Autumn Budget 2026 Analysis

The UK Autumn Budget 2026 was widely characterized by economists, think tanks, and commentators as a modest, “spread-thin” or cautious “do no harm” package rather than a bold fiscal event.

Key points still live from 2025 budget:

• Income tax and National Insurance thresholds remain frozen until April 2031, effectively a stealth tax measure
• From April 2029, there will be a £2,000 cap on the amount of pension contributions that can benefit from national insurance savings under salary sacrifice arrangements each tax year. This will have a significant impact on employers who offer salary sacrifice arrangements to higher paid staff
• Employer pension contributions that are not made under a salary sacrifice arrangement will continue to be free of NICs which means director pension contributions paid directly to a director’s SIPP and not via salary sacrifice is unaffected
• For electric cars (not vans), a new mileage-based charge will apply from April 2028 and “luxury” electric cars will continue to pay higher Vehicle Excise Duty above the expensive car threshold, although the threshold for zero-emission cars is increasing
• Properties valued at £2 million or more in England will face a council tax surcharge of at least £2,500, rising to £7,500 for properties worth over £5 million from 1 April 2028. The Scottish Government is proposing a high-value property change that will introduce two new Council Tax bands (Band I and Band J) in Scotland starting 1 April 2028, subject to parliamentary approval. Proposed annual increase above Band H is roughly £720 for Band I and £3,660 for Band J
• There are no changes to corporation tax or VAT rates or thresholds in this Budget but there are some changes to capital allowances and a rise in the property and savings rate
• Inheritance tax rules on lifetime gifts and potentially exempt transfers remain unchanged, but the inheritance tax nil rate band and residence nil rate band are being frozen for a further year until 2030/31
• Mandatory payrolling of employee benefits from 2027-28 for company cars, vans, fuel and medical insurance and for all other benefits from April 2028 (except beneficial loans and accommodation)

2026 budget announcements:

• A 4% increase in the tax rate on property (rental) and savings income  will now apply from 6 April 2027 for individuals and discretionary trusts ; the tax relief on interest charges for property will increase to 24% to match the basic rate tax on property income
• The triple lock for state pension remains; the State pension is paid without deduction of tax, and will rise above the basic personal allowance in tax year 2027/28. A new pension tax allowance announced to prevent a tax charge falling on those whose only income is their State pension. It will apply for the tax years 2027/28, 2028/29 and 2029/30. The operation of the allowance is complicated. Pensioners will have a notional tax credit of 20% of the difference between their pension and the personal allowance, covering the liability at the basic rate. If they have other income as well, the credit will be reduced by £1 for every £3 above the State pension
• The annual winter fuel payment to pensioners will be clawed back if income exceeds £35,000. A new energy support payment of £100 to be paid to ‘households’ in Council Tax bands A to D in England. The devolved governments will be given funding to make similar payments. The payments will be made directly to the recipients’ bank accounts in January 2027
• The dedicated 100% FYAs for qualifying new zero-emission cars and electric vehicle chargepoints will expire on 31 March 2027 for companies and 5 April 2027 for unincorporated businesses.
• In 2027/28, the basic, higher and additional rates on dividend income over £500 are unchanged at 10.75%, 35.75% and 39.35% respectively
• Making Tax Digital for Income Tax (MTD ITSA) will apply from April 2027 for sole traders and non-incorporated landlords with turnover over £30,000
• The rates of mileage allowance which can be paid to employees using their own  car for business journeys without incurring a tax charge has increased to 55p for the first 10,000 miles and 35p over that with effect from 6 April 2026
• The rate for zero emissions cars will rise from  4% in 2026/27 to 10% in 2030/31. The basis for taxing company cars and fuel provided for private use is set out up to 2030/31 to provide long-term certainty for taxpayers and industry
• The dedicated 100% FYAs for qualifying new zero-emission cars and electric vehicle chargepoints will expire on 31 March 2027 for companies and 5 April 2027 for unincorporated businesses.
• No changes to the main NICs rates and thresholds were announced – the Primary Threshold and the Upper Earnings Limit for employee contributions are linked to the personal allowance and the 40% income tax threshold, and are therefore fixed to April 2031. The secondary threshold for employer contributions is fixed at £5,000 to the same date
• The Lower Earnings Limit and Small Profits Threshold, and the rates of Class 2 and Class 3 NIC, will all be increased for 2027/28 in line with inflation at 3.5%
• There have been no changes to the reliefs available for contributions  to pension schemes or withdrawals from them
• The tax rate for qualifying gains remains 18%, but the lifetime limit for such gains is cut from £1 million to £500,000 for disposals from 6 April 2027. For a higher or top rate income taxpayer with £1 million of qualifying gains, this will increase their CGT payable by £30,000
• The founders relief announced will provide a lower rate of CGT of 10% for qualifying disposals of shares or securities on or after 6 April 2027, subject to a lifetime limit on qualifying gains of £10 million. The details will only be confirmed after further consultation
• E-invoicing will apply from April 2029 with all VAT invoices being issued in a specific electronic format
• ‘Modernising the taxation of distributions and repayment of capital from companies’ consultation document contained  a number of controversial proposals to change the way in which capital reductions  by companies are taxed, with a view to bringing such transactions within the charge  to income tax rather than CGT. There would also be changes to the way that demergers and share buy-backs are treated
• Other consultations include the need for income tax payers to make regular, smaller payments throughout the year from April 2029 rather than lump-sum payments on account, as well as the collection of VAT and PAYE liabilities via direct debit

