Death & Taxes S6: E4: Autumn Budget 2026 – What it means for private wealth

Both John and Ed are partners at Burges Salmon, specialising in Private Client taxation. They have extensive experience advising individuals, families, trustees and business owners on succession planning, trusts and tax. John and Ed are here to unpack the key announcements from last week’s Budget, and they’ll look at the changes most relevant to private wealth and what those changes may mean in practice for clients and their planning. So, John and Ed, thank you very much for joining me today.

Listeners will know that Budget Day always brings a mix of headline announcements and of fine print. The real impact on private wealth is often only clear once the dust has settled and the detailed documents have been read. Now this Budget comes only 100 days after Andy Burnham became Prime Minister, and so it was an opportunity to see the direction the Government are heading in and to get a better idea of their fiscal style. In the months before the Budget, there was discussion as to whether CGT rates would be increased, which in the end was ruled out a few days beforehand, whether an exit tax would be introduced, and whether there would be any more steps towards a wealth tax. In the end, it was a Budget of smaller measures and tweaks to existing taxes and reliefs.

So, we will start with the headline announcements impacting founders and entrepreneurs. The three main announcements for these individuals were the changes to business asset disposal relief, the introduction of Founders’ Relief, and the reworking of Company Share Option Plans into EMI2.

 So, Ed, perhaps you could start with the changes to business asset disposal relief, please.

Ed Hayes (02:00)

Thank you, Helen. So, for those who are unaware, business asset disposal relief has been around for quite a long time. It used to be Entrepreneurs’ Relief. It’s gone through a few rebrandings, as it were. And it’s also gone through a few restrictions and this is the latest one. So, also known as BADR. Right now, it allows you to effectively get a lower rate of capital gains tax on the first £1 million of gains realised in relation to certain qualifying business sales. So you’re paying 18% tax on that million of gains as opposed to a maximum of 24% under the usual rules. From April 2027, that £1 million cap is going to reduce to £500,000. And so, in basic terms, you know, whereas at the moment, BADR can save you up to £60,000 of capital gains tax as compared to normal rates. The maximum saving from April 2027 is going to be £30,000 instead.

And, you know, the Chancellor noted their expectation is this is going to impact around one quarter of claimants. So, you know, they’re saying, well, three quarters of claimants are effectively using BADR in relation to less than £500,000 of gains in the first place. And the Government’s also expecting this to raise around £300 million over the next six or so years. And I’m sure we’ll come on to it, but you know, we can see where that’s then immediately being spent.

Helen MacLeod (03:18)

Excellent, thank you. And so in addition to that, the Chancellor also introduced a new relief for entrepreneurs called Founders’ Relief. We won’t run through the conditions which will need to be met in detail here because there is quite a bit of commentary out there already on this. But in essence there are concerns around how restrictive the conditions are and in reality how useful it will actually be to entrepreneurs. So, John, does this relief go any way to plug the gap left by the reduced BADR limit?

John (03:44)

I think if you’re very lucky and you happen to meet the conditions then it’s great. It’s up to £10 million of capital gains at a tax saving of 14% because you’ll be paying a 10% rate of CGT. The difficulty is, so that sounds like the old Entrepreneurs’ Relief, £10 million at 10%. I think the difficulty as you say is in the conditions. We’re waiting for the consultation to come out on those but this is coming into effect from April ’27 as well, so it’s going have to be a pretty short consultation. We’re not going to go through all the conditions but broadly you’re going to need to have 25% of the company when it first started trading. So that’s going to rule out a lot of people. Then the company must have done a lot of growing. It must have a turnover of at least £10 million and at least 15 employees. And you’ll have to have had fast growth to be defined at some point. It seems to me that actually this is going to not be something that you can easily plan around.

I mean, maybe the only thing you could look at is if you’re starting up a fresh company, do look at, you know, sharing shares between spouses so that each spouse maybe has 25% from the outset so that maybe you can get two lots of allowances or, you know, bring your children in early, perhaps if they’re going to be above 25%. That aside, I think you’re just going to have to hope and pray that you meet the fast growth conditions. An interesting point on this is actually to look at how much the Government think it’s going to cost and they projected, well they’re saving around £300 million a year from the changes to business asset disposal relief that Ed talked about. With this, they think it’s going to cost them about £250 million a year. Now that sounds like a decent number but when you reckon that actually the tax saving for somebody at £10 million is £1.4 million that could be as few as 180 or so people a year getting this compared to the 10,000 or so who are losing out from the business asset disposal relief changes.

