Chancellor John Healey delivered his first Budget today, and the message for our clients is mixed. Savers and landlords will pay more. Business owners face a cut to Business Asset Disposal Relief, with the lifetime limit halved from £1m to £500,000, but founders get a new Founders’ Relief with a reduced rate of capital gains tax. No further changes to employment income tax rates or dividend tax rates were announced, and growth next year is forecast to slow.
It is the first Budget under Prime Minister Andy Burnham. Healey framed it around fiscal discipline and “breathing space” on the cost of living, against a backdrop of higher energy and borrowing costs.
Beyond tax, Healey wants government to cost less to run. He’ll use AI to cut a further £600m from civil service admin, and review how the NHS can free up staff from paperwork to spend more time with patients. More power and money will also move to local areas, and funding for tackling problems early will be protected in future spending plans.
Defence was another major theme. Healey said the defence budget is now £14bn higher than in the last year of the Conservative government, and he will set out the route to the NATO target of 3.5% of GDP by 2035 at next year’s spending review. He also announced £10bn of economic and military support for Ukraine.
At a glance
- Savings and rental income: taxed a further 2 percentage points higher from April 2027.
- Cash ISAs: the £20,000 allowance stays; the planned cut is scrapped.
- Lifetime ISA: plans to replace it with a new First Time Buyer ISA, first set out in June, reaffirmed.
- Business Asset Disposal Relief: lifetime limit halved from £1m to £500,000 from April 2027.
- Founders’ Relief: a new reduced 10% CGT rate on up to £10m of lifetime gains for business founders.
- Small business rates: relief threshold for retail, hospitality and leisure firms up from £12,000 to £18,000 rateable value.
The economic picture
- Growth is slower next year. The OBR expects the economy to grow 1.2% this year but only 1% in 2027, down from the 1.6% it forecast in March. Annual growth is then forecast to pick up to 1.6-1.8% from 2028.
- Borrowing is still high. It is forecast at 4.2% of GDP this year, falling to 1.8% by 2030-31.
- The buffer is limited. The government has £15bn of headroom against its fiscal rules in 2029-30, which leaves little room if the outlook worsens.
What it means for you: a slower 2027 and tight public finances mean further tax rises in future Budgets can’t be ruled out. That’s another reason to plan early rather than wait.
Savers and investors
- Savings income tax rises again. From April 2027, tax on savings interest rises to 24%, 44% and 49%. That’s a further 2 percentage points on top of the rise already planned.
- Cash ISA cut scrapped. The planned drop in the cash ISA limit to £12,000 for under-65s will not happen. The full £20,000 allowance stays.
- Dividend tax unchanged. No further rise beyond the April 2026 increase.
- New “Starter ISA”. The government will consult on a new ISA to reward first-time investors.
- Lifetime ISA replacement reaffirmed. The Budget confirmed plans, first set out in June, to replace the Lifetime ISA with a new First Time Buyer ISA.
What it means for you: keeping savings inside an ISA or pension is now more valuable than ever, and with the full £20,000 Cash ISA allowance staying, there’s plenty of room to do so. Speak to your adviser about making the most of your allowances.
Landlords and property investors
- Property income tax rises again. From April 2027, tax on rental profits rises to 24% (basic), 44% (higher) and 49% (additional). That’s a further 2 percentage points on top of the rise announced last year. These separate property rates apply in England and Northern Ireland.
- Mansion tax threshold unchanged. The surcharge on homes in England worth £2m+ is still due from 2028. A reported plan to cut the threshold to £1.5m did not go ahead.
What it means for you: individually held rental property is now noticeably less tax-efficient. If you hold property personally, it’s worth reviewing your structure, including whether a company or other route makes sense, before the new rates bite.
Business owners and entrepreneurs
- New Founders’ Relief. A new 10% capital gains tax rate on lifetime gains up to £10m, aimed at the founders of the most successful firms. Eligibility details are still to be published.
- Business Asset Disposal Relief (BADR) limit halved. From April 2027 the lifetime limit falls from £1m to £500,000; the 18% rate is unchanged. The government says three in four claimants won’t be affected.
- Small business rates relief extended. For retail, hospitality and leisure firms, the rateable value threshold rises from £12,000 to £18,000, so around 70,000 more businesses will pay no business rates. Vape shops and adult gaming centres are excluded.
- Trading allowance tripled. From April 2027, the tax-free amount people can earn from a new venture rises from £1,000 to £3,000.
- Higher tax-free mileage rates (announced 26 October). Ahead of the Budget, the government made the 55p rate for the first 10,000 business miles permanent and raised the rate above 10,000 miles from 25p to 35p.
- Tougher HMRC collection. More compliance funding and stronger powers to recover overdue tax.
- Self assessment payments reformed. Taxpayers will make smaller, more regular payments; details are still to follow.
- Corporation tax rate unchanged at 25%. Full expensing stays. The main first-year allowance rises from 40% to 50%, but the main writing-down allowance falls from 14% to 12%.
What it means for you: if you’re planning an exit, the BADR cut and the new Founders’ Relief could both change the tax on a sale significantly; we’ll confirm the qualifying rules once HMRC publishes the details. Make sure filings and payments are up to date, as HMRC enforcement is stepping up.
Pensions and estate planning
- State pension up 3.9% from April 2027.
- Pension Tax Allowance confirmed. The government had already promised that pensioners living on the state pension alone wouldn’t pay income tax; the Budget set out how. From April 2027 to April 2030, pensioners whose total income is no more than the full new state pension won’t pay income tax, with the allowance tapering away just above that level.
- Triple lock change confirmed. Healey confirmed the previously trailed adjustment to the triple lock, alongside a new National Care Service, saying it will save £15bn a year by the end of the 2030s. Full details are in the Budget documents.
- Pensions due to enter inheritance tax from April 2027 (announced in the October 2024 Budget). Most unused pension funds will count towards your estate. Nothing in this Budget changes that.
What it means for you: the pension IHT change is the big one for families. If you’ve been relying on your pension to pass on wealth, speak to your adviser about the most tax-efficient way to plan your estate.
What didn’t change
- Income tax, National Insurance and VAT rates are unchanged, though frozen thresholds continue to pull more income into higher bands.
- Capital gains tax rates were not raised, despite pre-Budget speculation.
Next steps
Most of today’s changes take effect from April 2027, so there is time to plan, but not to wait. Our investment team will also be carrying out a full review, and we’ll update you on any changes in our CIO’s next Lowdown article. In the meantime, please get in touch if you’d like to discuss what the Budget means for you.
