Budget Statement 28 October 2026

Capital Gains Tax: Reduction in the Business Asset Disposal Relief Lifetime Limit

The government has continued its watering down of Business Asset Disposal Relief (BADR), with the lifetime limit up to which gains are taxed at a reduced rate of 18% now being slashed to £500,000 from 6 April 2027. This is a far cry from its predecessor Entrepreneurs’ Relief which in prior years provided a 10% CGT rate on lifetime capital gains up to £10 million. This reduction in relief means that business owners will pay considerably more capital gains tax when they sell their business.

Capital Gains Tax: Introduction of Founders’ Relief

A new Founders’ Relief is to be introduced, with the stated goal being to support founders and early investors who have made a significant long-term contribution to the creation and development of the UK’s most high-growth and innovative companies. The relief will allow for a reduced CGT rate of 10% up to a lifetime cap of £10 million per individual and applies to disposals of shares or securities made on or after 6 April 2027.

There will be qualifying conditions that both individuals and the company will need to meet, the details of which will be subject to consultation, though they are currently expected to be as follows:

Individual conditions

The individual will need to:

• Have held 25% of the company’s ordinary share capital (together with corresponding voting rights and rights to distributable profits and assets on a winding up) at commencement of the trading activity for which the company was formed.
• Have held the shares or securities for at least five years before their disposal.
• Have been UK resident under the Statutory Residence Test for at least five continuous tax years before the disposal.

Company conditions

The company will need to:

• Be UK resident for Corporation Tax purposes or carrying on business in the UK through a permanent establishment, and the business must have a substantial UK presence for the five accounting periods before disposal.
• Be a trading company, or the holding company of a trading group, without substantial non-trading activities or excluded trading activities such as dealing in land, financial services or property development.
• Continue the new trade it was established for when the founder shares were issued with no major change in the nature of the trade.
• Have generated turnover of at least £10 million in the accounting period prior to disposal.
• Have employed at least 15 qualifying full-time employees in the accounting period prior to disposal (employees are qualifying if they work at least 35 hours a week).
• Have met at least two of the following three conditions:

1. Annual average compound growth in turnover of 25% across three consecutive accounting periods within the 10 years before disposal, with turnover of at least £10 million in the accounting period before the first of these three periods.
2. Annual average compound growth of at least 25% in qualifying full-time equivalent employees across three consecutive accounting periods within the 10 years before disposal, with at least 15 full-time employees in the accounting period before the first of these three periods.
3. The company has (1) incurred qualifying expenditure of at least £1.5 million or more on Research & Development (R&D) for which it met all the conditions to make an R&D tax relief claim and (2) has claimed R&D tax reliefs for that expenditure for an accounting period or periods ending within the three years before disposal.

While the rates and limits of Founders’ Relief are reminiscent of Entrepreneurs’ Relief, the qualifying conditions are likely to restrict the number of people able to take advantage of the relief and indeed HMRC has stated that they only anticipate receiving claims from around 600 individuals per year.

Inheritance Tax 

Given Andy Burnham’s previous comments on inheritance tax (IHT), including in 2024 “I would be prepared to accept the abolition of inheritance tax on condition that we tax the wealthy properly while they are alive”, there had been some speculation that today’s budget would see a major upheaval to the IHT regime, and the way wealth is taxed, including the potential introduction of a wealth tax.  However, instead there were only some minor tweaks to IHT, which remains very much in place.  Whilst the Chancellor said in his budget speech that he wanted to protect families passing businesses to the next generation, there were no announcements changing the operation of Business Property Relief, which continues to be subject to a £2.5 million limit for relief at 100%.

Minor technical amendments to the extension of IHT to pensions from April 2027

Further legislation is to be introduced, taking effect from 6 April 2027, as follows:

• To allow prospective personal representatives to direct pension scheme administrators to pay IHT due to HMRC when certain conditions are met. Previously only personal representatives could make such a direction, which meant that administrators of intestate estates could not direct payment of IHT until after letters of administration were granted.
• Announcements suggest that those administrating the estate will be able to decide whether the notional pension property is included within the “general” component of the estate or treated as a separate component for the purposes of calculating the reduced rate of inheritance tax when part of the estate is left to charity. Careful review of the legislation will be required once it is published, and it is likely that wills which currently leave the 10% baseline to charity should be revisited to ensure that the potential charitable gift is in line with the testator’s expectations and to protect the personal representatives from opposing claims from charitable and residuary beneficiaries.

