The Chancellor’s Budget on 28 October comes against a challenging economic backdrop, with rising energy costs, pressure on household finances and limited room for additional government spending.
Before the Budget, the Government had already announced several measures aimed at easing the cost of living, alongside plans to adjust the State Pension triple lock from April 2030. Expectations were therefore for a Budget focused on targeted support and longer-term changes rather than sweeping tax cuts.
The Budget included measures affecting household bills, savings, pensions, business owners and the wider economy. Some will take effect next year, while others are planned for later years and remain subject to further detail or legislation.
We’ll explore the implications in more detail in our November newsletter. For now, here are the key announcements and what they could mean for you.
Taxes
The headline rates of income tax and VAT remain unchanged. However, there are changes to the tax treatment of savings and property income, alongside measures affecting business owners.
Tax on savings and property income
From 6 April 2027, tax rates on savings and property income will increase by a further two percentage points, on top of the increase announced in last year’s Budget.
From 2027/28, the rates will be:
- Basic rate: 24%
- Higher rate: 44%
- Additional rate: 49%
These changes will not affect everyone in the same way. The impact will depend on the type and amount of income you receive, as well as your wider tax position.
Business Asset Disposal Relief and Founders’ Relief
The lifetime limit for Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, will fall from £1 million to £500,000 from 6 April 2027.
The Government estimates that three-quarters of claimants will still receive relief on their entire qualifying gain. However, business owners planning to sell their business should understand how the lower limit could affect their tax position.
A new Founders’ Relief is also planned from 6 April 2027. It will offer a 10% Capital Gains Tax rate on up to £10 million of lifetime gains for qualifying founders of high-growth, innovative companies.
The detailed rules are subject to consultation. Business owners considering a sale should not assume they will qualify, and the interaction between the two reliefs will be important when planning an exit.
Other tax changes
The tax-free Trading Allowance will increase from £1,000 to £3,000 from 6 April 2027. This will allow individuals to receive up to £3,000 of eligible trading and miscellaneous income tax-free each year.
The Government is also introducing changes to tax administration, including a new power for HMRC to recover certain lower-value tax debts directly from bank accounts. This is planned for July 2029 and will include safeguards for people and businesses who can afford to pay but repeatedly fail to do so.
Pensions and savings
Cash ISAs
The Government has reversed its planned reduction to the annual cash ISA allowance for the under 65s. It will remain at £20,000. This preserves the current opportunity to save into a cash ISA without paying tax on the interest, subject to the usual ISA rules.
The Government will also explore a new incentive for people investing in a stocks and shares ISA for the first time. The details are still being developed.
State Pension and the triple lock
The State Pension will continue to increase under the triple lock throughout the current Parliament, up to April 2029.
From April 2030, the Government plans to adjust the triple lock so that the State Pension continues to rise each year but broadly tracks earnings over time. The change is intended to make future State Pension spending more predictable and help fund a new National Care Service in England.
The adjustment is expected to reduce annual State Pension spending by £15 billion by the late 2030s and £50 billion by the late 2040s, compared with the existing arrangements.
This is a long-term change, but it matters for retirement planning. The State Pension is one part of retirement income, and understanding how it fits alongside personal and workplace pensions remains important.
Pension Tax Allowance
A new Pension Tax Allowance will be introduced from 6 April 2027 to 5 April 2030.
It is designed to prevent pensioners whose total income is at or below the full new State Pension from having to pay small amounts of income tax because of State Pension increases. A tapered allowance will also apply to some people whose income is slightly higher.
Other pension changes
The Budget also includes changes to the tax treatment of pension and lump sum death benefits. In particular, the two-year rule that can affect the taxation of certain benefits paid after a member’s death will be removed for payments made on or after 28 October 2026.
The detailed rules will determine how these changes affect individual circumstances.
Living costs
Energy bills
The existing VAT cut on electricity will be extended to July 2027. The Government expects this to reduce the annual energy price cap by around £50 in April 2027.
