The "Breathing Space" Budget: What our clients need to know

The Chancellor John Healy began the Autumn Budget by stating that he was introducing a "Budget for the working people of Britain", designed to "enforce fiscal discipline" and "face the global economic storms" we are undoubtedly facing. The slowdown in growth the OBR is predicting between this year and next is slightly more marked than many economists' expectations; not quite a recession, but certainly a dent to growth as, amongst other factors, sustained higher energy prices continue to bite.

Healy stated his desire to "make sure people pay the tax they owe, whey they owe it, and close loopholes in our tax system". This strategy places a distinct focus on how "wealthy taxpayers" are defined and targeted. In response, Conservative leader Kemi Badenoch warned that the UK’s tax burden would reach the highest level in the nation's history, whilst commentators are already questioning whether Healy's crackdowns will generate enough revenue to fund the initiatives promised for the "working person".

Below, we have focused on the key changes which will impact our clients and contacts.

Income tax

Dividend and employment tax rates remain unchanged, which will deepen the impact of fiscal drag. However, starting 6 April 2027, rental and savings income rates will climb to 24% (basic), 44% (higher), and 49% (additional). This further increase is highly likely to trigger property sell-offs by private landlords and/or drive-up rental costs for tenants as owners pass the tax burden downward.
In respect of non-savings, non-property and non-dividend income, the Finance Bill will set "main rates" and "default rates". Essentially, income tax is being split into distinct tiers for different types of income.
There will be consequential amendments following the rate changes to ensure that the rules on tax treated as paid on gains from certain foreign life insurance policies, deductions at source and the transfer of assets abroad legislation operate as intended from 6 April 2027.
Income tax self-assessment taxpayers who make payments on account will be required to make more regular in year payments towards their final tax bill from April 2029. This change brings the UK in line with other OECD countries such as the US and Australia and moves self-assessment closer to how PAYE and regular household bills operate, but there is no doubt it will require tighter financial planning, particularly for those with fluctuating, seasonal or delayed income.
Of interest to our clients with a US nexus, the Government will create a mechanism to provide double taxation relief for income received by investors from US certain foreign entities where relief is currently unavailable. This is in response to a consultation published in June.

Capital Gains Tax (CGT)

The Government's changes to CGT will largely affect business owners, entrepreneurs and individuals planning a business sale or succession. It will be a relief to many that, despite speculation, the main CGT rates remain unchanged. Instead, the Finance Bill will introduce changes to existing reliefs and the introduction to a new relief as follows:

From April 2027, the lifetime limit on gains qualifying for business asset disposal relief (formerly entrepreneurs' relief) will reduce from £1million to £500,000.
Of interest to UK business owners and entrepreneurs, the new "founders' relief" will be introduced to target "founders" looking to start new businesses in the UK. This relief will offer a 10% CGT rate on up to £10million of qualifying lifetime gains (reduced by amounts already claimed under business asset disposal relief and investors' relief). Whilst we do not yet have a definition for a "founder", eligibility criteria are expected to be relatively stringent, limited to founders and early investors in qualifying high-growth, innovative companies and subject to detailed ownership, holding-periods, UK residence and company performance requirements.
The Government is tightening the rules under which gains made by non-resident close companies are attributed to UK resident individuals, trusts and companies. In particular, the changes target the use of protected cell company structures, which have historically been exploited to circumvent these attribution rules. This is consistent with the Government's strategy to close perceived tax loopholes and should prompt affected taxpayers (particularly those with interests in offshore corporate structures) to review their arrangements promptly.
The Government appears to be relaxing the CGT 'exit charge' that currently applies when a trust ceases to be UK resident. The change, effective from 28 October 2026, is intended to remove a barrier for globally mobile individuals considering a move to the UK. This is a welcome signal that the Government is keen to attract international investment, though the real impact will depend on how the easement operates alongside the broader trust taxation framework.

