Key Takeaways From The 2026 Budget

It was a low-key Budget. In particular, the fear that capital gains tax rates would be further increased proved unfounded. There were nevertheless some meaningful changes that could affect clients of TindleWealth.  

Tax on Passive Income Is Increasing 

Tax on both savings interest (including bank deposits) and property income is rising by four percentage points, rather than the two percentage points previously announced (see table below). 

Importantly, these increases will not apply to dividends nor will they apply to income taken from pensions.  

Owning UK government bonds (the return on which can be largely tax free) is now an even better alternative to bond funds and, depending on one’s circumstances, bank accounts. This is already a key strategy within the taxable accounts that we manage on behalf of clients.  

Finally, this is yet another bit of bad news for the country’s private landlords. Owning a buy-to-let became even less attractive today and the phrase ‘You don’t have to replace the boiler on a UK government bond (that, incidentally, generates an after-tax return of almost 5%)’ has become even more relevant.  

The Lifetime ISA ‘Free’ £1,000 Has Only Two Years Left 

A quirk of the existing Lifetime ISA regime is that those who are young enough and can afford to do so can get paid £1,000 by the Government each year for doing what they would do anyway: maxing out their ISA allowance (the trade-off is that they cannot access the money without penalty until their 60th birthday).  

From April 2029, the ‘bonus’ will only be paid upon purchase of a qualifying property meaning that a LISA will have no benefit relative to a regular ISA for anyone who already owns a property and/or has no plans to purchase a property for less than £450,000.  

For the current tax year and two more tax years, the ‘free’ £1,000 remains available for those under age 40 (or those aged between 40 and 50 who funded a LISA prior to their 40th birthday).  

Seemingly, those with existing LISAs will simply keep those LISAs beyond April 2029 and the existing early withdrawal penalties will remain in place. 

Entrepreneurs 

Mainly ‘bad’ news in that the threshold at which entrepreneurs must pay the regular capital gains tax rate (rather than a lower 18% tax rate) on the sale of their business has reduced from £1 million to £500,000.  

My inbox is already flooded with emails saying, ‘sell your business before April to save tax’. For a company thinking of selling, this could give the owners a bit of a push. 

Separately, a new ‘Founders Relief’ was announced today that is much more generous than the standard entrepreneur’s relief outlined above but the specific qualifying criteria – not least that the company have a minimum turnover of £10 million – will exclude the vast majority of entrepreneurs.  

The One Key Conclusion 

Although the scale is far smaller than the past two Budgets, virtually all of the above represent tax increases in one way or another. Coupled with the very significant tax increases in previous years, the bottom line has to be that tax-efficient strategies are only getting more attractive. For those that can afford to do so, maximising ISA/JISA/LISA and pension allowances, considering trusts and ‘offshore portfolio bonds’ and, when applicable, strategically utilising both spouses’ allowances have all become more important tax mitigation strategies.