UK Autumn Budget – October 2026

Danny Blum, Head of Employee Incentives, said:

“In an unexpected revelation, the Chancellor has today announced a doubling of the Company Share Option Plan value opportunity from £60,000 to £120,000 and made other changes to the permissible terms of CSOP options (as well as to the terms of Enterprise Management Incentive options), referred to as “EMI 2”. We need to see the detail and the overlap between EMI and CSOP but we look forward to the changes and hopefully further simplification of the arrangements.
 
This change will be welcome to large companies, including listed companies, who can now consider CSOP seriously as a vehicle for incentivisation, alongside other traditional long term incentive plans and in light of increasing employer costs such as employer’s NICs which are sheltered by these arrangements. If the strict rules which limit many private equity backed companies from offering these arrangements are relaxed, this would result in a series of very welcome changes to employee incentive arrangements in the UK over the last few years. 

Listed companies which have let their CSOP lapse or which do not permit offering CSOP to directors in their Remuneration Policy should consider whether to introduce this very valuable plan and/or ensure their directors can benefit from it by updating their Policy at their next AGM. 

Whilst the announced cut in Business Asset Disposal Relief is very disappointing, the new Founder’s Relief will hopefully introduce new motivation to entrepreneurs and investors to create and invest in new high growth companies.”

Consultation outcomes

Helen Mackey, Partner, said:

“The government has announced today that it is pushing ahead with its proposals to modernise the tax treatment of distributions and repayment of capital, despite concerns raised by respondents on certain aspects of the consultation. In particular, it appears that several respondents pointed out the obvious risks to the UK’s attractiveness as a place to invest. The government has acknowledged this in its response and intends to carry out a technical consultation in 2027 to refine the proposals. The response indicates that this will include further relaxations to statutory merger relief, which is positive. Any changes will only apply from April 2028.  
 
The government has also published an update on its consultation relating to UK resident individual members of US LLCs and other reverse hybrids. The intention is to create a mechanism to provide double tax relief in these circumstances. This will be very welcome news to individual investors in US LLCs (and other similar entities), who currently can be subject to effective double taxation resulting in very high effective tax rates.”

Bank surcharge

Kevin Cummings, Partner, said:

“With the bank tax rate rise specifically tied to funding household energy cost reductions, banks will need to tread carefully if protesting the increase. 
 
The Government’s approach is politically astute, but hardly reflective of considered long-term policy for the sustainability of the UK banking sector.”

Business Asset Disposal Relief and Founders’ Relief

Colin Askew, Co-Head of the UK Tax Group, said:

“A significant new tax relief for founders was announced in today’s Budget.
 
The new Founders’ Relief proposes a 10% capital gains tax rate on qualifying disposals, with a lifetime limit of £10m, potentially representing a substantial saving for founders and early investors in successful high-growth UK businesses.
 
There are detailed eligibility requirements and these remain subject to consultation, but the proposals could start influencing decisions now. In particular, founders contemplating a sale may want to consider the timing of disposals and the potential effect of current funding rounds on their eligibility. The contrast with the reduction in the lifetime allowance for Business Asset Disposal Relief from £1m to £500,000 is also striking.
 
There will be plenty to work through in the detail, but Founders’ Relief could become an important consideration for the timing of founders thinking about an exit.”

Cross-border financing

Deepesh Upadhyay, Co-Head of the UK Tax Group, said:

"On Budget Day, the UK Government published “Corporate Tax Simplification for Business Investment”, confirming that it is seeking simpler and more certain tax rules for financing and international activity, including UK withholding tax and interest deductibility.
 
The Government has confirmed that it has listened to concerns raised by stakeholders, including Eversheds Sutherland, who responded to HMRC’s recent consultation on simplifying the administration of double tax treaty relief for UK withholding tax on interest paid to non-UK lenders.
 
In welcome news, the Government recognises the need to streamline the current system and work with stakeholders involved in cross-border financing to strike the right balance between simplicity, certainty and effective compliance arrangements.
 
The improvements being considered include simplifying the double tax treaty passport (DTTP) scheme; a more limited form of self-assessment, rather than moving to a fully self-assessed model; capturing key tax information on a more real-time basis; and considering how double tax treaty processes should apply to more complex financing arrangements.
 
The Government has also confirmed it will publish new guidance to help businesses dealing with withholding tax compliance and administrative failures. This is significant given HMRC’s pause, since October 2024, of its concessionary treatment for certain failures to withhold.
 
The pause has created a backlog of claims and uncertainty for affected UK borrowers, market participants and tax advisers. Many will therefore be looking closely at the new guidance to understand what it means for existing claims and how administrative failures should be dealt with going forward."

VAT changes

Edward Griffiths, Principal Associate, said:

"The Government has announced that from April 2027, overseas suppliers of services to non VAT registered UK businesses will need to account for VAT in the UK.
 
This represents a significant departure from the current position which is that taxable supplies made from overseas companies to UK businesses are accounted for under the “reverse charge” mechanism regardless of whether the customer business is registered for VAT or not (what mattered was whether the customer was a “relevant business person” – and so captured a wide variety of entities including charities or local government bodies) – VAT was therefore a problem for the UK customer rather than the supplier (unless a special place of supply rule applied).
 
