Budget 2026: Personal tax
Personal allowances and thresholds
These remain frozen, as expected and as announced in the previous Chancellor’s Budget. However, there have been a few adjustments around the edges designed to benefit small, unincorporated business owners and pensions, but which punish savers and landlords.
Gravita’s view
The original stealth tax. Since 2021 the freezing of the personal allowance has brought an additional three million people into the income tax net and raised £45 billion.
Income Tax rates for Savings and Property income
Both sources of income will be hit with an additional 4% income tax on top of normal rates from April 2027. This is an increase from the 2% announced last year with the respective rates for basic rate, higher rate and additional rate taxpayers being 24%, 44% and 49%.
Gravita’s view
Being a landlord is not a great deal of fun right now with the various other non-tax legislative changes that have been introduced and this just rubs salt in the wound. For higher and additional rate taxpayers, the total paid on interest and rents now exceeds the tax plus NIC payable on employment income. And that is before you consider the basic rate cap on mortgage relief.
For an additional rate taxpayer with £10,000 rental income who pays £2,000 mortgage interest, the effective tax rate will be 56%. Increase the mortgage interest to £4,000 and the effective rate is almost 70%. Many may wonder if it is still worth it or take the plunge and incorporate.
Pension Tax Allowance
For 2027/28, 2028/29 and 2029/30, pensioners whose total income is up to the value of the full new State Pension, will be entitled to an enhanced tax-free personal allowance to minimise the burden of paying small amounts of income tax on their pension income. This will work as an additional allowance equal to 20% of the difference between the full new State Pension and the normal Personal Allowance. Tapering will be introduced for those of pensionable age whose income is higher, at a rate of £1 for every £3 excess.
Gravita’s view
This will be a welcome relief for what otherwise is a stealth tax on those who have little control over the fact that their income now exceeds the personal allowance. Sadly, it will not apply to everyone else who is impacted by the continual big freeze on the Personal Allowance (assuming they get one in the first place!).
Trading Allowance increase
The current £1,000 trading allowance will triple to £3,000 from April 2027, providing relief for trading and miscellaneous income. This is designed to simplify record keeping and administration for those with small amounts of trading income and expenditure.
Gravita’s view
Sadly, not being increased for landlords who currently only benefit from a £1,000 rental allowance, or savers who might be £1,000 if they are a basic rate taxpayer (or £500 or nothing if they pay tax in the higher brackets). It is beginning to feel rather targeted!
Employment and self-employment taxes
Most of the employment tax announcements were as expected, with new rates being announced for National Insurance and some benefits largely in line with inflation. Additional measures were also included to simplify and modernise some of the more outdated measures that are still in place:
National Insurance rates, limits and thresholds
The September Consumer Prices Index (CPI) figure of 3.5% will be used as the basis for uprating the various thresholds as follows for 2027/28:
- Class LEL – £6,916 per annum (£133 per week)
- Small Profits Threshold – £7,355 per annum
- Class 2 NIC – £3.80 per week
- Class 3 NIC – £19.05 per week
Company Car Tax Rates
The rate applied to zero emission vehicles will increase by 1% from 6th April 2030 and appropriate percentages for all other vehicle bands will also increase by 1% per year from 6th April 2030 to a maximum appropriate percentage of 40%.
The following new rates will apply in 2027/28 for car and van benefits:
- Van benefit charge – £30,200
- Van fuel benefit charge – £825
- Car fuel benefit charge multiplier – £4,310
The Introduction of Mandatory Payrolling of Benefits in Kind from April 2027
Employers will be obliged to report and payroll most benefits in kind and taxable expenses through Real Time Information (RTI). For company cars and vans, car and van fuel and medical benefits the changes will take effect from 6th April 2027. All other benefits in kind, with the exception of employment-related loans and employer-provided living accommodation (which remain subject to P11d reporting), will take effect from 6th April 2028. Many are already doing this.
