The UK Finance Minister, known as the Chancellor, announced her proposed changes to the tax system and rates for the tax year starting April 2026. These proposals, called the Budget, are still to be approved by the Parliament, and detailed regulations have not yet been issued, but the outline is clear.
We will describe the main changes affecting our clients in this article and will update our UK Tax Environment leaflet when the detailed guidance from HMRC becomes available in due course.
Capital Investment tax allowances
The main features of this Budget are to leave the main tax allowance unchanged, so the first GBP 1 million of expenditure on capital equipment each year can be fully allowed against Company Tax.
Under the 2025 UK Budget, the main capital investment allowance remains unchanged, companies can continue to deduct the first £1 million of qualifying capital expenditure on equipment each year in full against corporation tax.
Importantly, the Budget removes the previous restrictions on second-hand equipment and equipment acquired with the intention of leasing. This change makes it easier for corporate groups to transfer assets between companies without losing the tax allowance.
Furthermore, a new 40 % first-year allowance will apply to any additional qualifying new equipment purchased beyond the £1 million threshold per year, enhancing the appeal of establishing manufacturing and processing facilities in the UK.
Enterprise Investment Scheme tax allowances increased
Previously the amount of money a company could raise in new investment capital in any year and claim tax relief was GBP 5 million, and the maximum amount which could qualify for tax relief over the life of the company was GBP 12 million. From 6th April 2026 these limits are doubled to GBP 10 million and GBP 24 million respectively.
Equally, the limits on the total assets of the company before and after the share issue have been increased from GBP 15 million before the share issue, and GBP 16 million immediately afterwards, to GBP 30 million and GBP 35 million respectively.
This makes the UK an even more attractive place in which to raise investment.
Other taxes on people and businesses
In the Budget last year the Chancellor stated that she would not raise taxes on people or companies this time, and she has kept that undertaking. There have been no changes to VAT, Income Tax, Corporate Tax and National Insurance (social costs paid by employers).
Investor confidence
Investors, that is the organisations which lends money to the Government by buying 10 year bonds (known as Gilts) have shown an increased confidence in the economy of the UK as the effective interest rate on these Gilts has fallen since September, and continues to fall as we publish this.
Existing attractive features of the UK as an investment location as set out in our Tax Environment leaflet remain unchanged. For example:
- UK holding companies pay no tax on dividends received
- There is no withholding tax on dividends paid to any shareholder in any country
- Generally UK holding companies can sell shares in their subsidiaries without paying UK tax on the profit
- Persons who are tax resident in another country do not pay UK tax
(Please note, there are some specific details around these points and further advice should to be taken).
Add to this that there is no need for a UK resident Company Director and no need for Board or Management meetings to be held in this country, the UK remains one of the most attractive places in the world to set up a trading business or a holding company.
If you have any matters you would like to discuss, please do not hesitate to get in touch.