What this means for limited company directors

1. Complexity of rates

• The changes from April 2027 increase the complexity of tax calculations even further. Different tax rates apply to different types of income; some types are subject to NICs as well as income tax; different allowances operate in different ways; and tax reliefs have to be offset in a particular order
• There are different thresholds which trigger changes in rates – the higher rate threshold, the points at which the High-Income Child Benefit Charge starts and finishes, the £100,000 ‘cliff edge’ where personal allowances begin to be tapered away and childcare benefits are lost, and the additional rate threshold (£125,140)
• Two people with similar levels of total income can have very different tax liabilities. It is particularly difficult to plan for those who have choices about how they receive their income, such as those who own their own company. It will be necessary to rethink and recalculate, and plans that have worked in the past may have to be changed for the future
• The Scottish government has the power to set its own income tax rates for Scottish taxpayers for non-savings, non-dividend income; from 2026/27, it can also set its own rates for property income. Many Scottish taxpayers now pay at higher rates of income tax than those elsewhere in the UK, although some low earners pay less. The Scottish Budget, which will confirm the rates for 2027/28, will take place on 3 December 2026

2. Dividends

• For many limited company owners, dividends are still the main way of taking profits out of the business.
• The new rates which applied from 6 April 2026 and remain unchanged are: 10.75% basic rate; 35.75% higher rate; 39.35% additional rate
• Over time, that makes profit extraction by dividend more expensive and narrows the gap, in tax terms, between operating as a company and operating as a sole trader or partnership.
• For some company owners, it may even be worth considering whether continuing to trade through a limited company is still the best option. Lothian Accounting can advise on disincorporating and operating instead as a sole trader or partnership. It’s important to be aware that this will not necessarily decrease professional accountancy fees
• However, it may be something to consider if it results in a tax saving and greater flexibility to draw earnings out of your business, where limited liability is not a concern for you or you feel it is adequately covered by insurance

3. Changes to pension salary sacrifice from April 2029

• Pension contributions made through salary sacrifice are currently a very tax-efficient way for many directors and employees to save for retirement, as they reduce both employee and employer National Insurance contributions (NICs). From April 2029, this will be restricted:
• Only the first £2,000 of pension contributions made via salary sacrifice each year will benefit from the NIC saving
• Any salary sacrifice pension contributions above this £2,000 limit will still receive income tax relief in the normal way, but they will no longer reduce NICs
• Employer pension contributions that are not made under a salary sacrifice arrangement will continue to be free of NICs
• This is an important distinction. The cap applies to the National Insurance advantage of using salary sacrifice, not to employer contributions more generally. Therefore director pension contributions made directly from the Limited company to a director’s SIPP are not affected
• However one must bear in mind that, as this date becomes closer and comments are made in Parliament about consistency this may change

4. Corporation tax, capital allowance and VAT

On the corporate side, there is some welcome stability, although the fact that thresholds remain frozen in spite of inflation represents  a stealth tax:

