes changes intended to encourage business investment and support high-growth UK companies.
Here are some of the key announcements and what they could mean for businesses and individuals.
Headline tax rates remain unchanged
The main Corporation Tax rate remains at 25% and the small profits rate at 19%, while the headline rates of Income Tax, National Insurance and VAT are unchanged. The main CGT rates for individuals also remain at 18% and 24%. However, savers, landlords, banks and certain other sectors face targeted increases.
National Living Wage increases
The National Living Wage for workers aged 21 and over will increase by 3.9% to £13.21 an hour from 1 April 2027. Employers with significant numbers of lower-paid workers will need to account not only for the direct wage increase but also the associated impact on other employment costs.
Temporary increase in bank taxation
The Bank Corporation Tax Surcharge will increase from 3% to 6% between 1 January 2027 and 31 March 2028, while the existing £100 million group allowance will remain. Relevant bank profits above that allowance will therefore face a combined headline rate of 31%, rather than 28%, before the surcharge returns to 3% from 1 April 2028.
Changes to capital allowances
The main-rate first-year allowance will increase from 40% to 50% for qualifying expenditure incurred from 1 January 2027, while full expensing and the £1 million Annual Investment Allowance will remain available.
At the same time, the main writing-down allowance falls from 14% to 12% from 1 April 2027 for Corporation Tax and from 6 April 2027 for Income Tax, improving upfront relief for some investment but slowing relief on expenditure remaining in the main pool.
Mandatory exemption for foreign permanent establishments
The existing elective exemption for foreign permanent establishments will become mandatory for most UK-resident companies for Corporation Tax accounting periods beginning on or after 1 January 2027.
Qualifying foreign branch profits and losses will generally fall outside the UK Corporation Tax computation, with restrictions applying to certain pre-transition losses and attributes.
VAT e-invoicing to become mandatory
Electronic invoicing for VAT invoices will become mandatory from 1 April 2029. A separate consultation on the possible future use of e-invoice data for digital tax reporting runs until 20 January 2027, but no decision has yet been made on additional reporting requirements.
VAT treatment of social housing land
Land sold to registered providers of social housing will be zero-rated for VAT from 1 April 2027.
New VAT responsibilities for online marketplaces
From October 2027, online marketplaces will become responsible for collecting VAT on qualifying sales by UK businesses, including those meeting the proposed £90,000 annual sales threshold on an individual platform. This will affect VAT responsibility, pricing and compliance for qualifying platforms and sellers, although some details will be set through secondary legislation.
Reform of company distributions
The Government will proceed with reforms to the taxation of company distributions and repayments of capital, aimed at preventing profits being extracted at capital rather than income tax rates while protecting genuine commercial activity and family-business succession. Draft legislation is expected for technical consultation in 2027, with the changes intended to take effect from April 2028.
Higher rates for savings and property income
Income Tax rates applying to savings and property income will increase by a further two percentage points to 24%, 44% and 49% from 6 April 2027, while ordinary Income Tax and dividend tax rates remain unchanged. The measure will principally affect landlords and individuals with taxable savings income.
New Founders’ Relief
A new Founders’ Relief is proposed for disposals from 6 April 2027. It would introduce a 10% CGT rate on up to £10 million of qualifying lifetime gains for founders and significant early investors in qualifying high-growth, innovative UK companies.
The relief could provide a significant incentive for entrepreneurship and investment, although the detailed eligibility conditions remain subject to technical consultation.
Reduced Business Asset Disposal Relief limit
The lifetime limit for Business Asset Disposal Relief will fall from £1 million to £500,000 for qualifying disposals from 6 April 2027.
Based on an 18% relief rate and a 24% main CGT rate, the maximum potential tax saving on £500,000 of qualifying gains would be £30,000. The actual benefit will depend on the taxpayer’s circumstances and eligibility.
What happens next?
The Budget maintains stability in the main headline tax rates, but the targeted changes could have material implications for particular businesses, investors and individuals. Some measures will require further legislation or technical consultation before taking effect. Businesses should therefore assess which announcements affect them, consider the relevant implementation dates and monitor the detail as it develops.
Speak to our team
Our UK team work with businesses, entrepreneurs and internationally mobile individuals to help them manage their structures and operations across multiple jurisdictions. To discuss how the 2026 UK Budget measures may affect you or your business, or to learn how we can support you and your wider plans, please get in touch with our team.
This article provides a general summary of selected Budget announcements and does not constitute tax, legal or financial advice. The application of individual measures will depend on the final legislation and the circumstances concerned.
