Autumn Budget 2026 – Key tax developments for individuals and their business interests

The first Autumn Budget delivered by Chancellor John Healey was not expected to contain the sweeping tax reforms that have characterised recent Budgets. Instead, it focused on stability, introducing targeted reforms aimed at supporting households and businesses facing continued economic pressures, while avoiding increases to the headline rates of income tax, capital gains tax and corporation tax.

In many respects, this Budget will be defined as much by restraint as by reform. Many of the changes which were announced will have limited impact in terms of revenue raising for the Government and, the largest of these, will be the temporary 3% increase in the surcharge levied on the profits of banks.  Even that increase was less than expected and saw an immediate bounce in quoted share prices of the banking sector.

Nevertheless, the absence of sweeping reform does not mean the Budget was devoid of substance, with several tax measures announced that will impact business owners and investors.

Founders’ Relief: generous in theory, limited in practice

One of the more significant announcements was the introduction of a new Founders’ Relief, providing a 10% capital gains tax rate on qualifying lifetime gains of up to £10million. The measure is said to be aimed at founders and early investors who contribute to the creation and growth of the UK’s most innovative companies.

However, although finalisation of the relief is subject to a short consultation process, the qualifying conditions are far from straightforward.

To be eligible, a company must have annual turnover of at least £10million and employ a minimum of 15 full-time employees. In addition, it must satisfy at least two of three growth criteria, broadly: annual compound growth in turnover of 25%, annual compound growth in employee numbers of 25%, or qualifying research and development expenditure of at least £1.5million.

The qualifying requirements do not stop at the company level. The individual claimant must also satisfy a number of personal conditions, including having held at least 25% of the company's share capital when the trade (or preparations for the trade) commenced, remaining invested for a minimum of five years before disposal, and being UK resident for a continuous five-year period prior to the sale.

Viewed in this context, the relief may prove less accessible than its generous headline rate initially suggests and while the 10% rate will undoubtedly attract attention, the real test will be whether the final legislation strikes an appropriate balance between targeting genuine growth companies and creating a relief that is capable of being claimed in the real world.

With consultation now underway, advisers and business owners will be watching closely to see whether the Government is prepared to relax some of the more demanding conditions before the regime takes effect from April 2027.

Business Asset Disposal Relief (BADR): a continuing retreat

The introduction of Founders' Relief was accompanied by a further restriction to BADR, with the lifetime gains limit halved from £1million to £500,000. Whilst the Government has stated that most claimants will be unaffected, the change continues the steady narrowing of a relief that has already been scaled back significantly over recent years. The maximum tax saving which can be achieved using BADR following these changes on 6 April will be limited to £30,000.

Savings and property income tax rates: savers and landlords face higher taxes

While the Chancellor avoided increases to the main rates of income tax, the Budget confirmed a further increase in tax rates applying to savings and property income. From 6 April 2027, the tax rates applicable across the three tax bands will rise to 24%, 44% and 49% respectively.

The increase in the rate of tax on savings income e.g. interest, makes the use of the cash ISA allowance even more attractive. However, when coupled with the Chancellor reversing the previous decision to curtail cash ISA’s, this all sends something of a mixed message for savers.

For property owners, the increase in tax on rental income widens the tax disparity between holding properties personally (or via a partnership) and those held through corporate structures (where lower rates of corporation tax will generally apply).

It is also notable that, consistent with the position adopted in the 2025 Budget, the rates of dividend tax remain unchanged.

Income tax on pension death benefits: greater flexibility for beneficiaries

The Budget includes a welcome simplification of the rules governing pension death benefits by abolishing the long-standing "two-year rule".

Under the previous rules, where a pension scheme member died before reaching age 75, scheme administrators generally had to pay any qualifying lump sum death benefits within two years of becoming aware of the death in order for those benefits to be received free of income tax. Missing this deadline could result in an otherwise tax-free payment becoming subject to tax.

This requirement was abolished with immediate effect on 28 October 2026. As a result, lump sum death benefits now paid more than two years after a scheme administrator becomes aware of a member's death can still be paid free of income tax, provided sufficient lump sum and death benefit allowance remains available.

The change removes what was often viewed as an arbitrary administrative deadline and should reduce the compliance burden on pension schemes, while providing greater flexibility where estates are complex or there are delays in identifying beneficiaries.

EMI and EMI2: enhanced employee share incentives

Reflecting the Government's recognition of the role that employee share ownership can have on growing businesses, the Budget announced reforms centred on the new EMI2 regime, which will replace the existing Company Share Option Plan (CSOP).

From 6 April 2027, the maximum value of tax-advantaged options that may be granted will be £120,000 under EMI2, increased from £60,000 under the CSOP. The interaction between the schemes will also be removed, meaning employees can hold up to £250,000 of EMI options and £120,000 of EMI2 options. The period during which options may be exercised without losing their tax advantages will increase from 10 to 15 years.

Taken together, these changes should give companies greater scope to reward and retain employees through equity incentives, helping to align employee and shareholder interests while supporting long-term business growth.

Income or capital distribution for individual shareholders: the end of capital reduction demergers?

Perhaps one of the most significant announcements hidden within the Budget papers was the Government's response to its consultation on modernising the taxation of distributions and repayments of capital from companies.

The Government has confirmed that it intends to proceed with a broad package of reforms, including the introduction of the proposed "frozen capital" approach for capital reductions, which would mean the amount capable of being returned to shareholders as capital would be restricted to the amount originally subscribed for shares. The Government has also confirmed its intention to reform the Transactions in Securities rules with an updated anti-avoidance framework.

Although the detailed legislation remains under consultation, the combined effect of these measures is likely to make it more difficult to secure capital treatment on corporate value extraction. As a result, long-established techniques such as capital reduction demergers may become considerably less attractive from a tax perspective. The reforms are currently expected to take effect from April 2028.

Final thoughts

Marketed as a Budget designed to provide "breathing space" for households and businesses, the Autumn Budget 2026 ultimately delivered stability rather than surprise. While there were targeted changes for entrepreneurs, investors and landlords, the Chancellor largely resisted the kind of sweeping tax reforms that have characterised recent fiscal events.

For many, that will come as a welcome reprieve after two years of significant tax reform. Whether this marks the beginning of a more settled tax landscape, however, remains to be seen.

It was notable that some of the key questions hanging over the country, such as the cost of welfare, the NHS, education, the “triple lock” on pensions, and the need to lay out a plan for an increase in defence spending, were all kicked into the long grass.

With Andy Burnham expected to set out a 10-year vision for government in the coming months, the possibility remains that more fundamental reforms have simply been postponed rather than abandoned. Whether those changes await a clearer political mandate, raising the prospect of an early General Election, or will simply emerge in a Budget next year, remains to be seen.

 

Meet the authors: Jordan Jackson, Senior Tax Manager, and Jon Croxford, Managing Partner.