UK Budget 2026: What it Means for Our Clients

Chancellor John Healey delivered his first Budget on 28 October 2026, praising the UK economy’s resilience in the face of what he described as ‘swirling’ uncertainties, which had continued to drive up the UK’s debt interest costs. Given the Chancellor’s limited room for generosity, businesses hoped for few sweeping fiscal changes — and there were very few. The government kept its commitment not to increase the headline rates of income tax, National Insurance contributions or VAT. The revenue-raising measures instead fall on the banking sector, through a temporary doubling of the Bank Corporation Tax Surcharge, on individuals with income from savings and property and on businesses that make use of foreign permanent establishments or writing-down allowances (see below).

This update summarises the measures of broadest relevance to our clients. We have published separate updates on data centres and power generation.

At a glance

Business taxes

Temporary increase in the Bank Corporation Tax Surcharge

The most significant business tax increase is the rise in the Bank Corporation Tax Surcharge from 3% to 6% for the period from 1 January 2027 to 31 March 2028. The time-limited increase will be legislated for in the Finance Bill 2026-27, and the government has stated that it will not be extended.

Banking groups will want to model the impact across the 2027 calendar year and the first quarter of 2028, and borrowers may see the cost reflected in pricing on new facilities.

Corporation Tax simplification and administration

The government has published a consultation on targeted simplifications to the Corporation Tax system and modernisation of its administration, and will work with stakeholders over the next year to prioritise reforms. Further simplification measures will be announced at a Tax Update event in 2027.

Greater certainty for large projects

The Finance Bill 2026-27 will reduce the minimum expenditure threshold for HMRC’s Advance Tax Certainty Service from £1 billion to £300 million, expanding access from 4 November 2026. This will bring a much wider range of energy, infrastructure and industrial projects within scope of the service, which gives businesses and public bodies investing in major UK projects a formal, binding clearance from HMRC on how key UK taxes will apply. The government has also published a summary of responses on the tax treatment of predevelopment costs; next steps include possible clarifying guidance and consideration of wider challenges for infrastructure investment under the capital allowances regime.

Securities Transfer Tax and capital markets

Legislation will be introduced in Finance Bill 2026-27 to bring in the Securities Transfer Tax from late 2027, replacing Stamp Duty and Stamp Duty Reserve Tax. The government has acknowledged industry feedback that cutting stamp taxes on shares could boost the competitiveness of UK capital markets and will keep this under review, having regard to the fiscal cost.

Corporation Tax base changes — writing-down allowances and PE exemption

Two less-publicised measures raise more than several of the headline announcements.

The main rate of writing-down allowances will fall from 14% to 12% from April 2027, while the main rate first-year allowance will rise from 40% to 50% for expenditure incurred on or after 1 January 2027. This cut slows the timing of relief rather than removing it. However, businesses with large existing pool balances, or with expenditure that does not qualify for full expensing or a first-year allowance, will receive relief more slowly and should revisit their tax and cash-flow forecasts.

Following on from draft legislation published in July, the foreign permanent establishment (PE) exemption, which has been elective since 2011, will become mandatory for accounting periods beginning on or after 1 January 2027. Profits and losses of UK companies’ overseas branches will automatically fall outside UK corporation tax, so branch losses will no longer reduce UK taxable profits. Losses and other amounts allocable to a foreign PE will not carry forward past the transition, and targeted anti-avoidance rules apply to arrangements made on or after 13 July 2026.

International and cross-border investment

The taxation of foreign sovereign investment will be placed on a statutory footing for the first time. The new regime will bring certain real estate income and gains into UK tax, while maintaining what the government describes as a globally competitive offer, including bespoke rules allowing sovereign investors to access Real Estate Investment Trusts for investment in UK real estate. Sovereign wealth funds and other state-linked investors with UK real estate or infrastructure exposure should review their holding structures once the detailed rules are available.

From April 2027, the reverse charge on cross-border supplies of services will be restricted to VAT-registered businesses. Overseas providers supplying services to UK businesses that are not VAT-registered will need to account for UK VAT in the normal way. This will be legislated for in the Finance Bill 2026-27.

