The Budget 2026: Personal Taxes

The table below summarises the key rate and allowance changes relevant to savings income, property income and small-scale trading or miscellaneous income, comparing the position individuals are currently subject to with the changes announced at Budget 2026.

In welcome news, no CGT rate increases were announced in this Budget.

The principal CGT measures instead concern founders and business owners, with:

• The introduction of a new Founders' Relief,
• A reduction in Business Asset Disposal Relief (BADR) lifetime limit, and
• A minor technical amendment affecting capital sums received on loss of contractual rights.

Founders' Relief

Following the government's Call for Evidence on tax support for entrepreneurs, Budget 2026 introduces a new CGT Founders' Relief which operates as a reduced 10% rate of CGT on lifetime gains of up to £10 million for qualifying founders and early investors in high-growth, innovative companies.

In some respects, this echoes the old-style Entrepreneurs' Relief, but it is considerably narrowed and designed as a genuine growth incentive.

The relief will apply to qualifying disposals of shares or securities made on or after 6 April 2027, and the lifetime cap will be reduced by amounts claimed under BADR and Investors' Relief from that date.

The detailed qualifying conditions remain subject to a technical consultation closing 30 November 2026, with legislation to follow in Finance Bill 2026-27. However, the proposed design requires the following:

• Individual conditions: the individual must have:
  • Held at least 25% of the company's ordinary share capital at the point when the trading activity for which the company was formed commenced, or preparation for that trade commenced;
  • Held the relevant shares for at least five years before disposal; and
  • Been UK resident under the Statutory Residence Test for at least five continuous tax years before disposal. 

In practice, this means only investors who took a very substantial stake at the very earliest stage of the company's life (before or at the point trading began) would qualify. A later stage investor would be unlikely to meet this condition.

• Company conditions: the company must:
  • Be within the scope of UK Corporation Tax and have had a substantial UK presence for the five accounting periods prior to the disposal,
  • Be a trading company or holding company of a trading group,
  • Have generated turnover of at least £10 million in the accounting period prior to disposal, and
  • Employed at least 15 qualifying full-time employees in the prior accounting period.
    
    
• Growth and innovation: the company must satisfy at least two of three tests, being:
  • 25% compound annual growth in turnover across three consecutive accounting periods within the ten years before disposal;
  • 25% compound annual growth in headcount over the same period; or
  • Qualifying R&D expenditure of at least £1.5 million for which R&D tax relief was claimed in the three years before disposal.

These conditions are considerably more demanding than old-style Entrepreneurs' Relief. The 25% founding shareholding threshold, five-year holding period and the growth and innovation tests make this a genuinely targeted founders' relief rather than a broad exit incentive.

Individuals who may be eligible should engage with the technical consultation and monitor legislative developments closely ahead of April 2027.

Business Asset Disposal Relief

BADR remains available, but its lifetime limit is being halved from £1 million to £500,000 for qualifying disposals on or after 6 April 2027.

The OBR estimates that the change will raise approximately £0.3 billion in 2029–30, broadly offsetting the cost of Founders' Relief. The relief will continue to offer an 18% CGT rate on gains within the new limit.

The government's stated rationale is to focus the relief on the start-up and scale-up phases of business, where it considers that most investment decisions are made. Legislation to effect the change will be introduced in Finance Bill 2026-27.

The Finance Bill 2026-27 will also include transitional provisions for contracts entered, and certain share reorganisations commenced, before 6 April 2027. For higher-value exits, Founders' Relief, with its £10 million lifetime cap, may now be considerably more valuable than BADR where the qualifying conditions can be met.

Clients planning disposals around April 2027 should take specific advice on timing and the interaction between the two reliefs.

Capital sums for surrender of contractual rights

With immediate effect from 28 October 2026, legislation to be introduced in Finance Bill 2026-27 to clarify that a capital sum, received under a contract, for the loss of a right under that contract, falls within the scope of CGT.

The measure appears to respond to a First-tier Tribunal decision — Dialog Semiconductor Ltd v HMRC [2025] UKFTT 01188 (TC) — in which it was held that a payment made under a contractual provision did not, for capital gains purposes, constitute a sum received for the forfeiture (or surrender) of rights or refraining from exercising rights.

The policy paper confirms that the measure is intended to protect revenue by clarifying that such capital sums are within the scope of capital gains.

Clients receiving lump sum payments in respect of contractual claims should await the legislation but carefully review the characterisation of those receipts in light of the proposed amendment.

The government has confirmed that it will proceed with all seven of its proposals contained in HMRC's Modernising the taxation of distributions and repayments of capital from companies consultation.

The changes are expected to take effect from April 2028 following a technical consultation on the draft legislation commencing in 2027.

