After weeks of speculation and several changes of direction, the Chancellor of the Exchequer delivered a budget speech that held few genuine surprises.
Overall impact
Whilst there were no measures to directly increase the current rates of income tax, national insurance or VAT, a raft of other tax changes will raise more than £26bn of tax revenue by 2029/30, with the bulk of the impact being felt by 2028 and beyond.
Personal Income
Minimum wage: Workers will benefit from increases in minimum and living wage rates from April 2026, which brings most over the age of 21 onto a living wage of £12.71 per hour.
State pensions: The pension triple lock remains, which means that the basic state pension will rise by an above-inflation increase of 4.8% as previously announced from April 2026.
Tax thresholds: Income tax and NI thresholds remain frozen for a further three years to 2031, creating significantly more taxpayers and creating more higher-rate taxpayers than ever before.
Occupational pensions: The pension salary sacrifice scheme has allowed people to forego part of their monthly salary to be paid directly to their pension company tax-free. From 2029, this allowance will be limited to a maximum of £2,000 per annum, with contributions above this figure to be taxed.
UK pensioners abroad: UK pensioners living abroad will have to have lived in the UK and paid Class 2 voluntary national insurance contributions for at least 10 years (currently 2 years) before they can qualify for a UK state pension.
Savings and investments
Cash ISAs: Changes to cash ISAs will apply from April 2027. The amount a person under the age of 65 can invest tax-free each year in a cash ISA will reduce from the current limit of £20,000 down to £12,000 per annum. The remaining £8,000 allowance will be applied to other investments.
Savings income and dividend income tax rates will increase by 2% across all bands from April 2027.
Business: Corporation tax rates remain unchanged. Business investment write-down allowance will increase to 40%.
Property
Property: Good news for most homeowners as interest rates have stabilised and are predicted to drop again at the next review. It’s also good for the housing market generally, as speculation surrounding the budget had stagnated the market over recent months.
Council tax: Higher value properties will be subject to a new ‘higher value council tax surcharge’. Properties in the higher rate council tax bands F, G and H will be re-valued at today’s prices to determine the new banding. Any property valued at over £2milion will pay an increased council tax of an additional £2,500 per year, with properties over £5million paying an additional £7,500 per year.
Landlords: Landlords had been bracing themselves for more bad news on top of the impacts of the Renters Rights Bill coming into force next year. Landlords will have to pay an increased rate of income tax on property, savings and dividend income of 2%. However, there was no detail as to which types of landlords this affects, whether private individuals or limited companies.
Energy: Energy costs are a major outgoing for most UK households, and much of the recent price hikes of recent years have been to fund investments in green technologies and alternative fuels. These green and welfare levies will be removed from next April, and households will see a reduction of around £150 per annum (based on ‘normal usage’).
Welfare and NHS
Two-child benefits cap: A reversal of the two-child benefit cap sees families with more than two children being eligible for universal or child tax credits for a third and any additional children, in an attempt to raise 450,000 children out of poverty.
Welfare: Welfare payments in general will rise by 3.8% from April 2026.
NHS: Having benefitted from considerable increases in spending already during this parliament, a further £300m is being provided to fund technology projects as well as the creation of 250 neighbourhood health centres.
Transport
Vehicles: Electric vehicle owners will have to pay 3 pence per mile for use of the roads, and plug-in hybrid cars 1.5 pence, with a new EV duty excise based on mileage as measured through annual MOT testing.
The Chancellor also announced extended access to EV purchase grants and a ramping up of public EV charging point installations.
Fuel: Fuel duty is currently protected under a temporary 5 pence per litre cut. This scheme is due to end in April 2026, but has been extended to September 2026. Fuel retailers are also being told to react much more quickly to changes in wholesale fuel prices, particularly when passing on reductions.
Motability: High-end or ‘luxury’ vehicles will no longer be eligible for subsidy under the Motability scheme, although the rates of subsidy and qualifying criteria for other vehicles remain unchanged.
Buses and trains: Bus fares will remain frozen, and rail fares will similarly not increase next year.
Support for the High Street
Shopping: Several measures were announced to address the unfair advantage of online retailers compared to the High Street.
Business rates: Business rates will increase on large warehouse-type business premises (aimed at online retail giants) while the rates on the High Street will be reduced, especially for retail outlets and hospitality venues.
Customs duty: Other changes to affect online shopping include a duty on all parcels entering the country from overseas retailers (aimed at Temu, Shein and the like) who currently benefit from no duty on low-value postal items.
Various changes to online activities, including gambling and gaming, will see large increases in duty revenue, whilst duty will be abolished on the traditional bingo hall.
How much and by when?
Overall, the new taxes, changes and adjustments will impact most households and businesses to varying degrees over the next two years in a complicated mesh of gradual measures. The final two years of the parliament, however, will see the full impact of the changes announced across both this budget and the Chancellor’s Spring statement.
We’re here to help
Please don’t hesitate to get in touch if you need any guidance as to how your business or household income may be affected by the financial and regulatory announcements outlined in today’s budget statement. This article is designed to give you a snapshot of the major financial and taxation changes that will come into force over the next few years. The information is correct at the time of publication and does not constitute financial advice.
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