Clarification of the availability of deductions for liabilities in trust arrangements

Anti-avoidance legislation is being introduced, which is effective for transfers of value and occasions of charge on or after 28 October 2026, aiming to ensure that the deduction for liabilities in relation to settled property are subject to the same rules as other liabilities for IHT purposes. In particular, the changes seek to ensure that liabilities are only taken into account if there is a genuine reduction in value, and that trust values are not being artificially suppressed.

Pension: Lump Sum Death Benefits 

There is a welcome change to the taxation of pension payments received by beneficiaries following the member’s death. Pension payments that would have otherwise been tax-free will no longer become taxable solely because they are paid more than two years after the member’s death.

Changes to Rates, Allowances and Tax Administration

Non-savings and property Income Tax increase

Following the announcement in the last Budget to increase the rate of income tax applying to property and savings income by 2% from April 2027, the Chancellor today announced a further 2% increase, meaning the new rates will instead be 24%, 44% and 49% respectively.

Increase in Trading Allowance

The trading allowance for self-employed individuals is due to increase from £1,000 to £3,000 from April 2027. As a result, individuals with gross trading or miscellaneous income under £3,000 will not be required to declare or pay tax on this income.

Increase in Mileage Rates

From April 2027, the rate for business mileage above 10,000 miles will increase from 25p to 35p per mile under both Approved Mileage Allowance Payments for employees and Simplified Mileage Rates for self-employed individuals. This is in addition to the temporarily increased 55p per mile up to 10,000 miles which has now been made permanent.

Making Tax Digital (MTD) for Income Tax

For those joining MTD for income tax in April 2027, late filing penalty points will not be applied during the first tax year of quarterly filings (as was the case for the first year of submission by taxpayers who joined in April 2026).

The following individuals that previously fell into a temporary exemption will now be exempt until further notice:

• Those eligible for qualifying care
• Expected non-resident individuals, including non-resident entertainers and sports people.

Notably, the exemption has not been extended for taxpayers with income from trusts and estates or those with averaging adjustments.

Timely Payments of Self Assessment Income Tax

For individuals who make twice-yearly tax payments on account by 31 January and 31 July each year, significant changes will come into effect from April 2029, in respect of the payment method and regularity.

Payments on account will continue to be based on the prior year tax liability, with collection to become automated, i.e. either by direct debit or via PAYE, if sufficient salary or pension income is earned.  There is no decision announced on the regularity with which payments will be collected.  A transitional period will apply for tax year 2029/30, during which the taxpayer will be paying prior year and current year liabilities.  The government intends to offer support to taxpayers with this change, including payment plans.

Requiring Payment of VAT and PAYE Return Liabilities by Direct Debit

Following a consultation on collection of VAT and PAYE from businesses, in a commitment to reduce late or unpaid tax liabilities, the government will introduce a direct debit payment system for unpaid tax as at the due date.

Businesses will be required to set up a direct debit instruction for VAT and PAYE return payments from April 2029 unless exempt. However, they will retain the flexibility to use preferred payment methods provided that the payment is made before the due date.  The government will explore any alternative automated payment methods developed prior to the implementation date in April 2029.

Collecting the Right Tax from Wealthy Individuals

HMRC is investing in technology, digital services and staff to improve tax administration for wealthy individuals, defined as those earning more than £200,000 annually or holding assets exceeding £2 million in any of the last three tax years.

Individual Savings Accounts (ISAs)

The following provisions were announced:

First-Time Buyer ISA

This will replace the Lifetime ISA and will provide for a 25% government bonus on the final account balance, up to a maximum of £20,000, paid on withdrawal to purchase a first home up to a value of £450,000.  Existing Lifetime ISA holders will be permitted to continue using the account under the existing rules.

Reduced Lifetime ISA Withdrawal Charge

The withdrawal charge applicable on purchase of properties that exceed the property cap will reduce from 25% to 20%, allowing individuals to extract the full amount of cash that was initially deposited by them.  For any other unauthorised withdrawals the penalty of 25% will continue to apply.