We discussed the background and policy justifications for these proposals in a special mini-series of our Tax Focus podcast covering the Consultation. You can listen to the episodes here: Tax Focus podcast: Income or capital? HMRC's consultation on modernising the distributions framework | Travers Smith

The key personal taxation implications are set out below:

• Changes to the treatment of share buybacks and capital rebasing

The government intends to pursue its proposal to combat avoidance involving corporate reorganisations designed to increase the amount of share capital that can be returned to individual shareholders on a share buyback in a form that attracts (the lower rates of) CGT.

The proposal involves "freezing" the capital element by reference to the amount that was initially subscribed for the shares, so that the amount subject to CGT on any future buyback or reduction reflects only the amount paid on issue of the shares, rather than any additional share capital created under corporate law as a result of a later reorganisation.

The UK's rules already work in a different way to many jurisdictions by taxing amounts received on a buyback in excess of the share capital returned as an income distribution, and these changes are likely to increase the "income" element of the return on certain buybacks, create further disincentives for individual shareholders to dispose of shares in this way.

• New loans to participators charges for loans from non-UK close companies

Individuals who receive loans from non-UK 'close' companies (broadly, companies controlled by five or fewer participators) will be subject to a 'loans to participators' charge.

Non-UK companies have historically been outside the scope of the 'loans to participators' rules (provided that they do not fall foul of the extensive scope of the anti-avoidance rules related to such loans) and the rules applicable to UK companies place the burden for accounting for tax on the lender company (rather than the individual borrower), so the proposal to levy the charge on individuals in these circumstances is a significant change.

Whilst the government, in its response to the consultation, has indicated that it is open to proposals to limit the charge to those with a 'material interest' and to exclude loans made for 'genuine commercial purposes', as we have highlighted in our podcast discussions, the changes have the potential to create significant compliance headaches for affected individuals receiving loans from overseas companies where those exemptions do not apply.

• Purchase of Own Shares rules

Where a company purchases its own shares from a shareholder, the part of the payment representing the excess above the amount of capital originally subscribed will ordinarily be treated as a distribution subject to income tax.

The 'Purchase of Own Shares' rules can apply to give the entirety of the payment capital treatment where these shares are in a 'close company' and meet certain other requirements (essentially targeting the rules at a narrow set of arrangements designed to exit long-standing shareholders for commercial reasons).

The rules have historically centred on a subjective question as to whether the buyback has a "trade benefit". The test has been an ongoing source of dispute between taxpayers and HMRC and has created significant uncertainty for shareholders when planning exits.

The government proposes to replace this with more objective mechanical conditions.

• Distributions from non-UK resident companies

Distributions from non-UK resident companies are currently subject to a narrower income tax charge than those from UK resident companies, with only dividends which are not of a capital nature (and certain other payments which can be taxed as miscellaneous income) within scope of charge.

This means that payments which would be taxable distributions in the hands of a UK shareholder (if made by a UK company) may instead be treated as capital receipts if made by a non-UK company.

Whether a distribution is of a capital nature for UK tax purposes is a question determined by case law and based on the legal nature and mechanics of distribution. The proposed changes look to bring certain distributions (including all dividends and other distributions out of the assets of non-resident companies) within the charge to income tax in line with the treatment of equivalent distributions from UK companies.

The government has answered concerns from the private capital industry by indicating that returns on asset managers' co-investment and genuine investment returns in qualifying fund structures will continue to receive capital treatment where that is available under the current rules.

• Modernisation of the Transactions in Securities (TiS) anti-avoidance regime

The government has confirmed that it intends to reform the entire TiS regime to make it clearer and more robust. It is considering bringing the TiS regime within the income tax self-assessment framework, and more detailed proposals are expected to follow in an upcoming technical consultation.

The precise direction of reform in this area remains unclear, however, with consultation respondents divided between the appropriateness of adopting a new principles-based approach or, alternatively, retaining and improving the existing rules (which have been in place since 1960).

Potentially affected individuals should engage with the technical consultation closely.

At this stage, it feels a little disappointing that the government intends to press ahead with such wide-ranging changes. There appears to have been limited regard given to valid concerns expressed by respondents during the policy consultation about the impact of certain of the changes (specifically those in relation to capital rebasing and non-resident company distributions) on inward investment and genuine business transactions.

Some changes will simplify areas of genuine complexity, but others will create uncertainty and add to individuals' compliance burdens. The extent to which the government has taken on board feedback received will become clear as we progress through the technical consultation in 2027, and the draft legislation begins to take shape in advance of coming into effect in April 2028.

For more analysis of this measure, and the implications for businesses, see our commentary: Business Taxes.

The Budget 2026 makes several changes to the ISA landscape, reversing one of the more contentious measures from Autumn Budget 2025 and signalling further reform to come.

