Budget 2026: four tax announcements to have on your radar

In this article, we identify the tax measures that matter and their practical implications for businesses following the UK government's Budget 2026.

The question after any Budget is not "what did the Chancellor announce?" but "what does it mean for us, and how quickly do we need to act?"

There was no shortage of tax announcements in the Chancellor's first Budget delivered earlier today. Some require immediate attention, others will play out over the coming months and years.

Here is our view on the four tax announcements that businesses should have on their radar and, importantly, what they should be thinking about next.

Business exits just got more expensive: BADR lifetime limit cut to £500,000

What has changed?

One of the most anticipated announcements was an increase in the rates of Capital Gains Tax (CGT). That did not materialise. However, the government is reducing the lifetime limit for capital gains eligible for Business Asset Disposal Relief (BADR) from £1 million to £500,000, with effect from April 2027.

Why does it matter?

The changes to BADR will affect owners of trading businesses and individuals holding qualifying shares. The reduction in the lifetime limit means that from April 2027, the cost of exiting a business will increase, unless the owner can benefit from the new CGT founders' relief described below.

What should businesses do?

Business owners and qualifying shareholders should review their position now, even if a disposal is not imminent. There is a window of opportunity to act as the changes don't take effect until April 2027. Key considerations include:

• Timing of disposals: if a sale of shares is under consideration, it is worth assessing whether the transaction can be accelerated to take advantage of the higher £1 million lifetime limit where gains are expected to exceed £500,000.

• Reviewing existing BADR claims: individuals who have already made qualifying disposals and used part of their lifetime limit should check how much relief remains available and factor the reduced future limit into any exit planning.

A new founders' relief: welcome news, but not for everyone

What has changed?

The government has published a technical consultation today, introducing a new "founders' relief" for individuals. Founders benefiting from the relief will benefit from a 10% rate of capital gains tax on a qualifying disposal of shares, up to a lifetime £10 million of gains per individual.

To qualify for the relief, individuals will need to meet specific conditions related to the duration and size of their shareholdings. The current proposal is, broadly, that to qualify for the relief an individual must:

• hold 25% of the company’s ordinary share capital (together with corresponding voting rights and rights to distributable profits and assets on a winding up), at the point when trading (or preparation to trade) started;

• hold the shares for at least five years before their disposal; and

• be UK resident under the Statutory Residence Test for at least five continuous tax years before the disposal.

The company will also need to satisfy certain conditions, one of which will require the company to have generated turnover of at least £10 million in the accounting period prior to disposal.

Why does it matter?

Given the gradual scale back of BADR over recent years, including at today's Budget, the introduction of the new relief will be welcomed by founders and may mitigate the impact of the reduction of the BADR lifetime limit. However, the requirement for the individual to hold a significant shareholding to benefit from the relief will be disappointing to smaller shareholders (for example, employee shareholders) holding valuable shareholdings who won't qualify for the relief and may be faced with an increased CGT liability as a result of the reduction in the BADR lifetime limit. The significant company turnover requirement may also limit the founders who are able to benefit from the relief.

What should businesses do?

Founders should review whether they are likely to qualify for the new relief and take advice now, whilst the consultation is still open. Key points to consider include:

• Assessing eligibility. The 25% shareholding threshold and company turnover requirements are high bars. Businesses and their advisers should map out current and anticipated cap table structures to identify who is likely to qualify and who may fall outside the relief entirely.

• Responding to the consultation. Founders who may be affected should consider responding to the consultation, particularly where the qualifying conditions as currently proposed would produce anomalous or unfair outcomes.

• Planning around the interaction with BADR. Founders who do not qualify for the new relief should consider whether any steps can be taken before April 2027 to crystallise gains whilst the higher BADR limit remains available.

Capital allowances: timing your investment just became more important  

What has changed?

The Budget contained mixed news from a capital allowances perspective. The government will introduce legislation in the Finance Bill 2026-27 to increase the main rate first-year allowance from 40% to 50% for expenditure incurred on or after 1 January 2027. However, the main rate writing down allowance will be reduced from 14% to 12% with effect from 1 April 2027 for corporation tax and 6 April 2027 for income tax.

Why does it matter?

The increase in the first-year allowance will mean that businesses purchasing qualifying plant or machinery on or after 1 January 2027 will be able to deduct 50% of the cost from their profits before tax. The changes mean that businesses purchasing plant and machinery that doesn't benefit from the annual investment allowance or qualify for first year relief will have to spread the tax relief for those purchases over a longer period of time.

What should businesses do?

The timing of capital expenditure will be a key consideration for businesses in light of these changes.

In particular businesses should consider:

• Deferring qualifying expenditure. Businesses that are planning to purchase plant or machinery should consider whether expenditure can be timed to take advantage of the increased 50% first-year allowance, which applies to qualifying expenditure incurred on or after 1 January 2027.

• Reviewing the impact of the reduced writing down allowance. Businesses with significant existing main rate pools, or that regularly purchase assets falling into the main rate pool, should model the cash tax impact of this change and factor it into their investment planning and cash flow forecasting.

• Prioritising the use of the annual investment allowance. Where businesses have flexibility in the timing or categorisation of expenditure, ensuring that purchases are structured to maximise use of the annual investment allowance (which provides 100% relief in the year of expenditure) is likely to be the most tax-efficient approach and may help mitigate the effect of the reduced writing down allowance.

"EMI 2": more generous share options for employees

What has changed?

The announcement of a new "EMI 2" share plan is not quite as dramatic as the Chancellor's speech suggested. The reality is that no new employee share scheme is being introduced. Instead, the existing HMRC tax-advantaged Company Share Option Plan (CSOP) is to be expanded and, informally, renamed as "EMI 2". Of more significance are the following changes:

• the value of tax-advantaged options that an employee can hold under the "EMI 2" will be increased from £60,000 (under the existing CSOP statutory rules) to £120,000;

• the period for exercise of an "EMI 2" option will be extended from 10 to 15 years; and

• the interaction between the individual limits applying under the existing EMI regime and the CSOP regime will be removed so that an individual can benefit from the full share option allocation under the EMI and "EMI 2" regimes.

The changes will take effect from 6 April 2027.

Why does it matter?

These changes to the CSOP are meaningful for businesses that cannot access the existing EMI regime (for example, because they are too large or operate in an excluded sector), making "EMI 2" a more competitive and attractive tool for recruiting and retaining employees. The changes are likely to be particularly welcomed by growth-stage businesses looking to incentivise key employees without diluting cash resources through higher salaries.

What should businesses do?

Businesses that currently operate a CSOP should consider whether the enhanced terms available from April 2027 warrant a refresh of their share incentive strategy, including whether existing option grants should be replaced or supplemented once the new rules take effect.

For businesses that qualify for EMI, the removal of the interaction between the individual limits under the EMI and CSOP regimes creates scope to offer significantly larger total option packages to key employees. This should be modelled as part of any wider remuneration review.

As the changes do not take effect until 6 April 2027, businesses should factor that timetable into any planned recruitment or retention arrangements and take advice on whether it is preferable to wait for the new rules or to grant options under the current regime in the interim.

What to watch - the detail still to come

As is always the case with a Budget, today's announcements are only the beginning. Draft legislation, policy papers, HMRC guidance and consultation responses will follow and in a number of areas, the technical detail will be critical to understanding the full impact.

Our tax team will be publishing further analysis as the position develops.

In the meantime, if you would like to discuss how any of today's announcements affect your business please get in touch.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2026. For more information see our terms & conditions terms & conditions.