Autumn Budget 2026: Personal taxes

Changes were announced, from 28 October 2026, to ease the administrative burden where offshore trusts become temporarily UK resident due to a trustee move.

Further measures to bring gains realised within protected cell companies into the scope of UK taxation have also been announced, effective from 28 October 2026.

Alongside the Budget, the government proposed a new tax credit mechanism to address double taxation on some non-UK entities, such as US LLCs.

Summary

If a trust becomes temporarily UK resident as a result of a trustee becoming UK resident, and then becomes non-UK resident later in the same or following year, exit charges will not apply. These changes are intended to ease the administrative burden on trustees. This will take effect from 28 October 2026.

Small changes were made with respect to protected cell companies holding UK property in 2025, with further changes announced in Budget 2026. The changes bring gains realised within protected cell companies into the scope of UK tax where the participators, holding an interest of more than 25%, are UK resident individuals. These changes take effect from 28 October 2026.

Separately, the government has responded to a consultation on the UK taxation of UK-resident members of “LLCs and other reverse hybrid entities”. Rather than proceeding with its initial proposal to treat eligible entities as transparent for UK tax purposes, the government intends to develop an elective credit for foreign tax paid personally by investors.

Our comment

Some relief from exit charges will be a welcome change for those looking to come to the UK in a situation where an inadvertent onshoring of a trust could occur. While the relief is narrowly targeted and is unlikely to apply to many trustees, it does give trustees time to plan jurisdictional changes, and its aim is to make it easier for internationally-mobile individuals to move to the UK.

The government’s targeting of offshore structures continues, ensuring gains realised within non-UK resident close protected cell companies are subject to UK tax. This is a further step in disincentivising use of such structures and clamping down on offshore tax avoidance.

While the exact details of the relief for investors in reverse hybrid entities have not yet been decided, and claims cannot be made until early 2028, the potential relief will be very welcome for many individuals. In particular, it will seek to address the discrepancy between the tax treatment of LLCs in the US, where they are often treated as transparent, and the UK, where they are generally opaque, leading in many cases to double taxation. The issue has been exacerbated in recent years following the abolition of the remittance basis.

Legislation will be introduced clarifying when liabilities relating to trust property may reduce the value of assets for inheritance tax. This will be effective from 28 October 2026.

Summary

The government will introduce legislation in Finance Bill 2026/27 to amend the inheritance tax rules on liabilities and trust property. The legislation will provide a statutory rule for taking liabilities incurred by trustees into account when valuing property held in trust for inheritance tax purposes.

There will also be an extension to existing debt deduction restrictions and anti-avoidance rules to ensure that certain liabilities cannot be deducted twice, once at trust level and once at beneficiary level for inheritance tax purposes.

The measure will have effect for deaths and other chargeable events occurring on or after 28 October 2026.

Our comment

This announcement provides clarity, as current provisions largely centre around deductions in an individual’s estate for inheritance tax purposes rather than for liabilities incurred by trustees.

The proposed legislation would provide a statutory mechanism for deciding when a deduction is possible for trustees and how this might be allocated between trust assets.

The Chancellor has announced that from 6 April 2027, pensioners over the state pension age with total income up to the value of the full new state pension will qualify automatically for the pension tax allowance. The allowance is calculated at the basic rate of income tax (20%) on the difference between the full new state pension and the personal allowance. It will taper by £1 for every £3 of income above the full new state pension.

Summary

With the state pension being uprated annually, according to the triple lock, through the current parliament, the government will introduce the pension tax allowance from 6 April 2027. This is to reduce the administrative burden faced by pensioners who would otherwise be required to pay small amounts of income tax through simple assessment when state pension uprating takes their income above the personal allowance.

Pensioners over state pension age will be eligible for the automatic tax deduction where their total income, regardless of source, is at or below the value of the full new state pension.

The allowance is calculated by applying the basic rate of income tax, currently 20%, to the difference between the full new state pension and the personal allowance. Individuals with income slightly above the full new state pension will receive a reduced allowance withdrawn at a rate of £1 for every £3 of excess income.

It will be available for the three consecutive tax years, starting from the tax year ending 5 April 2028. The allowance will be uprated in line with the full new state pension. Approximately 500,000 pensioners are expected to benefit from the allowance in the tax year ended 5 April 2028, of which 290,000 are expected to pay no tax at all.

Our comment

The introduction of the allowance will be welcomed by those eligible, and should reduce the disproportionate administrative burden faced by state pensioners.