So, this is just going to be a nice sweetener for those who happen to be there and meet the conditions.

Helen MacLeod (05:53)

Excellent, thank you. So possibly not quite as big as the announcements made it look on the face of it, but still useful for some. And then the final announcement for entrepreneurs is EMI2, as it’s now called. Ed, could you please give us a little overview of what that is?

Ed Hayes (06:10)

Yeah, I suppose it’s more for, you know, business owners and employees of those businesses rather than necessarily those looking as entrepreneurs for a tax saving themselves. But it is helpful in the context of Founders’ Relief and, you know, what we’ll come on to on EMI2 in terms of the Government is trying to signal clearly that we’re opening for business and trying to encourage a kind of more of an environment of positive news for those, you know, running businesses and owning businesses. And EMI2 is basically a rebranding of what’s currently Company Share Option Plans. So, you’re going to end up with EMI1 and EMI2. And between the two of them, you’re basically going to be able to give people up to £370,000 of tax advantage options. And actually that £375, sorry, that £370,000 of options can effectively guarantee capital gains treatment for any amount of gain on those shares.

So, you might end up with quite a significant tax saving as compared to being given effectively unprotected options, which would often then be subject to income tax. It also saves the business national insurance contributions on the options themselves. So, for business owners, this could be quite a helpful tool to attract and retain talent. And actually, in terms of just business structuring, although it probably seems like quite a technical change, pushing the period in which you can exercise these options and still get the tax benefit out from ten years to fifteen years is really helpful in terms of kind of simplifying things for the business and maximizing the ability to get the most out of this regime.

Helen MacLeod (07:47)

Absolutely. Great. So, those are the key things for business people and entrepreneurs to bear in mind. So, let’s move on to some other big ticket items. John, property taxation is always a hot topic. So, what was announced on this?

John (08:02)

Well, in one sense, not a lot. But I suppose one of the big changes in the Budget is we were promised no rises to income tax for working people but we now do have a 49% top rate of income tax for savings income and for property income for rental income. So, that’s one of the changes on properties. It will be a new 49% top rate of tax, you know, landlords have been hit particularly hard over the last few years and the economics for buy-to-let landlords are incredibly difficult to make money from that and the 49% rate of tax will add into that.

The other one we’ve seen a small tweak to, but I think we can expect more tweaks in the future is what’s called the High Value Council Tax Surcharge or the “Mansion Tax” as lots of other people call it. So, this is an extra amount you pay in your council tax if you have a high value property worth more than £2 million. A few complications around it because it’s based on the property values. It goes to central government rather than local government. What they announced on this was that if your property is unoccupied you could get a 100% uplift on the amount you pay which could leave you paying up to £15,000 a year rather than £7,500 a year for the most expensive properties. Still not too significant but I think experience with other taxes, like the Annual Tax on Enveloped Dwellings, is they freeze the bands or even reduce them, they go on putting up the amount you pay each year and we can expect to see more of this in future years.

Helen MacLeod (09:39)

Absolutely. Thank you, John. And then moving on to trusts and non-dom planning. These have been a focus of quite a few budgets in recent years. And for those of us in the Private Client world, this Budget was refreshingly light on changes to this area. But Ed, I believe you have a few points which you’d like to just flag in the context of trusts and non-dom planning.

Ed Hayes (10:04)

Absolutely. And it’s interesting to have a stable Budget, as it were, on this topic, particularly actually as in other jurisdictions we are seeing material changes. You know, the proposing of an exit tax in Italy, for example, it’s good to see the UK kind of trying to keep its regime relatively stable. There were commitments in relation to the new kind of residency based special tax regime for new arrivals, there was a commitment to monitor that and keep an eye on how it’s working, whether it’s achieving what it was designed to do, but in relation to trusts in particular, there are actually a couple of helpful changes.

So, the first of those deals with a trap that we do see affecting some people who move to the UK. So, although a trust is not generally a separate kind of legal person, as it were, it’s often taxed in the UK as a separate entity almost. And its residence status is based, at least to some extent, on the residence status of its trustees.

And a classic issue when someone moves to the UK, particularly if they haven’t taken advice before they come here, is they can accidentally pull into the UK tax net trusts of which they are a trustee. And if that happened in the past, that could be a very major problem because either you have to accept the trust then being subject to UK taxes on an ongoing basis, or you have to take it back out of the UK tax net, but that triggered an exit charge. So, there was kind of no way of undoing the harm once it had happened.