Approved Mileage Allowance Payments (AMAPs) and Self-Employed Simplified Mileage Rates
The Approved Mileage Allowance Payments (AMAPs) and Simplified Mileage Rates for business mileage above 10,000 miles will be from 25p to 35p per mile from 6th April 2027. The 55 pence per mile that applies to mileage below 10,000 will continue.
Reform of Benchmark Scale Rates and Overseas Scale Rates
Benchmark Scale Rates and Overseas Scale Rates which are a simplified way for employers to reimburse their employees for domestic and overseas travel, will be getting a long overdue revamp from 6th April 2028, with new rates being introduced which better reflect the cost of being away from home.
The new rates will be £20 for periods of travel over five hours, £60 for over 10 hours and £75 for over 24 hours. The destination specific approach will also be replaced with a tiered approach.
Gravita’s view
The Benchmarking Scale reforms are long overdue and very welcome! The previous rates would barely have covered a Tesco Meal Deal. This might at least cover the cost of the various meals required throughout the day (by anyone not on Mounjaro), if not necessarily a glass of wine to go with it.
Reforming how Taxpayers Claim for Employment Expenses
The £2,500 Income Tax Self-Assessment expenses threshold will be scrapped from April 2028, allowing more taxpayers to claim tax relief on non-reimbursed employment expenses through PAYE.
This simplifies the process by removing the need to enter Self-Assessment solely to claim employment expenses and ensure more tax relief claims are subject to evidence before relief is issued.
Investment Reliefs
VCT/EIS/SEIS
Minor technical issues affecting the operation of the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules will be fixed, with the changes to VCTs applying retrospectively to disposals of shares issued on or after 6th April 2026, and from 6th April 2027 to all others.
The Government will also engage stakeholders on improving Advance Assurance and enhancing transparency of fees, alongside clearer HMRC guidance and greater compliance activity on fee arrangements that divert investment away from qualifying companies.
More Niche income tax measures
Legislation to Define the Tax Treatment of Image Rights Payments
Initially due to be introduced in April 2027, the changes will now come into effect in April 2028. The legislation will clarify that image rights payments related to an employment are treated as taxable employment income, subject to both income tax and NIC. This measure only applies to image rights payments related to an individual’s employment. An entirely separate arrangement with a third party would be unaffected by this measure.
Gravita’s view
As they should be.
Deduction of Income Tax at Source: informant rewards paid by HMRC
From the date of Royal Assent, HMRC will be required to deduct income tax at the additional rate from rewards paid to informants under the Strengthened Reward Scheme. Any further tax or repayment due will be reconciled in the usual way – usually Self-Assessment.
Pension Administration
The Budget introduced a raft of technical tweaks in relation to how pension schemes are administered, largely correcting errors that have arisen over time as the rules have changed and not filtered through properly. There have also been a number of clarifications. These include:
- Updating the definition of Terminal Illness
- How excess lump sum death benefits are taxed
- How Surplus Extraction from Defined Benefit Pensions can be administered and how it those will be taxed.
Allowing individuals to keep their pension age or lump sum protection following a transfer of their pension rights between schemes.
Gravita’s view
These tweaks will go unnoticed by most, but for those who have been affected will no doubt be grateful.
High Value Council Tax Surcharge (Mansion Tax)
As announced at Budget 2025, the Government will be proceeding with the so-called Mansion Tax on residential properties worth £2 million or more. Changes will take effect from April 2028 and be in addition to usual Council Tax charges.
Gravita’s view
No one expected them to change their minds on this one.
Digital Assets
Stable coins, a specific type of cryptoasset that is designed to be pegged against the value of particular asset, usually the US dollar. As they behave similarly to cash, many of these measures, but not all, aim to align their treatment more closely as a means of payment and not as an investment.
What counts as an eligible stablecoin?
In broad terms, a cryptoasset that holds a stable value against a particular fiat currency and is backed by fiat or other assets held to support that value.
Individuals and trustees (from 6th April 2027)
- CGT: Disposals of eligible stablecoins become exempt from CGT, so swapping or spending them no longer creates a chargeable gain or loss.
