BTO Budget Bulletin

BTO’s budget bulletin summarises the key takeaways from today’s eventful budget.

1. Income tax

• Income tax and national insurance contributions thresholds frozen by a further 3 years until April 2031.
• Income tax rates on property, dividends and savings income increased by 2%, with the exception of dividends that are taxed at the additional rate remaining at 39.35%. The increase to income tax on dividends will be effective from April 2026 and the increase to income tax on property and savings income will be effective April 2027.
• Self Assessment taxpayers with PAYE income will be required to pay more of their Self Assessment liabilities in-year via PAYE from April 2029.
• Starting Rate for Savings frozen at £5,000 until April 2031 allowing £5,000 of tax-free savings income for individuals with less than £17,570 in employment or pensions income.

(Please note that although the Scottish government has the power to vary income tax rates and that some of the changes outlined above are exclusive to England it would not be surprising if the Scottish government followed suit in the 13 January 2026 budget.)

2. Pensions

• The tax-free lump sum allowance of 25% capped at a maximum of £268,275 has been retained.
• National insurance contributions will be charged on salary sacrifice pension contributions above £2,000 per year from April 2029.
• Basic and new state pensions increased by 4.8% from April 2026.

3. ISAs

• The limit on annual contributions to cash ISAs has been reduced from £20,000 to £12,000 for under-65s from April 2027. The ISA limit of £20,000 has been retained however the remaining £8,000 may only be utilised for stocks and shares ISAs. Over-65s retain the full universal £20,000 ISA limit to utilise as they see fit.

4. High value council tax surcharge

A council tax surcharge on properties worth over £2 million has been introduced. Owners of properties worth between £2 million and £2.5 million will pay an additional £2,500 per year, owners of properties worth between £2.5 million and £3.5 million will pay an additional £3,500 per year, owners of properties worth between £3.5 million and £5 million will pay an additional £5,000 per year and owners of properties worth over £5 million will pay an additional £7,500 per year following revaluation of homes in council tax bands F, G and H from April 2028.

(Please note that although Council Tax is a devolved issue and that the changes outlined above are exclusive to England it would not be surprising if the Scottish government followed suit in the 13 January 2026 budget.)

5. National minimum wage

National Minimum Wage is to be increased for over-21s from £12.21 to £12.71, for 18–20-year-olds from £10.00 to £10.85 and for 16–17-year-olds and apprentices from £7.55 to £8.00, from April 2027.

6. Inheritance tax

• The nil rate band has been frozen at £325,000 until April 2031 and the residence nil rate band has been retained at £175,000.
• Infected Blood Compensation Scheme payouts will be exempt from inheritance tax and first living recipients of compensation payments will be granted two years in which they may gift their compensation payment exempt from inheritance tax.
• Business relief and agricultural relief will be 100% transferable between spouses including for deaths before 6 April 2026. Business relief and agricultural relief frozen at £1 million until April 2031.
• Once pensions are brought within the scope of inheritance from April 2027, personal representatives or executors may direct pension scheme administrators to withhold up to 50% of taxable benefits for up to 15 months and to pay inheritance tax due in certain circumstances. Personal representatives will be discharged from an inheritance tax liability arising from the discovery of a pension after receiving HMRC clearance.

7. Electric vehicles

A duty on electric vehicles of 3p per mile and of 1.5 per mile on plug-in hybrids will be introduced from April 2028.

 8. Fuel duty

Fuel duty has been frozen until September 2026 and will be increased in stages thereafter.

 9. Capital gains tax

Capital Gains Tax relief on businesses sold to employee ownership trusts will be reduced from 100% to 50% from today.

10. Benefits

The two-child benefit cap within universal credit will be lifted from April 2026.

A bonus piece of information that was not announced at today’s budget but that may be of interest is that the Financial Services Compensation Scheme limit has been increased for the first time since 2017 from £85,000 to £120,000.

Our solicitors, including experts with tax qualifications and/or STEP accreditation, stand ready to address any concerns that you may have as appropriate. Please do not hesitate to get in touch.

This is a non-exhaustive list and does not constitute legal or other professional advice.

Bruce Battersby, Partner: bba@bto.co.uk / 01436 640 195

Liam Bradley, Trainee Solicitor: lbr@bto.co.uk / 01436 640 194