Reflections from our Tax Policy Leader, Colin Graham

UK businesses were hoping for a return to a “no surprises” Budget and they largely got their wish. With limited room for large growth-boosting giveaways, the relative restraint and a scattering of targeted measures bring a degree of calm after a turbulent few years. For most businesses, stability may ultimately prove more valuable for confidence and investment than any single headline announcement.

That does not mean the Budget is without winners and losers. Banks bear the clearest additional business tax cost, with the Bank Corporation Tax Surcharge temporarily doubling from 3% to 6% for 15 months from January 2027.  Sovereign investors in UK real estate also face a significant change with proposals that will mean profits and gains derived from UK land will be taxable, however they will be able to access a 15% tax rate for real estate held through REITs. 

For investment, there is a mixed picture. The Government has maintained the commitments in its Corporate Tax Roadmap, including the 25% headline corporation tax rate and full expensing. The main-rate first-year allowance will increase from 40% to 50%, strengthening the upfront incentive for qualifying investment, although the main annual writing-down allowance will fall from 14% to 12%. Maintaining the broader framework matters: businesses making long-term investment decisions value predictability as much as individual reliefs.

There are a number of substantive changes for business owners and investors. The lifetime limit for Business Asset Disposal Relief will fall from £1 million to £500,000 from April 2027. Against that, the new Founders’ Relief will offer qualifying founders of high-growth, innovative companies a 10% capital gains tax rate on up to £10 million of lifetime gains. That is potentially significant for entrepreneurship, although the consultation proposes a number of complex conditions to qualify. Savers and property owners will also face higher personal taxation, with rates on savings and property income increasing by two percentage points from April 2027.  Taken together these changes clearly signpost an increased focus on taxation of wealth with more narrowly targeted investment incentives 

Perhaps the more encouraging signal for business is on simplification. The Government has launched a consultation on targeted corporate tax simplifications intended to improve certainty and support investment, growth and competitiveness, alongside a call for evidence on modernising corporation tax administration.

There is therefore a distinction between what this Budget delivers now and what it promises next. Outside banking and some specific tax changes affecting owners and investors, many business leaders will be pleased that this has been a much less noisy Budget.  If the emerging simplification agenda can translate into a tax system that is more predictable and less administratively burdensome, the quieter character of this Budget could itself help create the confidence needed for investment and growth.