Taxpayers will be required to correct errors in tax returns or documents when they are identified. Innacuracies will be treated as deliberate if the error is not corrected or otherwise notified to HMRC. HMRC will also have a new power to issue a ‘customer correction notice’ where it has reason to suspect an inaccuracy.

Summary

From 1 April 2028, the proposed duty to correct errors will apply to any taxpayer who becomes aware that they have filed an inaccurate tax return or document, which HMRC is still in time to assess. Additionally, HMRC will have the power to issue a correction notice requiring a taxpayer to either correct a suspected inaccuracy or explain why there is no inaccuracy.

A failure to correct an error, or to inform HMRC of it, will be treated as deliberate for the purposes of charging tax-related penalties.

Any failure to comply with a correction notice issued by HMRC will be presumed careless, although there will remain the possibility that the inaccuracy could be determined as deliberate. The taxpayer will have a right to argue that an inaccuracy arose despite reasonable care being taken.

Our comment

An introduction date of 1 April 2028 gives HMRC time to further refine the draft legislation and also to consider what further taxpayer safeguards should apply. Both taxpayers and their advisers will also want clear guidance on how the rules will operate in practice.

HMRC plans to introduce an automated system to collect lower-value tax debts directly from the bank accounts of individuals and companies. Significant safeguards will be required to ensure affordability is considered and to protect those who need extra financial help.

Summary

Starting in 2029, HMRC plans to recover agreed tax liabilities from the bank accounts of those who persistently fail to engage with HMRC over payment. For individuals, the total debt, including penalties and interest, would be £5,000 and below, and for companies £10,000 and below. The process will only apply after standard collection activity has been exhausted.

Not all bank accounts will be in scope. Those who do not hold a UK bank account, those who are subject to an insolvency process and deceased taxpayers will be excluded.

Our comment

It is clear from HMRC’s delivery roadmap that a lot of work will be required between now and implementation in 2029 on the design of the process and, in particular, on ensuring taxpayer safeguards are fair and robust. There will be a phased implementation starting with companies in 2029 and individuals from 2030.

Income tax rates applying to savings and property income will increase from April 2027, while most income tax thresholds and national insurance limits remain frozen.

The government has confirmed that income tax rates on savings and property income will increase by four percentage points from 6 April 2027, double the increase originally announced at Budget 2025.

The measure leaves tax rates on other sources of income unchanged, while most income tax thresholds and national insurance limits will remain frozen until 2030/31, as previously announced.

Summary

The government previously announced that separate rates of income tax will apply to savings income and property income from 6 April 2027, while income from employment, self-employment and pensions would continue to be taxed at existing rates.

That measure has been amended, so that income tax rates for savings income and property income will now increase to 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers.

The new savings income tax rates will apply across the UK. The new property income tax rates will apply in England, Wales and Northern Ireland.

Other income tax rates and allowances

Income tax rates applying to employment income, pensions and trading profits (20%, 40% or 45%) and dividend income (10.75%, 35.75% or 39.35%) remain unchanged.

The existing dividend allowance and personal savings allowance will also remain in place. These currently shelter the first £500 of dividend income and up to £1,000 of savings income for basic rate taxpayers (£500 for higher rate taxpayers).

National insurance contributions

Most national insurance contributions limits, thresholds and rates have been frozen, except for the Class 1 lower earnings limit (increased to £6,916) and Class 2 small profits threshold (increased to £7,355). There is also an increase to the weekly rates of Class 2 (£3.80) and Class 3 (£19.05) national insurance contributions.

Our comment

The increase to the tax rate on savings and property income was first announced at the 2025 Autumn Budget. The Chancellor has now opted for a larger increase, doubling the previously proposed rise from 2% to 4%.

These measures seek to increase tax revenues while maintaining the government’s commitment not to increase the headline income tax rates for “working people”. Instead, the measures fall on savers and landlords.

We assume the changes will see the deduction available to landlords of residential properties increase from 20% to 24%, and that trustees will also be subject to the increased rates on their savings or property income. We expect to see an accompanying change to the allocation of allowances and reliefs such that these deductions must first be taken against income subject to 20%, 40% and 45% tax rates before property or savings income.

Savers should ensure they are taking full advantage of available tax-advantaged investments, particularly ISAs, within which interest and dividend returns are not subject to tax.

For disposals made on or after 6 April 2027, the calculation restricting the capital gains tax relief for certain gifts of company shares will include a wider range of assets.

The change may increase or decrease the relief available, depending on whether those assets are used for trading or non-trading purposes, but should align the relief more closely with the underlying economic composition of the company or group.