 The new rules are going to effectively get rid of that exit charge, if a trust becomes resident because one of its trustees moves to the UK and actually you take it back out of the UK tax net, either the same tax year or the next tax year. That’s just a really helpful kind of alleviation of one of the potential traps of someone moving to the UK, making the UK a little bit more friendly for those coming here. There was another change on inheritance tax to trusts and actually we’re kind of yet to map out exactly how extensive that is. Basically, HMRC are frustrated that they’ve lost a couple of cases on home loan schemes, which kind of made a particularly punchy, let’s say, use of lending arrangements to reduce the value of trust assets for inheritance tax purposes.

There are specific changes being made to stop that, but as ever, there’s always a risk that kind of things that weren’t actually the scheme that’s being targeted will get caught in the anti-avoidance measures brought in to combat them. So, we’re going to keep an eye on the draft legislation there and just make sure we understand the full ramifications of that for any trust which is within the relevant property regime, i.e. exposed to UK inheritance tax to some degree. And then finally, there is also a commitment to keep on with, we know there’s an ongoing process of hopefully simplifying the anti-avoidance rules which apply to trusts and certain other non-UK structures.

 Those are very complex and often very difficult actually for clients to kind of comply with, even if they are trying their absolute best, you know, lack of records and so forth can make those anti-avoidance rules very complex. We know HMRC and the Government are committed to trying to simplify those and make them more workable and the Budget kind of just repeated that commitment. I suppose one quick thing actually, maybe not relevant to non-doms and their trusts, but it will be a headline item kind of in the general media, probably less important for many of our clients, but it is worth noting that the ISA limit is staying at £20,000 for cash ISAs from April ’27, rather than being reduced to £12,000 as has previously been proposed.

Helen MacLeod (13:37)

Excellent, thank you. So, that was a quick run through the main headlines. But as mentioned, with the Budget the devil is often in the detail. So, what are the key fine print changes that you have both noticed when you’ve been looking through the Budget documents?

John (13:52)

Yeah, I think, you need to look at all the consultations that are happening and the Government’s changed its approach to consultation. They’re not going to have sort of 12-week formal consultations with questions they’ve already decided the answers to in a lot of cases. So they’ll be more agile in their consultations. One I picked up, which was announced in the spring but has now confirmed it’s going ahead, is the changes of the taxation of distributions. Now this is when money comes out of a company, it can apply to very large companies, but particularly I suspect for our clients it’s going to apply to small and medium sized enterprises, family owned companies and so on.

At the moment there are a variety of ways in which with share buyback rules, with using new holding companies, with self-funded deals, you can potentially extract value from your companies in a capital gains tax form in the same way you could if you sold the company, rather than paying a dividend at 39.35%. Now broadly this consultation is going to make it harder to extract money from companies in anything other than a form which gives rise to dividend tax at 39% or 39.35%. So, that’s going to be quite big news for those who do have their own family companies. It’s also going to, I think, make it harder to demerge and reconstruct those companies because at the moment there’s a variety of ways you do that with using holding companies. They’re going to force everybody down a route called the statutory demerger route.

Now good news though is this is not coming in until April ’28 and the Government has said it will be prospective only, so, if you do something ahead of April ’28 they’re not going to tax you differently afterwards. So, news there, if you’ve got a company that needs restructuring do get on with that and look at that ahead of April ’28.

They’ve also made one small change but which could be significant. At the moment if you reconstruct a company with a view maybe to selling off a part of the company that can often mean you don’t get tax clearances as you need at the moment. They’ve now said that actually they’re going to make that easier to do a reconstruction maybe with a view to selling on part of the business. That will hopefully help in some ways.

There is a little offshore element to this as well though so at the moment most of these rules just apply to UK companies. There are though a set of rules which say that if a company lends money to its shareholders, the Government think that is effectively a disguised dividend and they then broadly charge you the tax you would have paid on a dividend, unless and until that loan is repaid, in which case the tax gets repaid to you. Now those rules are going to be extended to non-UK companies and particularly the sort of offshore companies you might see in trusts or other personal structures.

Now, more often than not, the lending is the other way around. It’s from the shareholder to the company, but we do see situations where maybe the company has lent money to a shareholder and that might be the case for tax reasons elsewhere around the world. That’s going to need some very close attention as and when that comes in. And again, not coming until April ’28, so do look at those ahead of that.

Helen MacLeod (17:17)

Absolutely. So, potentially yeah, quite a significant change for some people, but time to plan around that, which is always helpful. Ed, have you noticed any other small, well, smaller on the face of it, points that arose and the Budget?

