New Chancellor John Healey delivered his maiden budget which was excitingly entitled: “breathing space for today, fresh hope for the future”. He described it as a “fiscally neutral budget”.
In what was thankfully a fairly low-key affair without many headlines, Healey said the OBR had projected the UK’s fiscal headroom would stand at £15bn in 2029/30. The OBR also revised its projections for GDP growth this year to 1.2%, 0.1 percentage points higher than in its March forecast of 1.1%.
However, in 2027, GDP growth is expected to slow to 1%, before picking up to 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031.
The UK’s inflation path is expected to deteriorate further, with the OBR forecasting it to peak at 3.8% in Q1 2027 before gradually falling once again, although the outlook remains sensitive to wholesale oil and gas prices.
ISAs
The ISA allowance will remain at £20,000. The ludicrous reduction in the allowance on cash ISA savings to £12,000 for those under 65 will no longer come into force which was good news.
The Lifetime ISA (LISA) will be scrapped from April 2027. However, existing LISAs will remain in force and can continue to paid into with existing rules. Those that do not have a LISA and are under age 40 should therefore consider whether they should set one up before they disappear in April. These can be particularly useful for high earners that may be restricted on what they can pay into pensions.
From 29th October, the 25% LISA penalty will be reduced to 20% for those buying a property worth over the £450,000 cap.
A new first time buyer ISA is being introduced and will become available in April 2029. It will have the same £450,000 house price cap but no maximum age limit to open one.
Those who have a LISA will not be able to transfer their LISA to the new first-time buyer ISA, though people with a Help to Buy Isa, which closed to new applicants in 2019, will be able to transfer their holdings into the new product. The document added: “To ensure that current holders of the Lisa do not lose out, Lisa holders will be able to use any funds in their existing Lisa and those in the new FTB Isa for the same purchase.
He also announced that he will create a new starter ISA to reward first time investors. In addition, he is also reducing a “Your first home equity loan” scheme which will be introduced in the Spring with £4.7 bn funding from the government so there will hopefully be some good news for first tine buyers.
The initiative is specifically targeted at buyers struggling to get on the ladder without family financial backing, and aims to help 70,000 households, supporting the delivery of an estimated 20,000 new homes.
The scheme will provide 20% equity loans to first-time buyers who would not otherwise be in a position to purchase a residential property. Income caps will be set at £110,000 per household outside London and £140,000 inside London.
The deposit requirement will be set at 2.5%, with a maximum deposit of 15%. People will be able to access equity loans with a five-year interest free period, with a gradual increase after five years.
Price caps will be set based on local authority median prices to ensure support is targeted at those who need it, with inner and outer London caps of £650,000 and £500,000, respectively.
State Pension
The Chancellor confirmed that the state pension will increase by 3.9% (to £13,036 p.a.) in April 2027. He also confirmed plans to introduce a new pension tax allowance to ensure that pensioners with income up to the full new state pension will not pay tax. We await further details but this will add further complexity to an already complicated system.
The existing triple lock continues through April 2029. From April 2030, the State Pension rises by the highest of 2.5%, inflation, or the increase needed to preserve its April 2029 value relative to earnings
Tax on savings and property income
The previous budget already increased the tax rate on savings income, property income and dividends by 2% from 2027. However, the rate on savings and property income increased by a further 2% on top of this from April. Dividend tax rates were unchanged and will only increase by 2% in April 2027.
‘88% of people will pay no more tax on their savings,’ the Chancellor told the House of Commons.
New Tax Rates:
The income tax threshold freeze will remain in place until April 2031. The Inheritance Tax (IHT) threshold will also remain frozen until 2030.
There were no changes to capital gains tax (CGT) despite some speculation. Income tax rates remain the same.
Business owners and entrepreneurs
The most significant change for many business owners is that the Business Asset Disposal Relief limit (BADR) has been halved from £1m to £500,000. However, the Chancellor says three out of four claimants will be unaffected.
A proposed Founders’ Relief would tax up to £10 million of lifetime gains at 10% from 6 April 2027. The tests include a 25% early stake, five years’ ownership and UK residence, and a company with at least £10 million turnover and 15 qualifying employees. Growth or innovation conditions also apply.
Businesses with substantial financial-services or property-development trades are excluded. The details are still under consultation
For companies, a new young entrepreneur’s allowance will cover a year’s living costs for young business founders, and small business rate relief thresholds for retail, hospitality and leisure rise from £12,000 to £18,000.
Household Costs and Support
Eligible households in Council Tax bands A–D in England will receive £100 from January 2027, with funding for devolved support. Electricity VAT relief in Great Britain and fuel-duty relief continue until July 2027. Northern Ireland electricity relief is expected from April.
The government wants gas standing charges abolished by the end of 2027 or soon afterwards. The costs would move into unit prices, so heavier users could pay more.
Other takeaways from the budget
- The government plans to reform non-compete clauses and will release more information in early 2027
- Banks will have to pay a 6% profit surcharge but this was less than the 8% that the industry had expected
- An updated approach to delivering new clean power projects will see government only provide clean power contracts for “projects when they lower bills and when they can connect to the grid”.
- From April 2027, qualifying retail, hospitality and leisure premises in England get full small-business rates relief up to £18,000 rateable value, tapering to £21,000. The change is sector-specific. Vape shops lose small-business relief and the lower sector multipliers. Adult gaming centres lose the lower multipliers.
- Minimum wage rates rise by 3.9% on 1 April 2027: £13.21 an hour for those aged 21 and over, £11.27 for ages 18–20, and £8.31 for 16–17-year-olds and eligible apprentices. Employers will need to allow for the higher payroll costs.
- Eligible self-employed fathers, partners and adopters gain parental pay from April 2029.