Summary

Gift holdover relief is a capital gains tax relief for gifts of business assets, including certain qualifying shares. It can defer the capital gains tax that would otherwise arise when an individual gives away the assets. The relief can be restricted where the gift is of shares, and the relevant company or group holds assets that are not used for trading purposes.

The restriction is calculated as a proportion of the company’s non-trading chargeable assets, multiplied by the capital gain. Many assets are left out of the calculation. For disposals on or after 6 April 2027, the calculation will be expanded to include certain underlying shareholdings, as well as assets within the intangible fixed assets regime, such as goodwill and intellectual property.

By bringing a broader range of assets into the calculation, the change should align the relief more closely with the underlying economic composition of the company or group. However, it will not necessarily increase the relief available. The outcome will depend on whether the additional assets are used for trading or non-trading purposes.

Our comment

This is a sensible change that should align the calculation more closely with the underlying economic composition of the company or group. The calculation will account for a broader range of assets, rather than excluding them solely because of their tax treatment.

The measure may be particularly significant for succession planning for family businesses. The restriction to business relief, announced in the Autumn Budget 2024, made lifetime gifts of business assets to younger generations far more important. Following this announcement, there may be additional relevant factors to consider when deciding the timing of those lifetime gifts.

Individuals considering a gift in the near future may wish to compare the outcome under the existing and post-5 April 2027 rules before deciding when to make the gift where the shares are in:

• Companies holding valuable goodwill or intellectual property

• Non-subsidiary companies

• Companies with a mixture of trading and investment activities

The government has announced that the trading allowance will treble to £3,000 from 6 April 2027.

Summary

The trading allowance is a flat rate deduction against trading and some miscellaneous income, and is an alternative to claiming actual expenses. The allowance was introduced on 6 April 2017 and has been £1,000 per tax year since that date.

Budget 2026 announced an increase to the allowance to £3,000 per tax year from 6 April 2027, alongside an increase to the self-assessment reporting threshold to £3,000.

Our comment

The increase to the allowance will be a welcome change for individuals taking their first steps in starting a business, and those with small amounts of income from hobbies or side businesses.

For some individuals, this will mean no longer having to file self-assessment tax returns. The reduced administrative burden may be the most valuable implication of the change for some, especially those who incur professional fees in dealing with their tax affairs.

Under the proposed changes, individuals with trading and miscellaneous income above £3,000 will still be required to file a tax return, even where no tax liability is due because of other allowances, for example, the personal allowance.

The government has announced that income tax self-assessment taxpayers who currently make payments on account will be required to make earlier, more regular payments towards their tax liability from April 2029.

Summary

Currently, where an individual’s self-assessment income tax liability exceeds £1,000, they must make two payments on account towards their liability. This is unless 80% or more of their tax liability is collected at source, such as through pay-as-you-earn (PAYE). These payments are due by 31 January in the tax year and the 31 July following the tax year-end. For example, for the 2026/27 tax year, payments on account are due by 31 January and 31 July 2027.

It has now been announced that, from April 2029, these taxpayers will be required to make earlier and more regular tax payments during the tax year in which they earn the income. These will be automated, primarily via direct debit, but those paying tax through PAYE will be able to make the payments through PAYE if they choose.

Our comment

The announcement follows a consultation announced in the 2025 Budget and aims to align tax payments more closely to when income arises. Respondents to the consultation raised concerns around several areas, including the implications for those with irregular income and of collecting regular self-assessment tax payments through PAYE.

Those concerned about the initial proposals will be relieved that collection through PAYE will be optional, with direct debit the preferred collection method. The delay in implementation until 2029 will also help ensure a smoother transition. It remains to be seen, however, exactly how the new system will work in practice, and many may be cynical about the reasons for the changes, given that they will accelerate HMRC’s receipt of tax payments.

The government has published a consultation to finalise the details of a new founders’ relief. It will provide a 10% CGT rate on up to £10 million of lifetime gains from 6 April 2027.

The relief is intended to reward founders of innovative UK businesses, but the qualifying conditions as drafted are significantly more restrictive than those applying to business asset disposal relief (BADR) and may limit its practical availability.

Summary

The relief is intended to encourage entrepreneurs to establish, grow and retain innovative businesses in the UK by providing a reduced 10% CGT rate on qualifying share disposals. It will be available for disposals made on or after 6 April 2027 and will be subject to a £10 million lifetime limit per individual. The limit will be reduced by amounts claimed under BADR and investors' relief from that date.

