Speculation in the run up to Budget Day was comparatively low-key, and there was a conspicuous absence of the widely trailed leaks which have been a feature of recent Budgets. However, there was plenty to unpack. Headline measures included:
- an increase in the corporation tax surcharge on banking companies
- changes to the taxation of sovereign wealth funds
- increases in savings and property rates of income tax
- changes to rates of capital allowances.
There were also interesting developments for the UK-resident owners of U.S. LLCs and a welcome reduction in the threshold entry for access to HMRC’s Advance Tax Certainty Service.
We consider these and other announcements below.
For further detail, please see the government Budget pages and associated documents. Many (but not all) of the Budget proposals will be included in the Finance Bill 2027 (FB27), which is expected to be published over the next week, and will add further flesh to the proposals.
Business taxation
Corporation tax rates
A renewed government commitment to the 2024 Corporate Tax Roadmap, which stipulates a main corporation tax rate of 25% and full expensing for plant and machinery.
Capital allowances
- For assets outside full expensing:
- First-year allowance (FYA) rate to increase from 40% to 50% for expenditure incurred on or after January 1, 2027.
- The writing down allowance (WDA) rate for expenditure in the main pool to reduce from 14% to 12% from April 2027.
- In relation to the tax treatment of predevelopment costs, an issue highlighted by the recent decision in Orsted West of Duddon Sands v. HMRC [2026] UKSC 12 (in which the Supreme Court found for HMRC), the government’s consultation response document indicates that it intends to work with stakeholders to consider additional clarification.
Banking surcharge
The government has announced a temporary increase in the rate of Corporation Tax banking surcharge from 3% to 6% for a 15-month period from January 1, 2027 to March 31, 2028.
Sovereign wealth funds
A government consultation document sets out proposed reforms to the taxation of foreign sovereign investors to take effect from January 1, 2029. The changes anticipated include the following:
- The replacement of the existing sovereign immunity rules, based in common law, by a new “sovereign tax status” statutory regime.
- In relation to the investment management activities of sovereign investment offices, continued exemption for UK source interest income, chargeable gains and inheritance tax in respect of state property situate in the UK.
- Foreign sovereigns will be brought into the charge to UK tax on certain UK real estate income and gains (in the same way as other non-UK resident investors in real estate) but will keep qualifying institutional investor status for Real Estate Investment Trust (REIT), Qualifying Asset Holding Company (QAHC), Long Term Asset Fund (LTAF) and other collective investment vehicle regimes.
- The reforms will include an optional REIT regime which will allow sovereign investors to hold a substantial REIT interest without triggering a holder of excessive rights charge on distributions. The company must be UK resident, wholly owned by the sovereign, invest only in REITs and be notified to HMRC. It will benefit from a 15% rate on the gross amount of property income distributions received and under normal corporation tax rules on other REIT distributions and gains.
Corporation tax foreign permanent establishment exemption
Confirming the announcement made in May 2026, the elective exemption for profits and losses from foreign permanent establishments will be made mandatory with effect for accounting periods beginning on or after January 1, 2027.
Distributions and repayments of capital from companies
We can expect significant changes to the taxation of distributions and extraction of capital from companies. The government has announced that it will take forward the reforms proposed in the consultation document published in June 2026, with additional technical consultations on draft legislation to be published in 2027. The proposals will:
- limit the amount treated as a capital repayment following a share reorganisation
- reform the statutory demerger rules
- align income tax charges on distributions from non-UK resident companies with UK-resident rules
- reform the purchase of own shares rules to provide more mechanical conditions
- review the interaction between the distributions regimes and loans to participators
- update transactions in securities rules to provide a more principles-based anti-avoidance framework.
Investors in U.S. LLCs and other reverse hybrids
Following on from its consultation on UK resident individuals who invest in reverse hybrids, such as U.S. LLCs, the government has dropped earlier proposals to treat these entities as transparent, on the grounds that it would be too complex and unworkable for many investors. Instead, it is expected that new legislation will treat specified entities are opaque for individual members, including U.S. LLCs, U.S. S-Corps, Jersey LLCs and French SCIs.
Distributions will continue to be taxed at dividend rate, but members will be able to elect for a new domestic credit for foreign taxes they have paid personally on the entity’s profits. Certain details remain open and a further technical consultation is expected shortly. It is anticipated that claims will be possible from early 2028. The government is considering practical options for earlier periods and existing disputes.