From April 2027, Government (through measures to be introduced in the Finance Bill 2026-27) will restrict the applicability of the “reverse charge” only to businesses registered for UK VAT.
 
This means that supplies to UK businesses that are below the VAT registration threshold or are not required to be registered for VAT (as they, for example, make solely exempt supplies) are within the scope – overseas suppliers should therefore consider whether the supplies they make into the UK are taxable (as opposed to exempt) to ascertain if they will have VAT filing obligations / additional VAT to pay from April 2027.
 
What should be flagged is that businesses that receive taxable supplies (and account for VAT under the reverse charge) currently, are required to consider whether those “reverse charge” supplies count towards their own VAT registration threshold. Based on what has been set out in the Budget documents, it appears that non-VAT registered businesses will no longer need to think about this and the VAT compliance burden is to be shifted to the overseas supplier.
 
It appears that overseas suppliers who make low value supplies of services (which would not be significant enough to push their customers over the VAT threshold) to UK businesses will need to register and account for VAT in the UK. By way of example: if an overseas IT services provider, which charges a small independent UK high street retailer with access to cloud-based storage for £50 per month - under the current rules, that £50 would go towards the retailer’s VAT registration threshold, from April 2027, the overseas IT provider would need to account for VAT on the £50 itself.
 
We await the draft legislation."

Real estate tax, business rates and capital allowances

Paul Beausang, Head of Real Estate Taxation, said:

“It’s been a mixed bag for the UK real estate market, with sovereign wealth investors the most obvious losers, facing an effective 15% rate on UK rental income and gains from 2029. This was a real surprise given that the Treasury shelved very similar proposals as recently as March 2023 following a detailed consultation. Small businesses will applaud the additional business rates relief, with the rateable value threshold increasing from £12,000 to £18,000, although vaping and retail gaming businesses are now excluded. Capital allowances continue the trend, with the Chancellor increasing first-year allowances from 40% to 50%, but further reducing the annual allowance to 12%. Given that the original rate was 18%, this is a very material reduction and sends mixed messages in terms of capital-intensive investment.”

ISAs and pensions

 

"There are a number of changes to the Individual Savings Account regime.

The £20,000 cash Individual Savings Account limit will be retained, reversing the previous reduction for those aged under 65.

The government still wants investors to invest in securities rather than cash, but is now considering achieving this through an incentive rather than a restriction. The Chancellor announced a policy-development exercise with the investment industry to explore a new incentive for individuals investing in a stocks and shares Individual Savings Account for the first time. There are no details of the proposed incentive yet.

From October 29, 2026, Lifetime Individual Savings Account funds can be withdrawn in connection with the purchase of a first home costing more than £450,000, subject to a reduced withdrawal charge of 20%, provided the other relevant conditions are met. The government has recognized that Lifetime Individual Savings Accounts haven’t worked well for many savers. Its consultation on the replacement product noted that more account holders had lost some of their original savings than had used an account to purchase a house.

The practical effect of reducing the charge from 25% to 20% is broadly to remove the part of the existing charge that can eat into the investor’s own contributions, rather than merely reversing the benefit of the government’s 25% bonus. That is a significant improvement for investors who find that house-price increases have taken their intended first home above the £450,000 limit.

The Lifetime Individual Savings Account will be replaced for new savers by the new First Time Buyer Individual Savings Account from April 6, 2029. The new product is intended to be simpler and will be directed solely at first-home purchases, rather than combining first-home and retirement saving. The government has already consulted on its design. Existing Lifetime Individual Savings Account holders will, however, be able to continue saving into their accounts under the existing rules.

A significant difference is the treatment of the government bonus. Under a Lifetime Individual Savings Account, the government currently adds a 25% bonus to contributions, meaning that the bonus itself is invested within the account. Under the proposed replacement, the government has said that the bonus will instead be provided when the saver uses the account to buy a home. The government bonus will therefore not form part of the capital invested during the saving period. This removes one of the investment advantages of the existing Lifetime Individual Savings Account, namely the ability to earn investment returns on the government bonus itself.

The Chancellor also announced several changes to pensions tax.

As previously announced, the government will introduce a Pension Tax Allowance from April 2027. This will ensure that individuals above State Pension age whose total income does not exceed the full annual value of the new State Pension aren’t brought into income tax solely as a result of increases in the State Pension. The allowance will be tapered for those with slightly higher incomes.

This is effectively targeted protection from fiscal drag for lower-income pensioners, rather than an increase in the Personal Allowance generally.

With effect from October 28, 2026, the government is removing the two-year rule for the taxation of pension income and lump-sum death benefits in respect of pension scheme members who die before the age of 75. This removes one of the tax consequences that could arise where death benefits weren’t designated or paid within two years of the scheme becoming aware of the member’s death.

The government’s previously announced changes bringing most unused pension funds and death benefits within the scope of inheritance tax from April 2027 remain in place and have already been enacted."

Further information

For further information or advice on how the Autumn Budget measures may affect you or your business, please contact your usual adviser or a member of our UK Tax team.