Savings and property income
Building on previously announced changes in Budget 2025, the tax rate was already set to increase from April 2027. Budget 2026 increases these rates by a further two percentage points, resulting in rates of 24 percent, 44 percent and 49 percent. This will be particularly relevant to partners with significant personal savings or property income, or firms generating investment and property receipts, which will be more highly taxed than trading profits.
Firms that retain amounts on behalf of partners to settle their tax liabilities should therefore consider the implications for tax reserves, drawings and partner cashflow forecasting well in advance of April 2027.
Capital gains tax
The lifetime limit for gains qualifying for BADR will reduce from £1 million to £500,000 from 6 April 2027. BADR continues to provide an 18 percent CGT rate on qualifying disposals but the reduction in limit may increase the tax payable on future disposals.
A new Founders’ Relief will provide a 10 percent CGT rate on up to £10 million of qualifying lifetime gains for founders of high-growth, innovative companies from 6 April 2027. The detailed design is subject to technical consultation, but it appears to be available to shareholders of companies within the scope of UK corporate tax and where they individually hold 25 percent of the ordinary share capital. Initial expectations are that this relief will be less valuable to Partners in professional partnerships than BADR.
Incentives for investment
Adjustments to the capital allowance regime create both an opportunity and a timing consideration. Budget 2026 increases the main rate first year allowance from 40 percent to 50 percent for qualifying expenditure from 1 January 2027 but reduces the main writing down allowance from 14 percent to 12 percent from April 2027, slowing relief for expenditure remaining in the main pool.
Firms planning sizeable technology, fit-out or infrastructure programmes should therefore model the timing and nature of their qualifying expenditure. The increased first year allowance will be particularly relevant for partnerships because, unlike companies, they cannot access relief for full expensing.
Partner tax payments
From April 2029, taxpayers within the income tax Self Assessment payments on account regime will move towards smaller, more regular payments during the year, bringing tax payments closer to the point at which income is earned. For professional partnerships, this could have significant implications on cashflow, partner drawings and tax reserve arrangements. Further detail is needed on how the new regime will operate, particularly in relation to businesses where the profit levels fluctuate through the financial year. Cashflow modelling and communication with partners ahead of implementation will be imperative.
This announcement follows the recent consultation on “Timely Payments in income tax Self Assessment”. Further detail can be found in our recent articles – “HMRC consult on more timely payments for Self Assessment taxpayers” and “KPMG responds to HMRC consultation on change to in-year payments”.
Business travel
The tax-free mileage rate for employees and the self-employed using their own cars or vans for business will permanently increase to 55p per mile for the first 10,000 business miles, with the rate above 10,000 miles increasing from 25p to 35p from April 2027. Changes to business travel and subsistence rates will follow from April 2028.
For Professional Services firms with high levels of employee and partner travel, this should prompt a review of travel and expenses policies.
VAT
There are two key VAT topics for firms to consider:
- Mandatory VAT e-invoicing - to be introduced from April 2029 and requiring VAT invoices to be issued in a specified electronic format. The Government has published an implementation roadmap and intends to provide full details of the policy and technical design by April 2028. Firms should factor this into finance-system and tax-transformation programmes rather than viewing e-invoicing purely as a compliance exercise. Read our case study on how this is being approached by an international firm; and
- Cross-border services - from April 2027, the VAT reverse charge on cross-border services will be restricted to VAT-registered businesses. Overseas suppliers providing services to non-VAT-registered UK businesses will instead be required to account for UK VAT in the normal way. International firms should therefore review relevant inbound service arrangements and the VAT status of UK recipients.
Employment costs
The National Living Wage and National Minimum Wage will increase by 3.9 percent from April 2027. Firms will need to consider how this will impact the cost base in relation to both their employees and any increase in supplier costs.
If you have any queries please do not hesitate to get in touch with the authors or your usual KPMG contact.