- Income tax: Interest-like returns are taxed as savings income. This covers returns on a debt of eligible stablecoins and returns under “Single Cryptoasset Lending Arrangements”. These are arrangements where the person has a right to receive back a number of stablecoins plus a return, so they are economically equivalent to a loan or a bond.
Companies (from 1st April 2027)
The changes bring stablecoins into the loan relationship rules:
- Eligible stablecoins are treated as a money debt
- Lending eligible stablecoins is treated as lending money
- Where a cryptoasset is issued to represent creditor rights in a money debt, or security for one, that debt is treated as arising from a lending of money. This means tokenised debt is also caught.
The practical effect is that corporate tax follows the accounts, rather than as a separate chargeable gains computation
Gravita’s view
Digital assets (or cryptoassets) are increasingly held by investors and businesses and are being used more and more often as a means of payment. The tax rules that govern digital assets are evolving quickly to keep pace with their use and this measure is one such response to ensure that the tax follows the commercial reality. It is always pleasing to see HMRC keep pace with commercial developments!
International matters
Income Tax: Certificate of sponsorship fee and immigration skills charge
With immediate effect (28th October 2026) an employer’s payment of a fee for a certificate of sponsorship or an immigration skills charge, which employers are required to pay when sponsoring a worker under the Skilled Worker route will be exempt from income tax. Other immigration related costs remain subject to normal tax rules that apply.
Gravita’s view
Most of us have always believed this to be the case anyway, but HMRC have pushed back hard on this is recent years. This clarification is therefore welcome because HMRC’s stance has seemed illogical that an employee would be subject to tax on these. Watch this space for retrospective claims by those who have paid the tax over the last few years.
UK resident individual members of LLCs and other reverse hybrids
A consultation ran during June and July 2026 and a summary of the responses, which explored how to resolve high effective rates of taxation experienced by UK resident individuals investing in US Limited Liability Companies (LLCs) and other ‘reverse hybrids’.
The consultation found that very high effective tax rates arise for individual members of LLCs and similar vehicles because of the mismatch between the UK and overseas tax treatment which meant that a range of potential mitigation strategies were needing to be used, including leaving the UK. Generally, it was felt that trying to claim Double Tax Relief overseas was onerous and relief was often not granted.
The Government has responded that it is committed to the UK remaining a leading destination for global talent and responding where issues emerge, which is why it intends to resolve this issue through the creation of a mechanism to provide double taxation relief.
Gravita’s view
As things currently stand, anyone living in the UK with an interest in an LLC will not get relief for the US tax they pay because of the mismatch in the way these are recognised and this can lead to an excruciating effective rate of tax, especially for those already paying high rates of income tax in the UK. Broadly, the net receipt is treated like a dividend without any relief for the US tax paid already. Until we know what those mechanisms for change are going to be, LLCs continue to be a bit of a poisoned challis for the UK tax residents who are involved in them and any relief from what is effectively double taxation would be welcomed sooner rather than later.
ISAs and tax-free savings
A number of announcements will affect how ISAs and other tax advantaged saving schemes work, the most relevant being the removal of plans to cap how much of the annual allowance can be paid into a cash ISA.
Further reforms include updating the Help to Save scheme and making it available from a wider range of providers; introducing a new First Time Buyer ISA which replaces the more restrictive Lifetime ISA which will enable someone to put this towards a first home of up to £450,000. As part of this, the existing withdrawal charge on the Lifetime ISAs will be reduced from 25% to 20% on purchase of properties costing more than the limit. Finally, there will be exploration of making Stocks and Shares ISAs more attractive for first time investors which will be developed with industry assistance.
Gravita’s view
The previously announced reforms to Cash ISAs were always going to be unpopular and so reversing that can only be a good thing. The other changes also seem positive and give more flexibility for a lot of people, if only in a relatively small way.
Similar Insights
Budget 2026: Inheritance Tax
Budget 2026: Stamp Duty Land Tax and Stamp Duty
Budget 2026: Capital Gains Tax (CGT)
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