Ed Hayes (17:32)

Yeah, there are a couple of things on inheritance tax and pensions, actually pensions slightly more broadly as well. So, as many people will be aware, pensions are generally being brought within the scope of inheritance tax from April 2027, i.e. from next year. And there’s a whole new set of legislation putting that into effect. It has lots of quirks and is going to take a bit of kind of getting used to for both pension providers, either the pension administrators and personal representatives who are having to handle suddenly reporting tax on pensions, which they didn’t have to previously.

There are a couple of welcome changes in that draft legislation, and clearly the Government’s been listening to professional bodies, such as those that John and I help, in terms of people flagging issues and government trying to deal with those. So, one is that there was going to be a problem with different types of personal representatives, would have different sets of powers in relation to being able to get the pension administrator to directly pay inheritance tax to HMRC. So, executives were going to be treated differently from administrators. That could have had various cash flow issues that’s being resolved from what we can see in this new draft legislation.

And also there’s going to be more flexibility as to how you take into account the lower charitable rate of inheritance tax. So, at the moment, basically, if you give at least 10% of your estate to charity, then what’s left after that gift is subject to a 36% rate of inheritance tax rather than a 40% rate. But calculating whether you’ve given 10% is actually quite a complicated business, and that requires you to split the estate into various components, and up until the Budget, it was going to be the case that any basic pension you had was automatically lumped in with essentially just assets you owned normally, and that could cause various issues. It looks like actually personal representatives administering estates will now have some flexibility there and be able to decide whether they want that to be the case or whether they want to operate that kind of 10% test in relation to the pension separately. That should help, particularly for historic wills which were drafted before this rule came into place because it might help them comply with the terms of the will and still get the benefit of the lower rate or at least not have a really unexpected impact on the amount of the free estate that’s being transferred to charity. And actually it will, I mean the whole change will lead some interesting planning because generally speaking, if you can give 10% from your other assets or from your pension, you’d rather use the pension because the effective rate of tax on anything you leave to your family in your pension is going to be in the high 60% once you factor in both inheritance tax and income tax that they’ll often have to pay if you die when you’re over seventy-five. Whereas actually your free estate is just going to be subject to inheritance tax.

So, the post-death, there’ll be some interesting planning as well as to kind of where you source charitable payments from. And a final quick point on pensions, there was a rule previously that if you had a payment made from a pension after death and the individual had died before the age of seventy five, such that actually payments from that pension wouldn’t normally be subject to income tax, if the payment was made more than two years after death, you could trigger an income tax payment for those who are receiving it. That was looking particularly kind of harsh given the new inheritance tax rules, which might actually slow down how the process of paying pensions out to beneficiaries. And it looks like that’s being scrapped. So actually, if generally speaking the payment from the pension should be tax-free, the timing of payment after death won’t now impact the taxation, which is good news and hopefully just alleviates kind of unintended consequences of bringing in this this new probate and inheritance tax process.

Helen MacLeod (21:27)

Okay, so some positive news on pensions which we like.

Ed Hayes (21:29)

Absolutely.

Helen MacLeod (21:32)

John, anything else you would like to flag in terms of compliance in the compliance changes from the Budget?

John (21:39)

Yeah, there were a few other points. So, one thing we knew was happening anyway, but it’s been confirmed is the replacement of stamp duty and stamp duty reserve tax with a new securities transfer tax.

On the whole this is a very sensible move. Stamp duty dates back I think to 1694. I think it’s the oldest tax we’ve got on the books and it’s a slightly weird tax at the moment in that you only have to pay it if you want to. It’s a voluntary tax. Most people choose to because otherwise they can’t prove things to the Land Registry or to company registrars or for the court.

 But there’s all sorts of complicated territorial rules around that. I think it will mean we have to be a little bit more careful when it comes to completing transactions with non-UK companies. And I need to check the exact scope of this, but just be careful that you’re buying and selling shares in a Jersey company, let’s say. There’s a slight danger that if you complete that transaction in the UK, you might find yourself subject to this. Don’t take that as definite because I need to check the details on that but I think the completion formalities we’re going to need to look at more closely once this comes in.

Then a couple of administrative points. One is about correction of errors. So, at the moment you file your tax return, let’s assume you do that in good faith, you believe it’s true and complete to the best of your knowledge and belief. Now if you later discover something that was definitely wrong then at the moment you’ve got an obligation to put that right. At the moment though if you discover something that could be wrong but may or may not be, you know maybe you discover a Revenue interpretation that’s different to yours, at the moment there’s no obligation to go back to the Revenue and correct that.

