Personal and Employment Taxes

Income tax rate changes for savings and rental income

Prior to the Budget, we were anticipating that the income tax rates for savings and rental income were going to increase by two percentage points from 6 April 2027. Following the Budget, income tax rates for savings and rental income will now in fact increase by four percentage points from 6 April 2027.

The savings and rental income basic rates will increase from 20% to 24%. The savings and rental income higher rates will increase from 40% to 44%. The savings and rental income additional rates will increase from 45% to 49%. 

These increases seem part of the government's moves to increase the tax burden on unearned income, rather than "working people".

In light of these changes, the rate of withholding tax on interest will also increase from 20% to 24%.

Close companies

Close companies are those controlled by five or fewer participators, or by any number of participators who are directors. A participator is a person with a share or interest in the capital or income of a company.  Usually, the participators are the shareholders. Nearly all small companies are close. HMRC considers that the tax gap risks are particularly acute with close companies, where there may not always be a clear distinction in practice between the company and its participators, and that the merger of interests and finances can both encourage error and facilitate evasion. 

Modernising the reporting framework for company payments to participators

Earlier this year, the government consulted on proposals to introduce new requirements to report transactions between close companies and their participators to HMRC. Transactions which would have required reporting would have included cash withdrawals, loans, debts, dividends, other distributions and transfers of assets to and from the company. The proposals were intended to close the small business tax gap which is 60% of the overall tax gap.

Given the level of existing reporting obligations on small companies, the government has decided not to implement the new reporting requirements at this time.

Preventing protected cell company avoidance

The government will make "minor technical changes" to the rules applying to gains made by non-resident close companies that are attributed to UK resident individuals, trusts and companies (s.3 Taxation of Chargeable Gains Act 1992) to ensure that they apply to protected cell companies. Legislation will be included in Finance Bill 2026/27 (to take effect from 28 October 2026).

ISAs

The government has announced that the annual cash limit for ISAs will be retained at £20,000 for all savers aged 18 or over from April 2027. This is a positive development which removes complexities that industry had identified with the previous reduction to the cash ISA limit to £12,000 for 18 to 65 year olds, which was expected to take effect from 6 April 2027. In particular, the retention of the £20,000 annual limit for all savers over 18 years old removes the need to track individuals aged 65 years and older who were entitled to retain the £20,000 allowance under the previous proposals. The change also removes the need to exclude certain money market funds from stocks and shares ISAs. This announcement demonstrates the value of industry engagement with government.

The government has also announced that it will explore a new ISA incentive for individuals investing in a stocks and shares ISA for the first time as well as introducing a new First Time Buyer ISA which will replace the Lifetime ISA for new savers.

The Autumn Budget also introduces a strengthened compliance framework for ISA managers to support digital reporting, strengthen oversight of ISA managers and ensure the ISA system operates as intended. The framework combines points-based penalties for failures to submit monthly and annual returns, sanctions for inaccuracies, and powers for HMRC to suspend managers where withdrawal of approval is inappropriate. Amendments to the ISA Regulations will allow HMRC to collect an amount representing tax and impose a penalty reflecting the nature and scope of the compliance failure. The measures are generally expected to take effect from 6 April 2028, although the Autumn Budget materials note that HMRC's ability to suspend ISA managers will come into force from April 2027.

High value council tax surcharge (mansion tax)

As previously announced The High Value Council Tax Surcharge (HVCTS) will be charged on owners of residential property (with a value of £2m or more in 2026) taking effect in April 2028. Contrary to earlier speculation, there was no reduction announced in relation to the £2m starting value.

The additional tax will be administered alongside existing council tax by local authorities. 2026 valuations for the tax will be based on a range of evidence including sales date of comparable properties around the April 2026 valuation date. Revaluations will take place every five years from April 2028.

Pensions

The Autumn Budget announced a number of changes relevant to pensions. HMRC's terminal illness definition will be amended to ease pension access, beneficiaries will no longer be liable to tax solely because lump sum death benefits are paid more than two years after the death of the member and changes will be made to the way that tax is assessed where a deceased member has exceeded the lump sum death benefit allowance. These changes are to be included in the Finance Bill and the change to the two-year rule will take effect in respect of payments on or after 28 October 2026. 

Pension scheme trustees and administrators should consider what changes it may be necessary or desirable to make to their administrative practices in connection with these changes.