Chancellor Rachel Reeves’ second Labour Budget became known as the Hokey Cokey Budget as an impromptu early morning briefing three weeks ago hinted at a possible increase in income tax, seemingly breaking a manifesto promise.
Since then, up to 13 different proposals have been discussed. The Office for Budget Responsibility (OBR) report was “accidentally” released before the official Budget Speech, prompting criticism and calls for a leak inquiry. The OBR now predicts inflation will reach 3.5% this year and drop to 2% in future years, with modest growth forecasts between 1.4% and 1.5% annually.
The National Living Wage (NLW) will rise above current inflation rates, with 40-hour workers earning over £26,400 annually from April 2026. Income tax and national insurance rates are frozen for three more years, bringing an estimated 780,000 more people into taxation.
Property landlords and those with dividend or savings income face tax increases of 2% from 2026/27, with relatively low revenue gains.
Inheritance Tax thresholds remain frozen until April 2031, with a small positive change allowing spousal transfer of the £1,000,000 Business and Agricultural Property Relief from April 2026. Capital Gains Tax relief for employee ownership trusts is reduced to 50%. Corporation Tax is unchanged, but capital allowances are cut from 100% to a 40% first-year allowance from January 2026, and writing-down allowances fall to 14% from April 2026.
From April 2027, ISA investors under 65 must allocate at least £8,000 to stocks and shares. High-value Council Tax surcharges will apply from 2028, and gaming duties will increase significantly. Electric vehicles will face a new mileage-based Excise Duty from April 2028, alongside extended grants and infrastructure investments. Apprenticeship incentives are introduced for SMEs employing under-25s.
Personal Tax Rates
| ALLOWANCES & RELIEFS | 2026/27 | 2025/26 |
|---|---|---|
| Personal allowance | £12,570 | £12,570 |
| Married couple’s transferrable allowance | £1,280 | £1,280 |
| Blind person’s allowance | £2,645 | £2,645 |
| Rent-a-room relief | £7,500 | £7,500 |
| Dividend tax rates (Basic/Higher/Additional) | 10.75% / 35.75% / 39.35% | 8.75% / 33.75% / 39.35% |
Notes: Personal allowance reduces £1 for every £2 over £100,000, giving an effective tax rate of 60%. Savings starting rate not available if taxable non-savings exceed the band.
National Insurance
| PERSONAL RATES | 2026/27 | 2025/26 |
|---|---|---|
| Class 1 up to £12,570 | 0% | 0% |
| Class 1 £12,571 to £50,270 | 8% | 8% |
| Class 1 £50,271+ | 2% | 2% |
| Class 3 voluntary (per week) | £15.85 | £15.85 |
| Employer Class 1 £5,001+ | 15% | 15% |