Corporation tax (CT)

Many UK companies will welcome the decision to maintain CT rates at 25% and 19%. However, banks face a temporary 15-month increase to the CT surcharge starting 1 January 2027, raising the total headline tax rate for affected banking groups to 31%. In practice, this added tax burden is likely to ripple through to consumers and businesses. As banks move to protect their margins, we anticipate potential higher borrowing costs, lower returns on savings, and tighter credit lending criteria. Business owners and HNW individuals should assess how these shifts might impact their financial setups.

Inheritance tax (IHT)

Valuation of trusts

The Government is changing how trusts are valued for IHT purposes. Starting 28 October 2026, new rules will change how trust debts and liabilities are handled when calculating tax on deaths or other taxable events. There will be a defined rule for how trustees can use valid liabilities to lower the taxable value of trust property. In addition, new anti-avoidance rules will stop people from artificially lowering their IHT bill. This regulatory change will be of primary interest to individuals who have set up trusts, trustees responsible for managing them, and wealth management professionals navigating inheritance tax IHT planning in the UK.

Taxation of pensions

There are some minor technical changes being made to the extension of IHT to pensions from 6 April 2027. The Government will allow a PR to direct pension scheme administrators to pay the IHT due directly to HMRC in certain conditions. In addition, those administering an estate will be able to decide whether notional pension property is included in the "general component" of the estate or as a "separate component" when calculating the reduced 36% rate of IHT when part of the estate is left to charity.

Compliance

Following the Budget, the Government published its strategy to modernise HMRC, with a heavy focus on ensuring HNW individuals settle their tax obligations. The published plan (entitled "Modernising HMRC's approach to wealthy compliance) asserts that wealthy taxpayers (WTs) make up 1.3million of the population and accounted for £160billion in tax receipts in 2025/26. HMRC defines a WT as someone with income over £200,000 or assets of over £2million in any of the last 3 years. This will undoubtedly catch many of our clients. The strategy states the belief that the wealthy tax gap for 2024/25 was c. £3.6buillion (6% of the total tax gap).

The Government asserts its desire to improve its understanding of WTs and enhance its approach to customer segmentation, identifying risks earlier and tailoring the compliance approach to different circumstances and risk. HMRC has already compiled a list of more than 200 UHNW individuals and assigned each of them a "personal compliance manager" to ensure they pay their taxes. Of particular interest are HMRC's increased inspection powers over computer records, amendments to the Finance Act 2009 to expand the amount of information HMRC can publish about "deliberate defaulters", and new powers to tackle serious users (and "promoters") of tax avoidance schemes.

It was also confirmed that HMRC will be given new powers to recover lower-value tax debts directly from taxpayers' bank accounts, where they repeatedly fail to engage with HMRC. This is expected to apply from 2029/30.

Miscellaneous

Some final points of interest are as follows:

The Government will introduce legislation to establish the High Value Council Tax Surcharge which will be an additional charge on residential properties worth £2m or more from April 2028.
From 1 January 2029, the Government will introduce a new statutory tax regime for foreign sovereigns. This will bring certain real estate income and gains into UK taxation, while providing for unique access to Real Estate Investment Trusts for investments in UK real estate.
There are further amendments being introduced in respect of pensions, such as a standalone process for assessing and collecting tax due on lump sum death benefits, with retrospective effect for relevant lump sums paid on or after 6 April 2023. Consequential changes concerning the interaction with IHT will also follow in respect of deaths occurring post-6 April 2027.

While these updates may seem modest to some, they signal an unmistakable shift toward higher-net-worth individuals. This focus is particularly evident in rising income tax rates for savings and property, tighter pension taxation, a council tax surcharge, and intensified compliance measures. WTs are now firmly under the microscope. As advisors, it is more critical than ever that we proactively guide clients toward flawless reporting, not only to ensure full compliance but to protect them from the risk of public disclosure. As always, the finer detail of the amendments is not yet available, but we will be monitoring the developments closer. If you have any questions or concerns about how these changes will impact you or your clients, do not hesitate to contact a member of our team.