• Corporation tax rates and the small property rate threshold remain unchanged. However the surcharge which has been levied on the profits of banking businesses will increase from 3% to 6% for 15 months from 1 January 2027, in order to fund the measures introduced to relieve cost of living pressures
• VAT rates and threshold are unchanged. The temporary zero-rating of domestic electricity bills has been extended for another 3 months to 30 June 2027
• The government will introduce legislation to restrict the reverse charge from April 2027 so that it only applies if the receiving UK business is VAT registered. This change means that where a UK business customer is not VAT registered, the overseas supplier will be required to charge and account for UK VAT
• Class 1 employee (£12,570) and Class 1 employer National Insurance threshold remain frozen until April 2031
• There were changes to capital allowances: from 1 April 2026 (corporation tax) and 6 April 2026 (income tax),
  • From 1 January 2027, the permanent main-rate First Year Allowance (FYA) for qualifying new plant and machinery will increase from 40% to 50%
  • From 1 January 2027 the main rate writing-down allowance will reduce from 14% to 12% so companies should make best use of their £1m Annual Investment Allowance for qualifying plant and machinery, including new electric vehicles. The special-rate WDA (available on certain items, including plant integral to buildings) remains unchanged at 6%
• The dedicated 100% FYAs for qualifying new zero-emission cars and electric vehicle chargepoints will expire on 31 March 2027 for companies and 5 April 2027 for unincorporated businesses. After these dates, new zero-emission cars will generally receive relief through WDAs  at 12% rather than being deducted in full in the year of purchase. Most cars are excluded from the AIA, full expensing and the new 50% main-rate FYA
• From 1 April 2027, companies will no longer need to submit a claim notification form for R&D reliefs. HMRC will introduce a simplified and rationalised Additional Information Form for companies making claims in autumn 2027

5. Sole traders, partnerships and landlords

Frozen income tax and national insurance thresholds

• Income tax rates themselves are not increasing, but the freezing of income tax thresholds until April 2031 means that more of your income will gradually fall into higher-rate bands over time as your profits rise.
• This is sometimes referred to as “fiscal drag”. Even if your real income (after inflation) does not feel that much higher, you may find a greater proportion of your profits taxed at higher rates
• This will be an important factor when reviewing drawings and tax payments, especially if your business is growing.
• The freezing of the Class 4 National Insurance threshold is also extended to April 2031
• From 6 April 2027, the trading allowance will however be increased to £3,000. This allowance can be used against self-employed income instead of recording actual expenditure

Making Tax Digital for Income Tax update

• From 6 April 2026, Making Tax Digital for Income Tax (MTD ITSA) applied to
  • Sole traders with annual business turnover over £50,000; and
  • Non-incorporated landlords with rental income (alone or combined with sole trader income) over £50,000
• If you fall into this category, you will be required to:
  • Keep digital records using MTD-compatible software; and
  • Submit quarterly updates to HMRC, along with a final end-of-period statement, rather than just an annual Self Assessment return
• From April 2027, the turnover threshold reduces to £30,000, bringing more sole traders within the MTD ITSA regime. Those entering MTD from April 2027 will not receive late-submission penalty points for their four quarterly updates during 2027/28. Taxpayers who entered MTD in April 2026 will become subject to the normal quarterly late-submission penalty regime for 2027/28
• Lothian Accounting has put in place a clear pricing model for MTD ITSA services which focuses on a collaborative, shared-responsibility approach . Pricing sets out the costs of:
  • Support with quarterly submissions
  • Year-end review and finalisation

6. Landlords, savers and investors

• From April 2027, there will be a 4% increase in the tax rate applied to taxable savings interest and property (rental) income. This will affect:
  • Unincorporated landlords whose rental profits are taxed as income (but see below for Scotland); and
  • Individuals receiving interest on savings held outside tax-free wrappers such as ISAs.
• Combined with frozen income tax thresholds, this means landlords and savers are facing higher effective tax bills, both because the rates are increasing and because more of their income will fall into higher tax bands over time
• For unincorporated landlords who will also fall within MTD ITSA because their rental and/or business income exceeds £30,000, there is both a compliance and a cash-flow impact to plan for.
• For Scottish resident individuals, the change to property income tax will not affect them as they will still be taxed under the Scottish income tax rates. There may however be changes announced as part of the Scottish budget on 3 December 2026 which I will update on
• Savings income is not a devolved tax so the increase in savings income tax from April 2027 will apply to Scottish residents

