Caroline Miller
- Partner
- Private Client
Budget 2026: balancing growth, investment and tax
The Budget seeks to strike a difficult balance between raising revenue and encouraging investment, with new incentives for founders sitting alongside tighter reliefs and an increasingly complex tax landscape. We look at what the measures could mean for entrepreneurs, business owners and families considering their long-term future in the UK.
John Healy described the current climate as a “global economic storm”, and today’s Budget comes at a time when the challenges facing the UK economy remain significant. With the UK looking to encourage investment, entrepreneurship and wider economic activity, many businesses and individuals will have been hoping for greater confidence and clarity about the road ahead. A healthy economy depends not only on the taxes that are raised, but on creating the conditions in which people feel able to invest capital, grow businesses, employ people and make long-term commitments in the UK.
The Chancellor made some progress towards introducing measures that will support businesses, including investment in women-backed businesses and a new capital gains tax “Founder’s Relief”. But what the government gives on one hand, could be taken away by another, with the announcement of the reduction in the lifetime allowance of Business Asset Disposal Relief.
The question will be whether these measures are enough to translate that ambition into greater confidence for entrepreneurs and business owners to invest, build and remain in the UK. In practical terms, backing entrepreneurs means creating an environment in which founders can access capital, scale businesses, invest with confidence and ultimately realise the value they have created, without uncertainty around the tax and regulatory environment discouraging those long-term decisions. This is particularly important because successful founders frequently become investors themselves, recycling capital, experience and networks into the next generation of businesses.
At the same time, wealthy individuals and families are already navigating an increasingly complex tax landscape, including changes to the inheritance tax treatment of pensions and business assets. For founder-led businesses, therefore, the conversation about wealth creation cannot be separated from the conversation about retaining that wealth and passing businesses successfully between generations.
Key measures
Below are the key measures the Chancellor announced today. We will now study the detail and digest.
Greater investment in HMRC – additional funding for HMRC to tackle tax avoidance and non-compliance, together with the continued move towards Making Tax Digital, reinforces the government’s determination to ensure that the right amount of tax is paid. As more financial information is provided to HMRC digitally and with greater regularity, taxpayers with complex affairs can expect their tax position to come under increasingly effective scrutiny. This should not discourage legitimate tax and estate planning, but it makes good advice, accurate digital record-keeping and the proper implementation of arrangements more important than ever.
Business Asset Disposal Relief reduced – for entrepreneurs, the reduction of the lifetime allowance for Business Asset Disposal Relief to £500,000 continues the gradual erosion of a relief designed to reward those who build and ultimately dispose of businesses. For founders who have spent many years creating significant value, the relief will now shelter a considerably smaller proportion of the gain on a successful exit. Business owners considering a future sale or succession may therefore need to understand the potential tax cost much earlier and consider their personal, family and succession planning well before an exit is on the immediate horizon.
Certainty for dividends and savings – against a backdrop of wider tax changes, leaving dividend taxation unchanged provides some welcome certainty for investors and family business owners and should make planning around investment income more predictable. Reversing the decision to reduce the cash ISA limit and instead keeping it at £20,000 preserves a straightforward tax-free savings option. For savers who value the security and accessibility of cash, particularly while household finances remain under pressure, maintaining the existing allowance will be welcome.
A new relief for business founders – perhaps one of the more interesting measures for entrepreneurs is the introduction of a new CGT Founders’ Relief. In principle, a targeted relief recognising the risks founders take in establishing and growing businesses in the UK is a positive signal of support for entrepreneurship. Its practical value, however, will depend heavily on the detail, including how it interacts with Business Asset Disposal Relief and whether founders are ultimately better off when they sell their businesses. There may also be questions around precisely who qualifies as a founder, potentially creating greater complexity around eligibility. Nevertheless, the principle is significant. At a time when the government is keen to encourage investment, innovation and economic growth, providing a meaningful incentive for individuals to establish and grow businesses in the UK could form an important part of that agenda.
Property off the hook – holiday let owners will be relieved that the anticipated council tax changes have not materialised, avoiding a potentially significant additional cost for genuine holiday-let businesses. However, higher rates of income tax on property income will further increase the cost of private property ownership as it was announced income tax on rental profits for individual landlords in England will rise by a further 2 percentage points, taking the rates to 24%, 44% and 49% from next April. For those investing in property, the concern is that higher taxation reduces the income they retain and therefore the overall return on their investment. This may prompt some investors to reconsider how property compares with other assets and the role it should play within a diversified portfolio.
Inheritance tax notably absent – there were no major announcements about inheritance tax. Families are already preparing for significant previously announced reforms to the taxation of pensions, and business and agricultural assets. While the government has tightened the rules governing deductions for liabilities connected with trust property, the absence of another major overhaul today provides some breathing space for people trying to plan their affairs. There is also welcome news for those looking to leave 10% or more of their estates to charity, with the government addressing an unintended consequence of bringing unused pension funds into the inheritance tax net by allowing greater flexibility over how pension property is treated when calculating entitlement to the reduced rate of inheritance tax.
Planning in light of the Budget
The Budget is a timely prompt for clients to review their arrangements rather than react to individual measures in isolation. Business owners and founders should consider how newly introduced and changes to reliefs affect future growth, succession or exit plans, while individuals and families should revisit their investment, property and estate planning in light of the evolving tax landscape. With greater HMRC scrutiny also on the horizon, taking advice early, maintaining accurate records and ensuring existing structures remain appropriate and properly implemented will be increasingly important.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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Nick Mendoza
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- Private Client