From January 2027, eligible households in England in council tax bands A to D will receive a £100 Household Energy Payment directly into their bank accounts. Funding will also be provided to the devolved governments.
The Government also plans to abolish standing charges on household gas bills from 2027, with further changes to electricity standing charges to follow.
Fuel duty
The existing 5p fuel duty cut and freeze will be extended until 1 July 2027.
Wages and parental pay
The National Living Wage and National Minimum Wage rates will increase by 3.9% from 1 April 2027.
The National Living Wage will rise to £13.21 an hour, while the National Minimum Wage for workers aged 18 to 20 will rise to £11.27 an hour. Rates for younger workers and eligible apprentices will also increase.
Eligible self-employed fathers, partners and adopters will gain access to parental pay from April 2029. Some people who do not qualify for statutory parental pay because of their employment circumstances will also be able to benefit, provided they meet the relevant work and earnings requirements.
Support for unpaid carers
The Government plans to reform Carer’s Allowance so that people no longer lose their entire benefit simply because their earnings exceed the weekly limit by a small amount.
Instead, payments will reduce as earnings rise above the limit. The change is planned for 2030–31, following the development of a new system to administer the payments.
Businesses
Support for small businesses
The Budget includes additional support for retail, hospitality and leisure businesses through changes to business rates.
The Small Business Rate Relief threshold will increase, allowing a further 70,000 businesses in these sectors to pay no business rates. Other retail, hospitality and leisure properties will benefit from a two-year freeze on rates in real terms.
Pubs, social clubs and eligible live music venues will receive additional relief from April 2027.
Banking sector
The Bank Corporation Tax Surcharge will temporarily increase from 3% to 6% for 15 months, from 1 January 2027 to 31 March 2028. It will then return to 3%.
Employee share schemes
Changes to employee share schemes are intended to give growing businesses more flexibility when rewarding and retaining staff.
The individual option limit under the Company Share Option Plan will increase from £60,000 to £120,000 from 6 April 2027. The scheme will also be renamed EMI2, with changes to its rules and greater flexibility for eligible employees.
The economy
The Office for Budget Responsibility (OBR) has updated its forecasts for economic growth, inflation and the public finances.
Growth and inflation
The OBR expects the UK economy to grow by 1.2% in 2026 and 1% in 2027. Growth is forecast to strengthen from 2028 onwards.
Inflation is expected to average 3.1% in 2026 and 3.4% in 2027, before falling in subsequent years. The outlook remains sensitive to global events, particularly energy prices and the wider economic impact of the conflict in the Middle East.
These forecasts point to continued pressure on household budgets in the near term, although the outlook is expected to improve over time.
Government finances
The Government’s fiscal headroom is the buffer between its forecasts and the limits set by its fiscal rules.
The OBR’s latest forecast puts this headroom at £15 billion in 2029/30, rising to £22 billion in 2030/31. The Government remains within its fiscal rules, although the reduced buffer in 2029/30 leaves less room to respond to unexpected economic changes.
The OBR also expects government borrowing to fall over the forecast period, with public sector net debt lower at the end of the forecast than in 2026/27.
As with all economic forecasts, these figures depend on assumptions about future growth, inflation, energy prices and other factors. They will change if the economic outlook changes.
What does this mean for you?
The Budget includes a mix of measures to help with immediate living costs and changes that will affect longer-term financial planning.
For savers and investors, the retention of the £20,000 cash ISA allowance provides continuity, while the planned tax increases on savings and property income may affect some people from April 2027.
For those approaching or planning retirement, the State Pension changes reinforce the importance of considering how the State Pension fits alongside personal and workplace pensions.
Business owners thinking about selling their business will need to consider the reduced BADR lifetime limit and the proposed Founders’ Relief, once the qualifying rules become clearer.
The right response will depend on your circumstances, objectives and plans. If the Budget raises questions about your financial arrangements, speaking to an Insight financial adviser who can help you understand which changes matter to you and whether any action is needed.
Contact Insight today to speak to our team about what the Budget means for you and your financial future.