Retaining the £20,000 Cash ISA Limit

The limit of £20,000 into a cash ISA has been retained while the government explores new incentives for investments into stocks and shares ISAs.

High Value Council Tax Surcharge (HVCTS)

Last budget introduced a HVCTS in respect of properties valued at more than £2 million.  Following a consultation period, the proposals will be implemented as planned and chargeable to the legal owners of the high value property.

Fixing the Taxation of US LLCs and other Foreign Entities

Many clients will be painfully aware of the unfairness of UK tax on US LLCs and certain other foreign entities (known as “reverse hybrids”) which are treated as tax transparent in their home jurisdiction but like companies in the UK. Currently, an overall tax rate of over 75% can be suffered because underlying income is assessed overseas but then the UK taxes distributions with no credit for the overseas tax suffered. This has materially impacted internationally mobile employees and wealthy individuals, including increasing difficulty for UK private capital firms who are struggling to recruit in the UK.

The consultation responses have now been published and the agreed approach is to provide for relief through a tax credit against distributions of the overseas entity. Eligible entities will be specifically named and will include US and Jersey LLCs, US S-Corps and French SCIs. The UK corporation tax treatment of these entities is not proposed to change so there could still be corporation tax issues if these entities become UK tax resident for corporation tax purposes.

We are not yet at the stage of seeing legislation, and there will be another(!) technical consultation before we have certainty in this area. The consultation response does commit to taxpayers being able to make credit claims by “early 2028”.

There are still important issues to confirm, including how historic but undistributed income and gains are treated, and how the foreign tax suffered is calculated.  It does seem, however, that we are moving – albeit slowly – in the right direction.

Removal of Exit Charges for Temporarily Migrating Trusts

The government will introduce legislation to ensure that capital gains exit charges will not apply to trusts that cease to be UK resident provided:

• It became UK resident because one or more of the trustees of the trust became UK resident, and
• The trust ceases to be UK resident later that year or the following year either through a resignation of the UK resident trustee(s), or because the UK resident trustees cease UK residency.

The change will take effect from 28 October 2026.

Prior to the change, an exit charge based on a deemed disposal and reacquisition of the trust assets at their market value on the date of cessation of UK residence would have been levied on the trustees of the trust, unless those assets were situated in the UK and used in a UK trade.

This charge would have applied irrespective of the length of UK tax residency of the trust.

Venture Capital Schemes

Changes were announced to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).

Presumably to incentivise growth, tax relief will not be fully withdrawn where a company exceeds the annual or lifetime EIS investment limits, and instead, it will remain available for the proportion of the shares that fell within the limits.

Where Income Tax relief was claimed on a VCT investment, and it is later withdrawn because the shares are not held for the required length of time, HMRC will clawback the tax relief with reference to the rate of relief applied at the time the shares were issued – as opposed to taxpayer’s tax rate in the year of withdrawal.

Modernising the Distributions Framework – Major Changes Expected 

The government confirmed that the consultation that ran between 23^rd June 2026 and 14^th September 2026 has now concluded and it will move forward with all seven proposals in relation to the UK tax system for distributions from companies.

A full technical consultation on the draft legislation will be carried out in 2027 and the government intends for the changes to apply from April 2028.  This will potentially be a major overhaul to the tax treatment of distributions, around which much commercial planning and restructuring is currently centered due to the specified reliefs built into our tax system.

As part of the changes, the government is proposing amendments to the following areas:

• Reduction of capital
• Demergers
• Income tax treatment of distributions from non-UK resident companies
• Interaction between debt, loans and the distribution legislation
• Loans and other temporary extractions from non-UK resident companies
• Purchase of own share rules
• Updated capital extraction anti-avoidance

The above proposals will have a significant impact on tax arrangements for companies and their shareholders, and we expect this to be one of the biggest overhauls of our tax system in the coming years. We will be publishing an article with further details in due course.

Employee Share Schemes

The government has already announced increases to the thresholds for Enterprise Management Incentives (EMI) in the last Budget, to make the scheme more generous and applicable to larger companies.  Today they have also announced changes to Company Share Options Plans (CSOPs), and further minor amendments to EMI.