Corporate Tax Simplification for Business Investment
The government has published a targeted consultation on simplifying specific areas of the corporation tax regime. It identifies areas that the government considers ripe for reform and invites stakeholders to help shape the solutions. The areas singled out include treaty relief from withholding tax on interest, the interaction between the anti-hybrid rules and the Pillar Two rules, and the unallowable purpose rule for loan relationships.
The consultation is particularly interesting because it shows which issues are causing difficulty across whole groups of taxpayers, and it gives businesses a real opportunity to influence how those issues are resolved. The consultation closes on November 21, 2026.
Withholding tax exemption for Scottish government bonds
The government will introduce legislation to provide that interest paid on or after October 28, 2026 on Scottish government bonds will be exempt from the duty to deduct income tax.
Advance Tax Certainty Service
The entry threshold for qualifying projects will be reduced from GBP1 billion to GBP300 million with effect from November 4, 2026. The service (which was introduced on July 1, 2026) allows businesses to apply for binding tax clearance on how the tax rules will apply to major investment projects.
Corporate interest restriction
From January 1, 2027, the calculation of tax-EBITDA for CIR purposes will exclude Audio-Visual Expenditure Credits and Video Games Expenditure Credits.
Other
The government also confirmed certain previously announced measures, including in relation to Pillar Two and the Multinational Top-up Tax and Domestic Top-up Tax (implementation of the OECD’s Side-by-Side package with effect from January 1, 2026) and the introduction of the Oil and Gas Levy—a new permanent levy that will apply at a rate of 35% to replace the energy profits levy due to expire by March 31, 2030.
Personal taxation
Income tax
- There will be increases in income tax rates for both (i) property and (ii) savings by 2% with effect from April 2027. This is in addition to the 2% increase announced at the 2025 Budget. So that, from April 2027, the savings and property basic rates of income tax will be 24%, the savings and property higher rate of income tax will be 44%, and the savings and property additional rate of income tax will be 49%. The effect of these changes will be to increase the rate of withholding tax on interest to 24%.
- Increase in trading allowance from GBP1000 to GBP3000 from April 2027.
- Self-assessment: The government intends to reform the Payments on Account rules for Income Tax Self-Assessment taxpayers, aligning tax collection closer to when income is earned. The changes will take effect from April 2029 together with reforms announced at the 2025 Budget. For those Self-Assessment taxpayers using tax reserves as working capital, it will be important to anticipate and plan for these changes.” .
Capital gains tax
- Business Asset Disposals Relief (BADR): For disposals made on or after April 6, 2027, the lifetime limit for BADR will be reduced from GBP1m to GBP500,000.
- From April 2027 a new Founders’ Relief will apply a 10% rate of CGT to qualifying disposals of shares up to a lifetime limit of GBP10m. The relief will be available to founders and significant early investors in innovative UK companies and will set alongside BADR.
- Capital sums in return for surrender of rights: With effect from October 28, 2026, capital sums received under a contract for the loss of rights under that contract will be within scope of CGT.
- Relief for gifts of business assets—the formula restricting holdover relief on disposals of qualifying shares or securities will be modernised to include assets within the intangible fixed assets regime or qualifying for the substantial shareholding exemption.
Cash ISA limit
Retained at GBP20,000.
Real estate
Income tax
Increase in rates of income tax on property income from April 6, 2027 (see Personal taxation above).
“Mansion Tax” (High Value Council Tax Surcharge)
Confirmation that the High Value Council Tax charge on high-value residential properties will come into force from April 2028 and that “high value” means GBP2m or more. There had been some speculation that the definition of “high value” might be reduced further.
SDLT: Claw back of group relief
FB27 will include legislation to ensure that winding up a vendor does not prevent SDLT group relief being clawed back if the purchasing company later leaves the group. The change will apply to transactions with an effective date on or after October 29, 2026 but will not apply to land transactions that are effected in pursuance of a contract entered into before October 29, 2026 (subject to certain conditions).
Business rates
From April 2027, the threshold of rateable value for full small business rates relief will rise from GBP12,000 to GBP18,000; the threshold for tapering relief will rise from GBP15,000 to GBP21,000; an extra 20% relief for pubs, social clubs and all but the largest live music venues; however, legislation will provide that business rates relief will not apply to vape shops and Adult Gaming Centres.
VAT
Note the new VAT zero rate for land sold to registered social housing providers (see VAT below).