Cash ISA limit: a reversal

Autumn Budget 2025 announced a reduction in the annual cash ISA limit from £20,000 to £12,000 from 6 April 2027, with the remaining £8,000 allowance designated for investments, on the basis that the measure would promote greater investment in funds acquiring and holding shares and securities and help fuel economic growth.

The government has decided not to proceed with this change meaning that the limit remains at £20,000 for all savers.

A new Stocks and Shares ISA incentive: detail to follow

Alongside retaining the cash ISA limit, the government has also announced that it will work with the investment industry to explore a new incentive for people investing in a 'Stocks and Shares' ISA for the first time, with the detailed design to be developed with industry.

Lifetime ISA: withdrawal charge reduced for properties above the price cap

With effect from 29 October 2026, the withdrawal charge (applying where a 'Lifetime' ISA (LISA) saver purchases a first home above the £450,000 property price cap) has been reduced from 25% to 20%.

The reduced charge applies only where the purchase otherwise meets the qualifying rules for a LISA withdrawal (all other first-time buyer eligibility conditions must still be satisfied). The 25% charge on all other unauthorised withdrawals is unchanged. The fiscal cost is small, running at around £25 million per year in the later years of the forecast.

First Time Buyer ISA: replacing the Lifetime ISA for new savers

From April 2029, a new 'First Time Buyer' ISA (FTBISA) will replace the LISA for new savers. Existing LISA holders are unaffected and may continue under current rules.

The financial generosity is broadly preserved:

• Annual contributions of up to £4,000, attracting a 25% government bonus;
• The bonus is calculated on the total final account balance, meaning that investment returns and interest earned within the account also attract the bonus, not just contributions, and is capped at an overall maximum of £20,000; and
• No upper age restriction (removing one of the most significant limitations of the LISA, which is only available to those who open it before age 40).

To be eligible for the bonus, the account must have been held for at least one year and the purchase must be supported by a mortgage. The bonus is paid at exchange of contracts rather than completion, and savers will have 90 days from the point of claiming the bonus to complete their purchase.

Budget 2026 introduces two measures intended to tighten taxpayer compliance.

A new general duty to correct known inaccuracies means that delay in addressing historic errors risks penalties and extended assessment windows normally reserved for deliberate or careless behaviour. IN addition, from April 2029, the long-standing Payments on Account system for self-assessment taxpayers will be replaced with smaller, more frequent in-year payments aligned to when income is earned, accelerating the point that tax needs to be accounted for to HMRC.

Correction of Errors

The government has confirmed a significant tightening of the rules governing error correction in tax returns and documents submitted to HMRC.

The change is to be achieved through the introduction of two mechanisms, applicable to all taxpayers submitting such documents, and to their advisers:

• First, a taxpayer who becomes aware of an inaccuracy in a return or document will be obliged to take 'reasonable steps' to correct it, either by amending the return directly or, where that is not possible, by notifying HMRC.
• Second, HMRC have been granted a new Customer Correction Notice (CCN) power which will allow them, where they suspect an inaccuracy, to require the taxpayer to check their position and either correct the error or explain why no correction is needed. If the taxpayer fails to act in response to receiving a CCN, the inaccuracy is treated as deliberate or careless, opening the door to substantially higher penalties and an extended assessment window.

The new framework raises the stakes materially for businesses and individuals who identify historic errors but delay acting on them. The treatment of inactivity as deliberate or careless behaviour should prompt a review of internal compliance processes.

Timely Payments in Income Tax Self-Assessment

From April 2029, the government will overhaul how Income Tax Self-Assessment (ITSA) taxpayers make their Payments on Account.

Payments on Account are the advance payments currently made by around one quarter of self-assessment taxpayers - broadly, those whose prior-year tax liability exceeded £1,000 and who did not meet at least 80% of that liability outside self-assessment towards their annual tax bill. Under the existing regime, which has remained largely unchanged for thirty years, there can be a gap of up to twenty-two months between earning income and paying the tax due on it.

The government has confirmed that this system will be replaced with smaller, more regular in-year payments made as income is earned, which would bring self-assessment closer to the models used in the US, Australia, France, Germany, and Canada. Payments will be automated, for example by Direct Debit, with those who have sufficient PAYE income able to opt to pay through the payroll system instead. A transitional year in 2029–30 will require affected taxpayers to meet obligations under both the old and new arrangements simultaneously; this creates pressure on cash-flow which the government has acknowledged but still expects taxpayers to prepare for it and meet it.

The OBR projects that the measure will yield an average of £1.6 billion a year from 2029–30, driven partly by a reduction in debt losses and partly by bringing forward the timing of tax recovery.

The self-employed and those with significant investment or property income are therefore most directly in scope. HMRC will continue to consult with stakeholders on payment frequency, which is yet to be determined, and the wider application and implementation of the new rules.