Autumn Budget 2026: Rural businesses told to diversify. The Budget taxes the result

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.

The government has announced an increase in the first-year allowance (FYA) for qualifying expenditure on new main rate plant and machinery from 40% to 50%, effective from 1 January 2027. A reduction in the main pool writing down allowance (WDA) from 14% to 12% was also announced, effective from April 2027.

Summary

The 2026 Autumn Budget saw several changes to the capital allowances regime for both corporation tax and income tax paying businesses.

The 40% FYA available to businesses subject to income tax on expenditure incurred on new qualifying plant and machinery, and to businesses incurring qualifying expenditure on assets used for leasing, will increase to 50% for expenditure incurred from 1 January 2027.

The main pool WDA rate will be reduced from 14% to 12%, with effect from 1 April 2027 for corporation tax paying entities and 6 April 2027 for income tax paying entities. The reduced rate will apply to existing main pool balances, as well as expenditure that does not qualify for upfront capital allowances relief. This is the second consecutive reduction in the main pool WDA rate, which was already reduced from 18% to 14% last year.

The current 100% full expensing FYA for companies investing in qualifying new main rate assets will continue to apply, as will the 50% first-year allowance for qualifying special rate expenditure

Our comment

We welcome the increase in the main rate FYA. The measure further narrows the gap between the relief available to income tax paying businesses and those undertaking qualifying leasing activities, and the full expensing regime available to companies.

However, this benefit is offset by the further 2% reduction in the main pool WDA rate. Asset-intensive businesses, such as real estate, infrastructure, healthcare and hotel and leisure, which have large main pool balances, will now obtain tax relief over a longer period.

The fact that these measures are expected to generate significant additional revenue for the government, as it is the biggest revenue raiser over the forecast period after HMRC measures to close the tax gap, suggests that the reduction in WDA rates is expected to outweigh the benefit of the increased FYA across the wider economy.

This emphasises that capital allowances planning remains increasingly important, with businesses needing to maximise access to upfront reliefs and carefully assess the timing and structure of capital investment decisions.

The government has announced a series of initiatives and consultations aimed at simplifying and modernising the corporation tax system. Matters under consideration range from simplifying the underlying tax rules to improving the use of technology and standardising tax returns. While much of the programme remains at the consultation stage, mandatory online filing of amended company tax returns will be introduced from April 2028.

Summary

Corporate tax simplification for business investment

As part of the Budget announcements, the government has published a consultation exploring targeted simplification of the corporation tax system to improve certainty, reduce complexity and support business investment, growth and competitiveness. The consultation identifies areas where taxpayers’ feedback suggests that existing rules and administrative requirements create uncertainty or unnecessary burdens.

While the consultation indicates that the government is seeking to identify opportunities for reform, it notes that the goal is to simplify the relevant rules rather than repeal the provisions altogether.

The paper highlights several technical areas that may be considered for future reform. These include international tax and anti-avoidance rules where the introduction of Pillar Two rules might create overlap, such as the controlled foreign companies (CFC) regime and anti-hybrid mismatch rules. In addition, it will consider corporate tax reporting matters, such as opportunities to improve digital processes and better align tax and financial reporting:

• International tax rules, particularly where the introduction of Pillar Two may overlap with existing anti-avoidance and reporting regimes, for example, CFCs

• Corporate Interest Restriction (CIR) and other business financing rules that can create significant compliance burdens for larger groups

• Capital allowances and investment-related rules, with a focus on improving certainty and ease of compliance

• Corporation tax administration and reporting, including opportunities to reduce duplication, improve digital processes and better align tax and financial reporting, while also increasing HMRC’s visibility of cross-border transactions through the introduction of International Controlled Transactions Schedule (ICTS) reporting

• The use of AI and technology to identify complexity in tax legislation and support future tax policymaking

The government intends to work with stakeholders over the next year to develop and prioritise proposals, with detailed reforms to follow.

Modernising the administration of corporation tax

The government has also launched a call for evidence seeking views on the longer-term future of corporation tax administration. The call for evidence will consider, in particular, how businesses interact with HMRC, including the processes, systems and software used to prepare and submit tax returns and manage corporation tax obligations.

The key themes from the consultation are:

• "Get it right first time" approach – HMRC's vision to reduce errors through better guidance, earlier interventions, embedded prompts and stronger links between accounting systems, tax processes and business records

• Greater use of technology and data – The consultation considers how modern software, business systems integration and emerging technologies, including AI, could support compliance and reduce manual reporting requirements

• More integrated reporting – HMRC is interested in reducing duplication between accounts preparation, corporation tax computations, Companies House reporting and wider government reporting requirements

• Different approaches for different taxpayers – The consultation recognises that the needs of small companies differ significantly from those of large multinational groups and asks whether future administration should be more tailored and proportionate

• No Making Tax Digital (MTD) for corporation tax –The government has reaffirmed that it does not intend to introduce MTD for corporation tax, but is exploring alternative ways to modernise administration

• The wider reform programme – The work sits alongside consultations on standardising company tax returns, business systems integration, corporate reporting reform and Companies House modernisation

The call for evidence does not propose immediate changes to existing corporation tax rules or obligations. It is open for responses until 20 January 2027.