Company Share Options Plans (CSOPs)

The government has announced that CSOPs will be renamed ‘Enterprise Management Incentives 2’ (EMI2) – someone was having an easy day in the office when they came up with that new name!

As well as the name change, there will be some other minor changes to the operation of the scheme:

• The value of options that an individual employee is allowed to be awarded will increase to £120,000 on 6 April 2027, from the current £60,000 limit that applies to CSOPs.
• CSOP options that employees hold currently count towards the maximum value of EMI options that can be issued, but this interaction is being removed from 6 April 2027.
• It will also be possible to exercise CSOP options up to 15 years after the grant date without a charge to income tax or national insurance, whereas currently these tax benefits fall away for exercises after 10 years. It will still be necessary to hold the CSOP/ EMI2 options for a minimum three year period to access these tax benefits.

CSOPs/ EMI2 are typically used by larger companies, as the scheme doesn’t have the same company size limits that apply to EMI.  It can also be used by a wider variety of trades, as EMI is not available to certain excluded trades such as professional services or property development.

Capital Allowances

First Year Allowances (FYAs)

In a bid to encourage investment in new plant, machinery and equipment, the Chancellor announced an increase to the main rate of First Year Allowances (FYAs) to 50% from the current 40% rate. This will apply to qualifying expenditure incurred on or after 1 January 2027, for both companies and unincorporated businesses.

Companies can qualify for Full Expensing, so the above 50% FYA may be more useful to unincorporated businesses that have already used their Annual Investment Allowance (AIA) of £1 million.

Writing Down Allowances (WDAs) 

In a reduction in generosity for capital allowances on existing plant and machinery, or new items that do not qualify for an increased rate, the main rate writing down allowance will reduce to 12% from 14%.  This will take effect from 1 April 2027 for companies and 6 April 2027 for unincorporated businesses.

Corporation Tax Changes

Foreign Permanent Establishments (PEs)

Previously, a UK resident company with a foreign PE could elect to exempt the profits or losses attributable to that foreign PE from UK corporation tax. In May 2026, the government announced that it would introduce legislation to make the foreign PE exemption mandatory, meaning that any profits or losses attributable to a foreign PE would be exempt from UK corporation tax. The changes will take effect for accounting periods beginning on or after 1 January 2027.

Exploitation Rights 

Existing legislation provides that profits arising from "exploration and exploitation activities" carried out in the UK or on the UK Continental Shelf, and profits arising from "exploration or exploitation rights", are subject to corporation tax in the UK. In July 2026, the government announced that it will introduce legislation to broaden the definition of "exploration or exploitation rights" to ensure that profits arising from certain rights are to be treated as income from immovable property. The changes will apply to accounting periods beginning on or after 13 July 2026 for Corporation Tax.

Pillar Two

The Multinational Top-Up Tax (MTT) and Domestic Top-Up Tax (DTT) rules apply to multinational groups with annual consolidated global revenue exceeding €750m. The rules are designed to ensure that large corporate groups are subject to a global minimum effective corporate tax rate of 15%. These rules were introduced in the UK for accounting periods beginning on or after 31 December 2023.

In July 2026, the government announced measures to implement a side by side package into UK legislation to ensure that the UK remains consistent with the rules, commentary and administrative guidance published by the Organisation for Economic Co-operation and Development (OECD). The side by side package will take effect for accounting periods beginning on or after 1 January 2026, while most of the technical amendments will take effect for accounting periods beginning on or after 31 December 2026.

Modernising Corporation Tax Administration

The government has issued a call for evidence on the modernisation and simplification of corporation tax administration. The call for evidence will run for 12 weeks from 28 October 2026. It seeks the view of experts on how corporation tax administration can be improved to better meet the needs of businesses and other entities subject to UK corporation tax, while ensuring that the correct amount of tax is reported and paid to HMRC. It covers a wide range of topics, including how automation and artificial intelligence can be used to modernise the corporation tax system.

Modernising and Standardising Company Tax Returns

The government is proposing a prescribed format for corporation tax computations that support corporation tax returns in an effort to improve the quality and consistency of the corporation tax data submitted.

Following a recent consultation, the government understands the need to be flexible on the timetable for introducing a prescribed format, and as yet no implementation date has been proposed.

The government has confirmed that it will proceed with mandatory online filing of amended company tax returns from 1^st April 2028.