To qualify, an individual must have:

• Held at least 25% of the company's ordinary share capital when the trade commenced

• Owned shares or securities in the company for at least five years before disposal, and

• Been UK tax resident for at least five continuous tax years prior to the disposal

Importantly, the relief will apply to all shares disposed of by a qualifying individual and is not restricted to shares acquired when the company was founded.

The company must:

• Be within the scope of UK corporation tax and maintain a substantial UK presence

• Carry on a qualifying trading activity, and

• Have achieved a minimum level of scale, including turnover of at least £10 million and at least 15 qualifying full-time employees before disposal

The company must also meet at least two of three additional tests designed to demonstrate sustained growth and innovation. These focus on turnover growth, employee growth and qualifying R&D expenditure.

Claims will be made through the self-assessment tax return for the year of disposal, and supporting information will be needed to demonstrate the qualifying conditions have been met.

The consultation closes on 30 November 2026 to allow sufficient time for legislation to be finalised before the relief takes effect from 6 April 2027.

Our comment

The government's objective is clear. While the UK has a strong record of creating innovative start-ups, it has historically struggled to scale those businesses into large, internationally competitive companies. By linking this tax relief to growth, employment and innovation, the government seeks to incentivise entrepreneurs whose businesses deliver broader economic benefits to the UK.

It is disappointing, therefore, that the consultation proposes what would become one of the most heavily conditioned tax reliefs in the UK tax system. Qualification depends not only on the founder’s shareholding and residency position, but also on a range of company-level metrics that may span a ten-year period. In practice, founders are likely to require detailed professional advice both before and after a transaction to determine whether the conditions are satisfied.

Some aspects of the design appear particularly restrictive. The requirement that the company continues the same trade for which it was originally established may prevent relief being available where a business has successfully evolved or pivoted in response to market opportunities. While the provision is clearly aimed at preventing abuse, it may not reflect the commercial reality that many highly successful businesses develop significantly from their original business model.

The proposed innovation test may also create uncertainty. Eligibility can depend on whether historic R&D expenditure qualified for relief, an area that has become increasingly subject to HMRC scrutiny. The consultation acknowledges that a subsequent challenge to an R&D claim could lead to founders’ relief being withdrawn, potentially leaving individuals with additional tax liabilities and interest.

There are also practical concerns around compliance. Founders may need access to information that is held by the company, sometimes many years after the relevant period. The consultation therefore proposes granting individuals a statutory right to request information from companies. While this may assist claimants, it will create additional administrative obligations for growing businesses.

In its current form, the breadth and complexity of the proposed conditions impose an added burden on businesses, and the resulting uncertainty may limit the behavioural impact that the relief is intended to achieve.

Founders’ relief achieving its policy objectives will rely on striking the right balance between targeting support and maintaining simplicity. It has the potential to become a valuable addition to the UK's entrepreneurial tax landscape, but not as drafted.

The 2026 Budget included several changes relating to pensions, particularly to lump sum death benefits and defined benefit schemes. These changes focus on relieving the administrative burden for pension scheme administrators and helping taxpayers receiving certain lump sum death benefits.

Summary

Surplus payments to members in a defined benefit pension scheme

The Budget announced that payments of surplus pension assets to a defined benefit scheme member made on or after 6 April 2027 will be considered an "authorised payment”. This will mean the unauthorised payments charge and surcharge of up to 55% on the scheme member, and a charge of up to 40% on the scheme administrator, will no longer apply. Authorised member surplus payments will be treated as pension income for the scheme member.

The measure is expected to affect scheme members who meet the relevant age or ill-health conditions, or dependants receiving payments from a scheme surplus following a scheme member’s death.

Removal of two-year rule for pension and lump sum death benefits

The two-year rule, which required pension scheme administrators to pay tax-free death benefits to beneficiaries within two years of learning of the death of a member aged under 75, will be removed. Previously, if these death benefits were paid more than two years after a scheme member’s death, they would be taxable. This measure will affect payments made on or after 28 October 2026.

Collection of tax on excess lump sum death benefits

Lump sum death benefits are often paid before it is known whether or not an individual’s lump sum and death benefit allowance has been exceeded. Where it is exceeded, any excess was previously taxed as pension income at the recipient's marginal tax rate. The Budget creates a new standalone charge to income tax on the chargeable excess, rather than treating the excess as additional pension income.

The measure will have retrospective effect for relevant lump sum death benefits paid on or after 6 April 2024. Transitional provisions will apply the same approach to relevant payments made in the 2023/24 tax year. Consequential changes concerning the interaction with inheritance tax will have effect from 6 April 2027.