Employment income and pensions
Rates and limits
- Income tax rates on employment income and limits for 2027–28: unchanged.
- National insurance contributions (NICs) for 2027-28: Class 1 Lower Earnings Limit and Class 2 Small Profits Threshold (SPT) and Class 2 and Class 3 rates to be increased in line with CPI; other NICs limits and thresholds to be maintained at 2026-27 levels.
Mandatory payrolling of Benefits in Kind
From April 6, 2027 or 2028 (depending on the benefit), employers must report and payroll most benefits in kind and taxable expenses through Real Time Information.
Company Share Option Plans (CSOPs) and Enterprise Management Incentives (EMI) schemes
From April 2027, FB27 will:
- increase the CSOP individual option limit from GBP60,000 to GBP120,000
- extend the CSOP exercise period from 10 to 15 years
- remove the interaction between CSOP and EMI individual options limits (so that CSOP options do not count towards the EMI individual limit)
- extend the EMI exercise window following a disqualifying event from 90 to 180 days
- extend the exception for employee ownership trusts (EOTs) in the EMI rules to companies arranging to become controlled by an EOT.
Pensions
- For payments made on or after October 28, 2026, removal of the two-year rule for pension and lump sum death benefits.
- With effect from April 6, 2027, defined benefit occupation pension schemes may make direct payments of surplus assets to members.
- Pension tax allowance—to be introduced from April 2027.
Company cars
Company Car Tax Rates will increase by 1 percentage point in the tax year 2030–31 and continue, for all company cars except zero emissions vehicles, to increase at the same rate each year thereafter to a maximum of 40%.
VAT
Cross-border services
From April 2027, the reverse charge on cross-border supplies of services will be restricted to VAT-registered businesses. Where overseas providers make supplies of services to non-VAT registered UK businesses, they will be required to charge and account for VAT in the normal way.
Social housing
From April 1, 2027, a new VAT zero rate will apply to land sold to registered social housing providers.
Private hire vehicles
From January 2028, larger private hire operators will need to account for VAT on the full fare charged to customers, rather than on their commission only. The threshold has not yet been finalised, but government documents indicate a preferred threshold of GBP50m annual turnover.
Online marketplaces
From October 2027, online marketplaces will take responsibility for collecting VAT on qualifying sales by UK businesses using their platforms.
Electricity supplies
Extension of temporary 0% VAT rate for domestic electricity supplies until June 30, 2027.
E-invoicing
FB27 will include legislation requiring VAT invoices to be issued in a prescribed electronic format.
Compliance
Correction of errors
With effect from April 1, 2028, taxpayers will be under an express, positive obligation to correct inaccurate tax returns. Alongside this, HMRC will have a new power enabling it to issue Customer Correction Notices where it has reason to suspect an inaccuracy.
Compliance by wealthy taxpayers
HMRC report on its approach to wealthy compliance—HMRC defines wealthy taxpayers as those with income over GBP200,000 or assets over GBP2m in any of the last three years.
Corporation tax administration
The government has published a Call for evidence, seeking views on the modernisation of corporation tax administration.
Anti-avoidance
- HMRC to be empowered to publish “enhanced detail” of deliberate defaulters.
- Amendments to POTAS legislation.
Stamp taxes
The government has confirmed that FB27 will include provisions repealing stamp duty and stamp duty reserve tax and introducing the new securities transfer tax (STT) and has specified that the provisions will come into force in “late 2027” via a commencement order.
What was missing?
It is also worth noting what the Budget did not include.
Most notably, the main rates of capital gains tax were left unchanged. This had been the subject of considerable speculation before the Budget, not least because the Labour Party’s manifesto made no commitment on capital gains tax rates, unlike its pledges on the taxes paid by working people.
Similarly, it had been expected that the scope of the so-called “mansion tax” might be extended to residential properties worth less than GBP2m. No such change was announced.
Finally, there were no material developments on HMRC’s recent consultation on simplifying treaty relief from withholding tax on interest. The consultation, which closed on September 7, 2026, acknowledged the delays and administrative burden of the existing Directions-based system and contemplated a move to a self-assessment approach.
The Corporate Tax Simplification for Business Investment document does address the point but says only that the government is continuing to consider a self-assessment based system while working to maintain certainty. A further consultation is expected. In the meantime, HMRC has undertaken to publish additional guidance for taxpayers.
There was no mention of HMRC's current pause on processing disclosures of historic failures to comply with the treaty relief process.
