Budget 2026 – Private client aspects 

Introduction

Chancellor John Healey delivered his first Budget on 28 October 2026. The Chancellor’s three themes were breathing space for the public, supporting enterprise and facing the big challenges. The enterprise announcements made in the Budget include focus on supporting companies to grow in the UK, including a new capital gains tax (CGT) relief for founders. In addition, UK resident individuals with interests in US Limited Liability Companies (LLCs) and certain other comparable foreign entities will be eligible for a new tax credit in order to reduce high effective tax rates. This note provides more detail on these measures and other key points announced in the Budget that are of interest to private clients.  

UK companies and individual investors

Founders’ relief

A new CGT relief called Founders’ Relief will be introduced. From 6 April 2027, individuals will be eligible for a 10% CGT rate on up to £10 million of qualifying gains realised on disposal of shares in eligible UK resident companies, resulting in tax relief of up to £1.4 million per individual.

The government are consulting on the specific conditions that will need to be met by both the individual and the company. Key conditions proposed for individuals include being UK tax resident and owning at least 25% of ordinary share capital and voting rights for five years before disposal.

Key conditions for the company include being UK tax resident and meeting two out of three conditions related to being high-growth and/or innovation. The three conditions are detailed, but relate to 1) turnover, 2) employee numbers and 3) research and development expenditure. In addition, the government intend to mirror the EIS excluded activities conditions, such that shares in companies that undertake property development, dealing in land or financial services will not be eligible for relief.  

Business asset disposal relief (BADR)

To pay for the introduction of Founders’ Relief, the lifetime limit for BADR is to be halved from £1million to £500,000 with effect from 6 April 2027. This will reduce the maximum tax relief from £60,000 to £30,000.

Distributions and repayment of capital from companies 

This summer the government consulted on changing seven aspects of the way in which distributions and repayment of capital from companies are taxed. The government have decided to proceed with changes in all seven areas. Further consultation will be held on the detail of the rules, any changes to which will apply from April 2028.

The areas of change which are of most interest to private clients include widening the statutory demerger rules to apply more transactions to qualify, changes to the amounts which are subject to income tax instead of CGT where company share capital is reduced following a reorganisation, changes to the share buyback rules and changes to the taxation of distributions and loans from non-UK companies.

Income tax changes

Property and interest tax rates

It was previously announced that income tax rates on property and interest income would increase by 2% with effect from 6 April 2027. The Chancellor announced an additional 2% rate increase in the Budget, meaning that the total tax rate will increase by 4% on 6 April 2027. The basic, higher and additional rates of income tax on savings and property income will be 24%, 44% and 49% respectively from 6 April 2027. 

The exception to this is that Scottish taxpayers may be subject to different tax rates on their property income, depending on how the Scottish Government choose to use their devolved powers. 

Making Tax Digital (MTD) easements 

It was confirmed today that certain groups of taxpayers will remain exempt from MTD from 6 April 2027. These include individuals who expect to be non-resident, non-resident foreign entertainers and sportspeople and individuals who are eligible for qualifying care relief.  

Individuals who are required to join MTD for the first time from April 2027 will not be subject to late filing penalties for their quarterly updates in their first year in MTD. Individuals who joined MTD in April 2026 are benefiting from a similar easement in the current tax year, but this will end in April 2027.

Trading allowance 

The trading allowance will be increased from £1,000 to £3,000. This allowance applies to trading and miscellaneous income and can result in income of up to this amount being received tax free.

Income tax reduction for eligible pensioners

From April 2027, the government will introduce a 'Pension Tax Allowance' worth up to £94 a year, ensuring around 290,000 pensioners whose only income is the State Pension do not become liable for income tax as it exceeds the frozen personal allowance. The automatic credit will be tapered for incomes above £13,037 and will initially apply for three tax years to 2029/30.

Individual Savings Accounts (ISA) limits

The cut to the cash ISA allowance from £20,000 to £12,000 for under 65s announced by Chancellor Reeves will not go ahead as planned. In addition, a new ISA will be introduced from April 2029 which will be available to first time buyers. This new ISA will replace the existing lifetime ISA.  

UK resident individuals with interests in US LLCs and other “reverse hybrids” 

UK resident individuals with interests in US LLCs and other types of foreign legal entities that are transparent in the foreign jurisdiction in which they are based but opaque for UK tax purposes can face high effective tax rates. For individuals who are taxable in both the UK and the US on LLC income, the effective tax rate can currently be over 75%. 

Following a consultation over the summer, the government have announced that a new domestic foreign tax credit mechanism will be introduced in order to remove “unintended and high effective tax rates”. The mechanism will require relief to be claimed, rather than applying automatically. Distributions received from US LLCs, US S-Corps, Jersey LLCs and French SCIs Federal, state and local taxes are to be specifically in scope of the new domestic tax credit. For US entities, federal, state and local taxes will be in scope of the credit mechanism. 

The government will consult on the technical details of making this change. The government intends that it will be possible to make claims from early 2028. 

HMRC powers and approach to tax collection

HMRC approach to the Wealthy: 

In June 2025, HMRC were challenged by the Public Accounts Committee on their understanding of tax compliance across the 1.3 million taxpayers classified as wealthy. This is defined as income in excess of £200,000 or gross assets of over £2million. 
HMRC’s new ‘Wealthy Plan’ has now been published. It is clear that HMRC want to have more targeted interactions with this population, backed by the significant amounts of data HMRC receives, to deliver an extra £500 million in revenue per year.

PAYE taxpayers with additional tax liabilities  

Changes will also be made to tax collection. Taxpayers who pay tax on employment income through PAYE will be required to pay tax earlier in the year and in multiple instalments, as opposed to making a payment on the 31 January following the tax year, with two payments on account payable on 31 January and 31 July in some instances.

Unpaid self-assessment tax payments

HMRC are to be given new powers to collect taxes due directly from bank accounts. This is targeted at taxpayers who owe tax which they could afford to pay but have not done so.