Modernising and standardising corporation tax submissions

The government has also published its response to the consultation on modernising and standardising company tax returns, confirming plans to introduce a prescribed format for corporation tax computations. This aims to improve the consistency and quality of information submitted to HMRC.

Following concerns raised by businesses, advisers and software providers about implementation costs and the proposed timetable, the government has adopted a longer and more flexible approach. Final implementation dates have not yet been confirmed.

The government has also confirmed that:

• Online filing of amended company tax returns will become mandatory from 1 April 2028, subject to the applicable exceptions

• Enforcement measures relating to prescribed corporation tax computations will not be introduced at this stage

Other corporation tax measures

The government has also announced several targeted measures, regarding:

• Gas network operators – Qualifying revenues brought into account because of changes to revenue recognition will be spread over five years for corporation tax purposes, reducing the immediate tax impact

• Advance corporation tax (ACT): The remaining regime will be abolished from 1 April 2031, with any unrelieved surplus ACT balances extinguished

• A tax update event – Further measures to simplify and modernise the tax and customs system will be announced in 2027

Our comment

The government’s corporation tax simplification programme may ultimately prove one of the more consequential Budget announcements for businesses, despite attracting relatively little attention. While the proposals do not immediately change tax liabilities, they could reshape how businesses manage their corporation tax obligations and the associated costs.

For now, much depends on what emerges from the consultations. The ambition is welcome, but meaningful simplification will require more than changes to reporting processes.

Simplifying the rules, not just the process

Complex tax rules create costs beyond the tax itself. Businesses spend considerable time interpreting legislation, assessing transactions and managing uncertainty, often before any investment decision can be made.

The consultation offers an opportunity to address that complexity directly. Reconsidering the interaction between the CFC rules and Pillar Two could reduce overlapping requirements for multinational groups.

However, there is a tension between the government’s simplification ambitions and the introduction of new obligations, such as the ICTS. The challenge will be to reduce the overall compliance burden rather than simply adding new requirements to an already complex system.

Rethinking corporation tax compliance

Better integration between accounting systems, tax software and HMRC could reduce manual reporting, duplication and reconciliation work, freeing up tax teams to focus on more valuable activities. However, corporation tax is not simply an extension of financial reporting. For larger groups, cross-border transactions, complex structures and specialist tax adjustments mean that much of the work cannot be automated away.

The opportunity lies in making better use of information businesses already hold, without requiring them to produce more of it.

Standardisation: implementation matters

Standardised tax computations should improve consistency, but the transition will carry costs. Businesses and software providers will need time to adapt systems and processes, making the government’s decision to extend the implementation timetable a sensible one.

Mandatory online filing of amended returns from April 2028 is more immediate. Businesses should assess whether their existing software and internal processes can accommodate the change, particularly where amendments involve historical periods or complex group adjustments.

The measure of success will be whether these reforms genuinely reduce the work involved in compliance, rather than simply changing how that work is performed.

Other corporation tax measures

The remaining measures are more targeted. Spreading taxable revenues over five years should ease immediate cash flow pressures for qualifying gas network operators, while businesses with historical ACT balances will need to review their position ahead of the regime’s abolition in 2031.

The planned tax update event in 2027 should provide a clearer picture of how the government’s wider simplification agenda will translate into practical changes.

From 1 April 2027, the National Minimum Wage (NMW) and National Living Wage (NLW) rates will increase by 3.9%. The NLW will rise to £13.21 per hour.

Summary

The Chancellor announced that the government had fully accepted the Low Pay Commission’s recommendations, resulting in a further increase to NMW rates. This means that, for pay reference periods beginning on or after 1 April 2027, the following rates should be applied by employers:

• NLW for those aged 21 years and over – £13.21 per hour

• NMW for those aged 18-20 years – £11.27 per hour

• NMW for those aged 16 or 17 years – £8.31 per hour

• NMW for individuals completing an apprenticeship who are aged under 19 years or aged 19 years or over and in the first year of their apprenticeship – £8.31 per hour

Our comment

Given that the government was expected to raise NMW rates for younger workers towards a single NMW rate for all ages, in line with its manifesto pledge, this more limited increase should be welcome news for employers.

While many employers are used to NMW rates increasing annually in April, the upcoming increase in April 2027 also coincides with the NMW enforcement teams moving from HMRC to the Fair Work Agency. It has been confirmed that enforcement activity will continue in line with HMRC’s previous approach, but we expect this will bring increased enforcement activity and a renewed focus on NMW and wider areas of employment rights, including holiday pay and statutory payments.

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%.

This 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.

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.

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 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.