7. Electric cars

New mileage-based charge (eVED) from April 2028

• From 1 April 2028, a new Electric Vehicle Excise Duty (often called “eVED”) will apply to electric and plug-in hybrid cars:
  • Fully electric cars will pay 3p per milePlug-in hybrid cars will pay 1.5p per mile
  • The charge is in addition to existing Vehicle Excise Duty (VED) and is expected to increase each year in line with inflation
• Importantly, this charge applies to cars only. Electric vans that qualify as vans under HMRC guidance, as well as trucks and motorcycles, are not within the scope of eVED at this stage
• The practical effect is that, while electric cars will still usually be cheaper to run than petrol or diesel cars, the running-cost gap will narrow slightly from 2028 onwards

“Luxury electric car” VED – thresholds and costs

• Electric cars have been subject to standard VED (currently £195 per year after the first year) since April 2025
• Cars with a list price above a certain threshold are subject to the Expensive Car Supplement (ECS) for five years (from years two to six). The ECS is currently £440 per year
• In practical terms, if you buy a new electric car with a list price over £50,000, you can expect to pay roughly:
  • Standard VED: currently £195 per year; plus
  • ECS: £425 per year for years two to six
  • That gives a total annual road tax bill of around £640 per year for those five years for a “luxury” electric car above the threshold, with the exact amounts subject to future indexation
• Company car Benefit in Kind (BIK) rates for fully electric cars – The Budget does not change the previously published BIK rate schedule but has now extended it to 2030/31
• Fully electric company cars remain on very low BIK rates, with current rate of 4% in 2026-27 and by 1% per annum to 10% in 2030-31
• 100% capital allowances on new electric cars – New zero-emission cars purchased by a business continue to qualify for 100% first-year capital allowances, however this will expire on 31 March 2027
• For company directors, this combination of low BIK, generous capital allowances and (for now) lower running costs still makes electric cars a very attractive part of remuneration and investment planning, even once the new mileage charge is taken into account. However the generous capital allowance benefit (100% first year allowance) will no longer from 31 March 2027

8. Inheritance tax: lifetime gifting and frozen thresholds

Lifetime gifts and potentially exempt transfers (PETs)

• There are no changes to the rules on lifetime gifts and potentially exempt transfers. In broad terms:
• Most outright gifts from an individual to another individual are treated as potentially exempt transfers (PETs)
• If you survive for seven years after making such a gift, the value of that gift falls out of your estate for IHT purposes
• If you die within seven years of making the gift, some or all of its value may be brought back into account when calculating IHT on your estate, potentially using up some of your nil rate band and, in some cases, being subject to IHT in its own right
• There are also useful exemptions that allow you to make certain gifts free of IHT from the outset (for example, the £3,000 annual exemption, small gifts exemption, certain wedding gifts, and regular gifts out of surplus income)

Nil rate band and residence nil rate band frozen until 2030/31

• On the other hand, the Budget confirms that the main IHT nil rate band (currently £325,000) and the residence nil rate band (currently £175,000, subject to conditions) will both be frozen for a further year, until at least the end of the 2030/31 tax year
• With property and investment values having risen significantly over time, freezing these thresholds means more estates will be brought into the IHT net. Even if your lifestyle feels relatively modest, it is increasingly easy for a combination of property, savings and pensions to exceed the available nil rate bands

Unused pension benefits

• As previously legislated, for deaths on or after 6 April 2027, unused pension funds (whether or not written into trust) will usually be included in the deceased’s estate for IHT purposes
• Due to the interaction with the income tax rules for those receiving benefits from such funds, this can lead to very high effective marginal tax rates up to 60%

9. Next steps

• Every client’s situation is different, but some sensible next steps might include:
  • If you run a limited company, be ready to keep revisiting your remuneration strategy (salary, dividends and pension contributions) each year
• • If you are a sole trader or unincorporated landlord with turnover over £30,000, start thinking about your digital record-keeping and how you would like MTD ITSA to work in practice from April 2027
• • If you have significant savings, investments or property, consider whether you are making full use of tax-efficient wrappers such as ISAs and pensions and whether your portfolio still reflects your goals in light of these changes. A financial adviser can assist with investment strategy and planning for you here
  • If you are concerned about inheritance tax, or if your estate may be close to the nil rate band and residence nil rate band limits, it may be a good time to start a structured conversation about lifetime gifting and estate planning