Beyond the Budget: The changing tax landscape for UK business owners and investors

The budget may have been short on big ticket announcements but it still confirmed the current government’s direction of travel, adding to a series of tax increases and reforms announced in recent years.

1. Income tax

Income tax rates on earnings may remain unchanged, but that doesn’t necessarily mean people will pay the same amount of tax.

• Fiscal drag and stealth taxation: Frozen income tax thresholds mean that as earnings rise, even just in line with inflation, more people will be drawn into higher tax bands without gaining more spending power.
• NEW Higher rates of tax on savings and property income: A further two-percentage-point increase from April 2027 will take the basic, higher and additional rates to 24%, 44% and 49% respectively, adding to increases announced in 2025.
• Dividend taxation: Although there were no further changes, the two-percentage-point rise in basic and higher dividend tax rates introduced in April 2026 has already increased the tax burden for many business owners and investors.
• NEW Cash ISA U-turn: The government has reconsidered its plans to reduce the annual cash ISA allowance, retaining the £20,000 limit.

Key takeaways: Aside from the obvious reminder to make the most of your available tax allowances and check whether returns are keeping pace with inflation, business owners should also consider the significant potential tax advantages of paying employer pension contributions rather than taking dividends.

2. Pensions, inheritance tax and estate planning

Although there were no major changes to inheritance tax, previously announced reforms could still have far-reaching implications for retirement and estate planning.

• Frozen inheritance tax thresholds: The continuing freeze on the nil-rate band and residence nil-rate band means rising property and investment values could bring more estates within the inheritance tax net.
• Major pension change in April 2027: Most unused personal pension funds will be included in estates for inheritance tax purposes, sharpening the focus on pension withdrawal strategies, intergenerational planning and the role pensions play within wider estate planning
• NEW Pension Tax Allowance: Further details were confirmed of the allowance designed to prevent some lower-income pensioners from paying income tax solely because of increases to the State Pension from April 2027.
• NEW Trusts and wealth transfers: From 28 October 2026, tighter rules will prevent certain debts linked to trusts from being deducted when calculating inheritance tax liabilities, closing a loophole that could be used to reduce inheritance tax bills.

Key takeaways: If you haven’t already, it is important that you speak to your financial adviser about the upcoming pension changes, as they could impact contributions, withdrawals and retirement income strategies. It may also be prudent to consider estate planning and IHT mitigation strategies.

3. Capital gains tax

Higher capital gains tax rates and substantially reduced tax-free allowances over recent years are changing the way investors and entrepreneurs need to plan.

• The longer-term CGT squeeze: The annual CGT allowance has fallen from £12,300 in 2022/23 to just £3,000, alongside increases in the main rates of CGT.
• NEW Business Asset Disposal Relief (formerly Entrepreneurs’ Relief): From April 2027, the lifetime limit for qualifying gains will be halved from £1 million to £500,000. This follows earlier increases in the relief’s tax rate, which now stands at 18%, making business exit planning increasingly important.
• NEW Founders’ Relief: A lower 10% CGT rate will apply to up to £10 million of lifetime gains for qualifying founders of high-growth, innovative UK companies from April 2027

Key takeaways: Business owners considering an exit should be reviewing the ownership, structure and timing of investments and business disposals to manage potential tax liabilities.

For investors, rising CGT exposure and shrinking allowances make alternative tax wrappers, such as investment bonds, worth considering. These allow tax-deferred annual withdrawals of up to 5% of the original investment each year and may also offer estate planning benefits. However, future tax liabilities, charges and individual circumstances must always be considered.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing.
Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Lycetts, its officers or employees, for any loss in connection with the content hereof and any such action or inaction.