UK Budget 2026: Key Points, Tax Changes and Economic Impact

The £100 Household Energy Payment

From January 2027, households in council tax bands A–D in England are due a £100 payment, delivered through the council tax system, with the Treasury saying it will go directly into bank accounts. The £2.6 billion programme covers up to 20 million households. Scotland, Wales and Northern Ireland get extra funding through the Barnett formula to provide comparable support their own way.

It is one payment of £100, not £100 a month. If you rent and your landlord pays council tax for you, check with your council how it will reach you.

Electricity VAT stays at 0%

The temporary zero VAT rate on domestic electricity in Great Britain is extended to July 2027. The government expects it to take about £50 off the annual Ofgem price cap from April 2027. Your real saving depends on how much electricity you use.

The longer-term changes

• Gas standing charges — currently about £108 a year on average — are to be abolished. Ofgem has been asked to do this by the end of 2027 or as soon as possible after, with targeted protections.
• Energy Debt Circuit Breaker, including one-off debt relief, to tackle more than £5 billion of household energy debt; the Treasury says it saves a typical billpayer about £30 by 2030.
• The planned Gas Shipper Obligation — a new levy on gas bills — is scrapped.
• A review of electricity standing charges and a new framework to control policy costs on bills, due at the 2027 spending review.

The £100 and the VAT extension are fixed. The standing-charge and debt reforms still need Ofgem and implementation detail.

Why savers and landlords are the main target

Budget 2025 had already planned a two-point rise for savings and property income from April 2027. This Budget adds two more, landing on the same date. The Treasury says 84% of income taxpayers are unaffected — mainly because ISAs and the Personal Savings Allowance shelter most people’s interest. In England, Wales and Northern Ireland the new property rates apply directly; Scotland sets its own rates on non-savings income, so Scottish landlords should check how the rules apply to them.

For a landlord, the bill depends on taxable profit after allowable expenses, not rent received. A basic-rate landlord with £10,000 of taxable rental profit would pay £2,400 instead of £2,000 — £400 more a year, all else equal.

Business owners selling up

Halving the Business Asset Disposal Relief limit to £500,000 means less of a business sale qualifies for the 18% rate. The new Founders’ Relief is narrower than it sounds: a 10% rate on up to £10 million of lifetime gains, only for qualifying founders of high-growth, innovative companies. It is not a general 10% capital gains rate.

Other targeted changes

• Banks pay a 6% surcharge for 15 months, from 1 January 2027 to 31 March 2028.
• Small Producer Relief for alcohol is worth £10 million a year to more than 2,000 small producers, with alcohol duty changes from 1 February 2027.
• From April 2029, people already making Self Assessment Payments on Account will make smaller, more regular payments during the year.
• HMRC gets a new power to recover lower-value tax debts directly from people who can pay but repeatedly don’t.

The government says the new National Living Wage adds about £910 a year to a full-time worker’s gross pay, and that about 2.3 million workers benefit. Take-home gains are smaller once tax and National Insurance come off.

Pension Tax Allowance

A new Pension Tax Allowance means pensioners whose total income is at or below the full new State Pension won’t be pulled into income tax simply because the State Pension is uprated during this Parliament. It saves small tax bills and paperwork. It does not exempt pensioners with other income.

Parents and commuting workers

Parental pay is expanded, reaching self-employed fathers and partners for the first time. The 55p-a-mile tax-free rate for the first 10,000 business miles becomes permanent, and the rate above 10,000 miles rises from 25p to 35p — the Treasury’s example is £120 a year extra for someone doing 6,000 business miles.

An equity loan isn’t a grant: the government takes a share of the home’s value, which you repay later. Read the repayment terms before you commit.

First Time Buyer ISA from April 2029

A new First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029: up to £4,000 a year, a 25% government bonus, homes up to £450,000 and no upper age limit. Existing Lifetime ISA holders carry on. From 29 October 2026, the Lifetime ISA withdrawal charge for first-home purchases above the £450,000 cap falls from 25% to 20%.

The online-marketplace VAT rule funds part of the high-street package: from October 2027, platforms must collect VAT on sales by UK sellers making over £90,000 through them. A fuel-duty freeze doesn’t guarantee cheaper petrol — crude prices, the pound and retailer margins still set the pump price. Tariffs are also suspended on more than 100 food products until December 2028, which the Treasury expects to cut consumer costs by £120–185 million a year.

A fall in inflation means prices rise more slowly, not that they come back down. The OBR also expects real household disposable income per person in 2030–31 to be only about 2% above its pre-pandemic level — one reason the Budget leans on targeted help rather than broad tax cuts.

Public spending

The government says day-to-day departmental spending will be over £40 billion a year higher by 2028–29 than under previous plans, and capital investment £120 billion higher over the Parliament. Both are compared with a previous-plans baseline; not every department gets a real-terms rise, and the detail comes at the 2027 spending review.

The UK Budget 2026 aims to take the edge off energy costs and low pay without breaking the fiscal rules. For most households the visible wins are modest and dated: £100 in January, about £50 off the price cap in April, a 50p-an-hour pay rise for the lowest paid. The costs fall on narrower groups — savers with interest outside ISAs, landlords, business sellers and banks.

Whether it works depends less on Budget day than on what energy prices, interest rates and productivity do next. The OBR’s own range shows borrowing could swing by tens of billions either way.