Our comment

The individuals affected will welcome these changes, which simplify the administration of death benefits, when delays are often outside the control of scheme administrators or the deceased’s personal representatives.

The new standalone charge for excess pension death benefits will ensure a taxpayer’s wider tax and income-related benefits position will no longer be revisited, saving time and reducing administrative delays.

The government has announced that the lifetime limit for capital gains qualifying for business asset disposal relief (BADR) will be halved to £500,000 for disposals made on or after 6 April 2027. The existing CGT rate for qualifying gains will remain unchanged at 18%.

The further erodes the relief, which has seen several restrictions over recent years.

Summary

BADR is intended to incentivise enterprise by providing a reduced CGT rate on qualifying disposals of trading businesses.

In the Autumn Budget 2026, the government announced that from 6 April 2027 the lifetime limit of capital gains on which an individual can qualify for BADR will be reduced from £1 million to £500,000.

Our comment

The decision to halve the lifetime limit was, perhaps, unsurprising given the modifications to BADR in recent years.

The announcement follows several previous restrictions to the relief, which, at its most generous, provided for a 10% CGT rate on capital gains up to £10 million in an individual’s lifetime.

Formerly entrepreneurs’ relief, the following changes have been made since 2020:

• 11 March 2020 – lifetime limit reduced from £10 million to £1 million

• 6 April 2025 – applicable CGT rate increased from 10% to 14%

• 6 April 2026 – applicable CGT rate increased from 14% to 18%

• 6 April 2027 – lifetime limit reduced from £1 million to £500,000

A claimant of the relief could have previously saved £1.8 million in CGT. That is now limited to £30,000.

The government’s data indicates that three-quarters of taxpayers claiming BADR will not be affected by the latest changes. Nevertheless, the announcement will be disappointing to entrepreneurs. The cumulative changes to BADR may motivate taxpayers to leave the UK, potentially allowing them to fall outside the scope of UK CGT entirely.

The introduction of founders’ relief may mitigate the impact of these changes to a limited extent. However, the conditions attaching to the relief in its current proposed form mean that it will be available to a far smaller audience.

A reformed help to save scheme will launch in spring 2028, allowing savings accounts to be offered by a wider range of providers.

From April 2029, a new first time buyer ISA will replace the lifetime ISA for new savers, offering a 25% government bonus on qualifying withdrawals for a first home worth up to £450,000, capped at £20,000. Existing lifetime ISA holders will retain their current arrangements, although the withdrawal charge for first-home purchases above the £450,000 cap will fall from 25% to 20% from 29 October 2026.

The cash ISA limit will remain at £20,000 per annum for all savers over 18 years old from April 2027.

Summary

The Help to Save scheme will be reformed and reintroduced in spring 2028 using a multi-provider delivery model. Rather than being available through a more limited provider structure, accounts will be offered by providers including banks, building societies and credit unions. The reform is intended to broaden consumer access and choice, while preserving Help to Save as a targeted savings product for eligible customers.

The new first-time buyer ISA will be introduced from April 2029 and will replace the lifetime ISA for new savers. It will allow contributions of up to £4,000 a year and provide a 25% government bonus based on the account balance when funds are withdrawn for a qualifying first-home purchase, subject to a maximum bonus of £20,000 and a £450,000 property price cap. The product will have no upper age restriction, and the bonus will be paid on withdrawal, avoiding the need for a withdrawal charge where the purchase satisfies the qualifying conditions.

Existing lifetime ISA holders will be able to continue contributing to and using their accounts under the current rules. From 29 October 2026, however, the withdrawal charge for an existing lifetime ISA holder purchasing a qualifying first home above the £450,000 property cap will be reduced from 25% to 20%. The 25% charge for other unauthorised withdrawals will remain unchanged.

The government will also retain the annual cash ISA subscription limit at £20,000 for savers aged 18 or over from April 2027. This is intended to maintain substantial tax-advantaged savings support while the government works with the investment industry to encourage wider participation in investment products.

Our comment

The changes announced by the Chancellor are intended to encourage individuals to save for their future and towards their first home.

Following the reduction to the cash ISA limit announced in the 2025 Budget, it is welcome news that this has been abandoned and the full allowance reinstated. This will likely remain popular for more risk-averse savers.

Reform to lifetime ISAs was expected, but an increase in the property price cap would have likely been more welcome than a reduction in the penalty. The introduction of a new first-time buyer ISA closely mirrors the lifetime ISA, with restrictions still in place on purchasing properties.