Now the Revenue don’t like that so they’re introducing this new rule that if you later discover that your return could be wrong then you are going to have an obligation to go back to the revenue and if you fail to do so that will be treated probably as deliberate conduct it will give you the Revenue you know 12, possibly 20 years, to come back and reopen things rather than the normal four. Now again and we need to look at the detail around this, exactly how unsure do you need to be, but it’s going to cause people to have to go back, well, make sure they file their tax returns with full advice to start with, but again people are going to then have to review their tax returns subsequently if there’s some change in the law or some change in interpretation.

So, unfortunately tax returns are not going to be the sort of simple once-for-all they used to be.

And then finally what seemed quite innocuous, it was about the regularity of tax reporting. At the moment if you’re on the self-assessment system you file your tax return once, 31st of January after the year. But you pay your tax in two instalments, 31st January in the year and 31st July after the year with a balancing payment when you finally file the return. Now, the Government don’t like that and what they’re broadly going to do is for people who are on the self-assessment, they’re going to bring forward the payment dates.  So, that partners in professional services firms, I declare an interest here at the moment, we pay tax twice a year, we’re going to be effectively moved on to a PAYE system where we’re paying tax monthly. Now, maybe for partners in professional service firms, fair enough, but this is going to apply to sole traders, to other partners, to people with seasonal earnings, to people with irregular earnings. In some cases, they may be allowed to pay quarterly rather than monthly, but you can see a real cashflow cost to this.

Now that’s only coming in from April ’29, so it feels like it’s still quite a way away. But one thing people have spotted is that this will come in from April ’29, but come July ’29 and 31st of January 2030, you’ll still have the remaining balancing payments from the old system as well as the new payments from the new system. So, you’re going to have a real cash flow cost between July ’29 and January 2030 because you’re going to have to pay double tax in that time. So much so that the Government has actually earmarked a £1.7 billion one-off improvement because obviously this is just going to flow through then forever. Now, why are we mentioning this now? The answer is because the July ’29 payment is payment of tax for the ’28-’29 tax year. But the amount of tax you pay in ’28-’29 will actually be based on an estimate based on your ’27-’28 tax return and the ’27 tax year is starting in five, six months time in April ’27. If you want to reduce this cash flow cost you might need to be looking at moving some of next year’s income into this year just to move things around. So, in fact although this is two and a half years away we need to start planning for it now.

Helen MacLeod (26:56)

Great, so thank you for that. That’s really helpful to dig into the detail of the Budget.

Could I ask for your overall thoughts as to what you think will follow on from this Budget or your overall sense of what the Government was trying to achieve in what they announced last week?

Ed Hayes (27:10)

Yeah, so I mean this I saw a headline saying kind of this was a “steady as she goes” type Budget. I think that’s very fair. It’s quite nice to have, in some ways, no huge announcements for clients after activity. But I think we’re all expecting some big changes coming in, in the coming years, whether that is, you know, a bigger, punchier Budget next year or indeed an election. I know John, you know, you and I have had some conversations about this and possibly they’re setting the scene for an election next year.

John (27:38)

Yeah, this feels like it could well be a pre-election Budget. I mean, that’s obviously a political decision, which is beyond us as lawyers, but it certainly has that feel to it. I mean, the other thing here is, you know, we’re very interested in the tax changes there are, and there were all these predictions beforehand, know, introduce an exit tax, introduce capital gains tax at 45%. You could raise £10, 12, 15 billion. Well, with three trillion of government debt it only takes 10-20 basis points in the movements in the bond markets to wipe out any tax change you could make. And I think John Healy has got that. This was a Budget about making sure the bond markets were stable above everything else. And actually, potentially, given the current state of government finances, we may see less tax change in the future just because they are so constrained by not wanting to upset the financial markets generally. But yes, could be a March general election, I agree.

Helen MacLeod (28:46)

So, a lot to watch in the coming year and see if any new changes happen. And thank you to John and Ed for your insights into last week’s Budget. And thank you for listening to or watching this episode of Death and Taxes, the private wealth podcast from Burges Salmon. If you’d like to learn more about the issues covered in this episode, or to discuss how the Budget announcements may affect you, your family or your structures, please do get in touch with us. You can find further insights from the Burges Salmon private wealth team on our website at Burges-Salmon.com or on our LinkedIn page. And don’t forget to subscribe to hear about the latest developments in private wealth, trusts, tax and succession planning. Thank you very much.