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The Autumn Budget 2026: Key developments for financial services, asset management and private capital
This may ultimately be remembered as a Budget in which banks attracted the headlines, but capital bore much of the burden. Alongside the banking surcharge, the government has introduced measures affecting investment returns, profit extraction arrangements and sovereign investors, while simultaneously increasing its focus on reporting, transparency and compliance.
Bank surcharge
The headline Budget measure for financial services is the increase in the banking surcharge to 6% for 15 months commencing from 1 January 2027. This measure was widely anticipated, and its limited duration and modest scale may ease concerns relating to the tightening of lending and UK competitiveness.
However, while the banking surcharge is likely to dominate the headlines, it is arguably not the most significant measure for many participants in the financial services and investment sectors.
Indeed, the Budget scorecard suggests that measures affecting investment structures and returns are expected to raise more revenue than the banking surcharge.
Increase to income tax on property and savings income
The increases in the taxation of savings and property income are another example of the government seeking to raise revenue from investment returns. The measures also widen the differential between the taxation of savings income and dividend income (and gains), a distinction that may become an increasingly important consideration in fund and investment structuring.
Reduced after-tax returns may affect the economics of leveraged property investments and, at the margin, place pressure on affordability and borrowing capacity in parts of the buy-to-let market.
Distributions
The proposed changes to the distribution rules are intended to bring more extractions of value from companies within the charge to income tax.
While the detail will need to be reviewed carefully, this is potentially one of the most significant measures for the asset management sector. The government has stated that structures used to return capital within funds should generally not be affected, but we will want to closely test how the new regime might operate in the context of existing structures.
Foreign sovereigns
For many, this announcement will provoke a sense of déjà vu. Similar proposals were consulted on in 2022 but were ultimately not taken forward.
Sovereign immune investors are currently exempt from UK direct taxes. The government plans to bring forward reforms bringing certain sovereign investors within the scope of UK corporation tax in relation to property and trading income and gains.
Certain overseas pensions will receive an exemption from gains and there is expected to be an exemption relating to investment office activities. Certain follow-on changes are proposed to ensure REIT structures are workable and investors are good investors for the qualifying asset holding company regime. While a clear exclusion for investment office activity will be warmly received, the overall changes represent a major development for sovereign investors in UK real estate and the managers operating these structures.
Other measures
The government has published its response to the consultation on UK-resident individual members of LLCs and other reverse hybrid entities. Notably, it has decided not to pursue an approach based on treating LLCs as transparent for UK tax purposes. Instead, it intends to introduce a targeted relief mechanism addressing instances of double taxation arising from differences in entity classification between jurisdictions. The detail will require careful review, but this is likely to be highly significant for investors and firms with LLCs in their structure.
The Budget also includes changes to ISA compliance and reporting obligations, while confirming that the proposed reduction in the cash ISA limit will not be taken forward. Alongside changes to the lifetime ISA regime and the introduction of new savings products, these developments sit alongside HMRC's updated strategy on collecting the right tax from wealthy individuals. These measures reinforce HMRC’s continued focus on reporting, transparency and the use of data in compliance activity.
Alongside the tax measures, the government has continued to expand the role of the National Wealth Fund and British Business Bank as vehicles for investment and growth. For fund managers and private capital investors, these initiatives may create additional deployment opportunities and channels for public-private capital partnerships.
Please get in touch with your usual S&W contact or the contact listed if you would like to discuss any of the above.
Detailed analysis
Corporation tax simplification and modernisation: A changing approach to compliance
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.
Increases to income tax rates
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.
ISA reform
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.