Indirect Taxes

VAT E-Invoicing Requirements

E-Invoicing was previously mentioned in the November 2025 budget, and it appears from the recent budget that the updated requirements remain on track to become effective from 01 April 2029.

As previously reported, HMRC will insist on e-invoicing and the use of prescribed invoicing formats.  E- invoicing includes the exchange of structured invoices directly between buyers’ and suppliers’ financial systems.

The government shared further information on their roadmap. The aim is that this will help support businesses to adopt digital systems allowing businesses to be better able to automate both the receipt and payment of invoices. In addition, it’s hoped implementing e-invoicing will help tackle late payments, which cost the UK economy £11 billion each year.

This update will build on the existing Making Tax Digital requirements for VAT however, it is not expected that HMRC will automatically receive every e-invoice or all the data it contains.

We are expecting HMRC to provide further guidance following the consultation which will run for 12 weeks from 28 October 2026 to 20 January 2027.

VAT Reform of the Reverse Charge for B2B Supplies of Services from Overseas

From 1^st April 2027, the government announced that reverse charge will no longer apply for supplies of services from overseas suppliers to UK businesses that are not registered for VAT.  The overseas supplier will instead be required to charge and account for UK VAT.

UK businesses that are not VAT registered and incur fees from overseas entities, from 1^st April 2027, will therefore incur UK VAT. This obviously has cashflow implications for these UK businesses, who may then look at registering for VAT themselves, if they are able to.

The overseas suppliers must operate a UK VAT registration with the burden on them to declare the VAT to HMRC.

Following the implementation of this VAT reform, the expectation is that the overseas services will no longer contribute to the business’s taxable turnover for VAT registration purposes.  This will then mean that fewer entities are required to register for VAT than under previous rules.

Stamp Duty Land Tax (SDLT) Group Relief 

A minor tightening up of the group relief rules for SDLT has been confirmed, whereby the winding up of a transferor company following a claim for SDLT group relief will not prevent the relief from being clawed back within three years if the transferee company later leaves the group. 

Securities Transfer Tax

The government is still planning to introduce a new Securities Transfer Tax to replace Stamp Duty and Stamp Duty Reserve Tax on shares. The new legislation is expected to take effect in late 2027 and will involve a new fully digitalised system.

Updating the Rules for Cryptoassets

With crypto being an emerging and still rapidly changing technology, legislation is still catching up. Two areas of change were highlighted in Budget 2026.

Taxation of Stablecoins

HMRC’s guidance confirms the position that they do not treat cryptoassets as currency. However, since stablecoins are pegged to a fiat currency, legislation is being introduced to put the disposal of a stablecoin on the same footing as the disposal of fiat currency – namely that it is exempt from Capital Gains Tax. This will come into effect from 6 April 2027.

Loans and Liquidity Pools

Another area where the government are bringing treatment more in line with that of currency is in the area of lending. Currently, the lending of a cryptoasset is a disposal at market value, realising a dry tax charge. Legislation coming into effect from 6 April 2027 will cover specific situations where investors borrow, lend or invest in certain “automated market making arrangements”. Where the relevant conditions are met, the transactions are at a no gain/no loss basis rather than realising a gain based on current market value.

These changes are specific and specialist advice would be needed before relying on the application of these rules.

HMRC Powers

No budget is complete without giving HMRC more powers, and this year is no exception. As announced in July, HMRC will have the ability to send a new type of letter – a “customer correction notice” or CCN – where they believe an individual has not correctly reported an item. This letter requires a response from the taxpayer (or “customer” as HMRC fondly refers to them) either correcting the position or explaining why the correction is not required. Taxpayers who become aware of errors and do not correct will also now be treated as acting deliberately which puts them in a higher bracket for penalties.

The CCN is presumably intended to fill the gap between an HMRC enquiry (which is costly in terms of HMRC resources) and the nudge letters they have been sending in recent years, which do not require a response from taxpayers – though we would always advocate responding even if it is to confirm HMRC have everything they need already reported on the tax returns. The shift in recent years has been putting the burden on the taxpayer and their advisers, and this change will continue that trajectory.

Any Questions?

As ever, we are here to help. Please get in touch with your usual Charter Tax contact or email us at advice@charter-tax.com.