UK Budget Analysis

Property and interest income

From 6 April 2027, tax rates on property and interest income will increase by two percentage points, bringing the basic, higher and additional rates to 24%, 44% and 49% respectively. 

The changes will affect individual landlords and those holding significant cash deposits or other interest-bearing investments outside tax-efficient wrappers, increasing the differential between the taxation of property and savings income and other forms of income. Dividend income remains subject to the separate dividend tax regime.   

Self-assessment payments

From April 2029, the Government will reform the way in which individuals make payments towards their Income Tax Self Assessment liabilities, moving towards more regular payments during the year in which income is earned. The changes relate to the timing and method of payment rather than the amount of tax ultimately payable, and the normal requirement to submit the Self Assessment tax return by 31 January will remain. 

The changes represent a significant shift from the existing system through which payments on account are made by 31 January and 31 July, based on the previous year's liability. 

The Government's intention is to bring the payment of tax closer to the point at which income is earned similar to the PAYE scheme for employment income.  The precise frequency of the new payments has not yet been determined. However, HMRC has confirmed that payments will continue to be calculated by reference to the previous year's tax liability, with taxpayers able to update their position where their circumstances or expected income change. 

There will also be an important transition year in 2029/30. Taxpayers may have to make their final payment relating to the previous tax year while also beginning to make payments under the new rules. This could create a temporary cashflow impact and will need to be factored into planning ahead of implementation. 

ISAs

The Government confirmed that the £20,000 Cash ISA allowance will be maintained from 6 April 2027. This preserves the ability for individuals to shelter significant cash savings from income tax and is particularly valuable considering the increased tax rates applying to interest income from April 2027. 

Capital gains tax

The lifetime limit for gains qualifying for Business Asset Disposal Relief (BADR), which provides a reduced CGT rate of 18%, will fall from £1 million to £500,000. This will reduce the relief available to some business owners when selling their businesses.

By contrast, ‘Founders’ Relief’, a new relief offering a 10% tax rate on the first £10 million of lifetime qualifying gains, will be introduced for shares in high-growth innovative companies. 

Whilst more detail is to be announced, it is expected that there will be conditions attached: individuals must have held at least a 25% shareholding when the company began, or prepared to begin, its relevant trade, and must satisfy a five-year holding requirement. 

Qualifying companies must also have a substantial UK presence and demonstrate growth and innovation, meeting at least two of three tests covering turnover growth, employee growth and qualifying research and development expenditure. 

Modernising the distributions framework 

The Government has confirmed its intention to reform the rules governing company distributions and the extraction of value from companies. The broad direction is to limit the circumstances in which value can be extracted from a continuing business at capital rather than income tax rates, with areas under review including capital reductions and share buybacks.

At the same time, the Government has indicated that it wants to preserve capital treatment for genuine changes in ownership and commercial transactions, including shareholder exits and family business succession. Changes are also proposed to the purchase of own shares and statutory demerger rules.

The detailed rules are not yet available.  Until that detail is available, the precise impact on particular transactions will need to be considered with some caution.

E-Invoicing roadmap for VAT  

The UK Government has published its Roadmap for the implementation of mandatory e-invoicing and confirmed it will be introduced for all VAT invoices with effect from 1 April 2029 for Business to Business and Business to Government invoices.  

VAT-registered businesses will need to be able to issue and receive invoices electronically under the new requirements. Although implementation remains some way off, businesses should begin considering the implications for their accounting systems, invoicing processes and supplier arrangements. Further detail on the roadmap and its practical implications will be provided as the requirements develop.

Capital allowances  

The Budget increases the main-rate first-year allowance from 40% to 50% from January 2027, providing greater upfront relief where existing 100% reliefs are unavailable, including certain expenditure by unincorporated businesses and leasing businesses.  

The less welcome news is a further reduction in the main writing-down allowance from 14% to 12% from April 2027, following the previous reduction from 18%. This pushes deductions further into the future, with a potential cash-flow and present-value cost for businesses with expenditure remaining in their main pool. 

Taken together, the measures provide greater upfront relief for qualifying investment that cannot access 100% first-year relief, while businesses relying on writing-down allowances will have to wait longer to obtain tax relief on their capital expenditure. 

Research and development tax incentives  

Businesses claiming research and development tax relief should benefit from measures intended to simplify the claims process.

The removal of the Claim Notification Form from April 2027 should reduce the administrative burden for businesses claiming R&D tax relief, while proposed changes to the Additional Information Form should simplify the process further.

Although these measures do not increase the value of the relief itself, they should make the claims process more straightforward for eligible businesses.

International Controlled Transactions Schedule (ICTS) reporting

While not announced as part of the Budget, another important development for affected businesses is the proposed requirement, from 1 January 2027, for UK groups to report annually, alongside their company tax return, specified information on cross-border related-party transactions in a standardised digital format. HMRC intends to use this information to enhance its transfer pricing risk assessment and profiling. 

For businesses within scope, the new reporting requirement will have two immediate implications: 

1. Businesses will need to ensure that the necessary transaction data is captured and maintained in the required format, creating an additional compliance burden that will need to be managed well ahead of the filing deadline; and
2. The information provided will give HMRC greater visibility over businesses’ cross-border related-party transactions, increasing the potential for transfer pricing policies and supporting documentation to come under scrutiny. 

Taxing benefits through payroll from April 2027

Another important upcoming change for businesses, from April 2027, benefits such as company cars, fuel, vans and private medical cover will need to be taxed through payroll each pay period, rather than being reported once a year after the tax year ends. Most other benefits are expected to follow from April 2028. While not part of today’s Budget, this still needs to be considered alongside today’s measures as it will affect employees, cash flow and several internal teams. 

Employees may see changes to their take-home pay and tax codes, which could lead to questions if the changes are not communicated clearly in advance. Employers will also pay the related National Insurance during the year rather than afterwards. Payroll, HR, finance and benefits teams will need accurate, up-to-date information to manage the change effectively. 

Minimum Wage increases 

A  3.9% increase to National Living Wage and the National Minimum Wage will be effective from 1 April 2027. These increases will provide additional support to employee incomes but will also place further pressure on employment costs for businesses, particularly those operating in labour-intensive sectors. 

Employers will need to consider not only the direct increase in wages but also the consequential impact on costs such as employer National Insurance contributions and pension contributions.