Budget 2026

Older tax matters in place from earlier budgets, but still to start, will impact on many in the coming year, including:

• April 2027 is the start of an increase by 2% for tax on savings and rental income.
• Tax thresholds are still frozen, so pay rises lead to moves up the tax scheme.
• Pensions in estates become liable to inheritance tax from April 2027.

So, anything not reversed does not stop these changes, although the ISA investment reduction has been withdrawn.

The budget in summary:

Income Tax & National Insurance Contributions

The freeze on Income Tax thresholds to 2030/2031, remains at £12,570.  Inflation increases salaries and therefore the freeze is described as a “stealth tax”.  As mentioned previously, the last increase in the threshold for basic rate income tax was in 2021/2022 (although that was only £70 increase from the £12,500 for 2020/2021), so it will be unchanged for a decade.  National Insurance thresholds will also be maintained.

State Pension

Before the Budget the Chancellor promised that State Pension would not be liable to Income Tax.  Triple lock will presently continue to raise state pensions by 3.9% from April 2027.  Changes to triple lock are to be reviewed.

Capital Gains Tax (CGT)

The Chancellor said before the Budget that there would be no increase in CGT.

National Minimum Wage (NMW)

Before the Budget John Healey said that the NMW would increase by 3.9% (it was increased by 4.1% in 2026).  The rate will change from £12.71 to £13.20.  The rise for younger people of 18 to 20 years old will slow after last year’s increase (8.5%), so it remains in line with the over 21 increase by 3.9% (£10.85 to £11.27).

ISA reduction stopped

From April 2027 the cash ISA allowance was due to be cut from £20,000 to £12,000 for non-pensioners.  This is not going ahead, so all can invest up to £20,000 of cash in an ISA.  However, there is no annual increase in the upper limit.

Child-related benefits

Two weeks of paternity pay to be provided to self-employed fathers, as well as the current recipients of the £194 per week.

Property and Savings Tax

As set out in the last budget, landlords will pay 2% more on rental income.  This increase also applies to dividends and savings income. Basic rate taxpayers’ rate will be 22%, higher rate 42% and additional rate 47% for income above the personal savings allowance.

“Mansion Tax”

The Chancellor ruled out in advance of the Budget any extension to the 2028 High Value Council Tax Surcharge of £2,500 for properties worth over £2m and £7,500 for £5m properties.

Fuel duty

Fuel duty to be frozen again and extension of 5p fuel price cut.  Started in 2022 for 12 months but continues.

Tax on motorists

Tax-free mileage of 55p per mile for first 10,000 miles driven for work is made permanent.  Over 10,000 miles are at 25p per mile, and this is to increase to 35p per mile.

Carers Allowance

Carers to be able to earn more before Carer Allowance stopped.  A taper will apply to reduce on a scale instead of cut off by fixed amount.

Electricity & Gas bills

The Chancellor will extend a VAT cut on electricity bills, which had been due to end in April 2027, to July 2027. 

A standing charge on household gas bills is to be scrapped, and a unit rate will be applied to be included in the fixed costs for gas used.  However, it is likely to be a year before it will be put in place.  Changes for electricity bills to follow. 

In the meantime, there will be £100 energy payments for A-D Council Tax properties this winter.  This is to be paid into personal bank accounts.

Beer tax

There will be a 2p rise on beer tax, based on announcement in advance of the Budget speech.

Military spending

The Chancellor announced £10bn of additional spending on military for Ukraine.  Longer term increase of military spending to 3% confirmed.

Bank Tax

The Chancellor indicated in advance of the Budget that a bank surcharge would be a way to raise funds. It is set at 3% on top of the 25% corporate tax rate and will be in place for 15 months starting from January 2027.

So, will this really be seen as a basic budget with little significant change?  Or as the former Prime Minister Rishi Sunak said in The Sunday Times, is this because we should expect a general election closer than planned to allow Prime Minister Andy Burnham to escape the 2024 Labour manifesto commitments on taxation?  The Liberal Democrats appear to expect a general election in the near future, even as early as December 2026. We will just have to wait and see.

Samantha Hamilton

Member