The Annual Tax on Enveloped Dwellings charges will increase by 3.5% for 2027-28, in line with the September 2026 Consumer Prices Index rate.

Founders, management teams and employees

A new Capital Gains Tax Founders’ Relief will apply from 6 April 2027, offering a reduced 10% rate on up to £10 million of lifetime gains for founders and early investors in the UK’s high-growth, innovative companies. The detailed design is subject to a technical consultation closing on 30 November 2026, with legislation to follow by amendment to the Finance Bill 2026-27. At the same time, the lifetime limit for Business Asset Disposal Relief will be halved from £1 million to £500,000 from April 2027. The qualifying conditions for Founders’ Relief will be critical in determining how far it offsets the BADR reduction for management teams in portfolio companies and owner-managed businesses.

The government is also expanding its employee share schemes through EMI2 (formerly CSOP), doubling the value of tax-advantaged options that employees can hold from £60,000 to £120,000 from 6 April 2027. The interaction between the EMI and CSOP individual option limits will also be removed. This gives scaling businesses a more flexible tool for attracting and retaining staff and should be factored into incentive plan design for 2027 and beyond.

Individuals and private wealth

The rates of tax on savings and property income, which the 2025 Budget increased by two percentage points from April 2027, will rise by a further two percentage points from the same date. The government estimates that 84% of income taxpayers will be unaffected and that around half of the revenue will come from the top 10% of households.

HMRC has published a multi-year plan to improve compliance among wealthy taxpayers through better use of data, technology and specialist expertise, and will recruit an additional 670 compliance officers by 2029-30.

Employment: non-compete clauses

The government has confirmed that it will legislate so that non-compete clauses in employment contracts are no longer a barrier to hiring by start-ups and scaling firms, and so that workers in the everyday economy are not prevented from moving jobs. The reforms will apply across the whole economy. The government will first consult on the wider use of restrictive practices and will set out a detailed position in early 2027 before legislating. Employers should review their reliance on post-termination restrictions and, on transactions, how key-employee protections are structured.

Regional and local government

The Fiscal Devolution Roadmap sets out a new funding model for regional and local government. It includes income tax assignment for all mayors from 2028, with mayors retaining a 20% share of local business rates from next year. Local and regional government will retain 100% of business rates income by the end of the decade. Further legislation will be introduced to give all Strategic Authorities the power to set an Overnight Visitor Levy. Fiscal devolution baselines will be set at the 2027 spending review and more fiscal devolution is expected. 

Sector headlines

Data centres and power. A new Data Centre Covenant published alongside the Budget, sets the tests that strategic data centres must meet, in return for action by a new Ministerial Control Centre to accelerate grid connections. The Electricity Generator Levy rate rose from 45% to 55% from 1 July 2026 and the levy will be extended beyond its original March 2028 end date. Carbon Price Support will be removed from April 2028, and a consultation on wholesale Contracts for Difference has been published. See our separate update.

Oil and gas. The Oil and Gas Revenue Levy will be legislated for in the Finance Bill 2026-27, ready to take effect when the Energy Profits Levy ends. The government intends to extend the Carbon Border Adjustment Mechanism to refinery products, subject to consultation.

Construction and infrastructure. The government has committed to no major changes to building regulations for the rest of this Parliament, other than for building safety, and will exempt residential brownfield sites of up to 1.5 hectares from Biodiversity Net Gain (start date to follow). It is also exploring indemnities for developers of critical projects beyond nuclear, and will legislate to support infrastructure assets such as airports facing exceptional rateable value increases once current transitional relief ends.

Defence and aerospace. A new Innovative Defence Financing Taskforce will be launched, the National Wealth Fund and British Business Bank will deploy up to £5 billion into defence and national security sectors, and the government will co-invest in a £2.5 billion gas turbine programme with Rolls-Royce.

What to watch

For further information on any of the measures in this update, please contact Ed Moberly.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.