Lingering uncertainty surrounding this Autumn Budget has prompted many people to hit pause on key financial decisions. The anticipation alone has slowed economic activity in the second half of the year, adding significant weight and consequence to this budget. For months, warnings of potential tax hikes in various forms have dominated the headlines, and at times it appeared almost inevitable that Labour would break their manifesto pledge to leave income tax rates untouched. However, improved economic forecasts allowed the Chancellor to step back from a move that would almost certainly have further eroded public confidence and trust in the Government and in politics more broadly.
Another key manifesto pledge centred on government borrowing, specifically a commitment not to rely on further debt to fund day-to-day public spending. A sobering way to illustrate the UK’s debt-servicing burden is to express it on a household basis, with the average household paying around £4,000 in tax a year solely to cover the interest on government borrowing. As a result, an increasing share of tax revenue is being consumed by the nation’s growing debt interest bill. With income tax rates and further large-scale borrowing effectively off the table, the moment arrived for the Chancellor to reveal how the UK’s growing fiscal deficit would be addressed through either additional revenue or spending cuts.
Ironically, the Office for Budget Responsibility proved rather irresponsible by accidentally publishing the Economic and Fiscal Outlook early, revealing many of the key measures due to be announced in the Budget. Most significantly these included details on tax-raising measures worth £26bn, with the Chancellor relying heavily on personal taxes to increase government receipts.
Fiscal drag, an appropriately labelled stealth tax, has been a popular topic for the last few budgets. This occurs when wages rise in line with inflation while tax thresholds remain unchanged, resulting in taxpayers being pushed into higher tax brackets. It has long been used as a means of increasing tax revenues while ostensibly leaving income tax rates unchanged, and it is a tool that has once again been heavily relied upon. The freeze on tax thresholds, introduced by the Conservatives in 2021, was due to end by 2028, however this Budget has seen the Chancellor extend the freeze for a further 3 years. This decision breaks a promise made in the 2024 Autumn budget to lift the income tax threshold freeze in 2028 and allow tax brackets to increase in line with inflation. The broken promise and change in policy will raise an estimated £8bn for the treasury. It seems the Chancellor judged a broken Budget promise would provoke less backlash than a broken manifesto pledge.
Other personal tax increases include changes to dividend tax rates. From April 2026, the basic and higher rates of dividend tax will each rise by two percentage points, increasing from 8.75% to 10.75% and from 33.75% to 35.75% respectively. The Chancellor also used this budget to introduce some meaningful changes to the salary sacrifice tax break cut on workplace pensions. This is where workers give up a portion of their salary in return for their employer paying an equivalent into their pension. From 2029, there will be a cap of £2,000 that is exempt from employer and employee NI contributions through the salary sacrifice scheme.
The Chancellor has consistently expressed support for EIS and VCT legislation, recognising the role both schemes play in channelling capital into early-stage companies and promoting broader economic growth. This support was further reinforced by the Budget announcement to raise the annual and lifetime limits on the amount of EIS an VCT investment a single company can receive. As of April 2026, the annual limit will increase to £10 million and £20 million for Knowledge intensive companies, and the lifetime investment limit will be £24 million and £40 million for knowledge intensive companies. These are material adjustments which dramatically increase the scope and range of companies which can benefit from tax efficient investment capital.
A more counterintuitive change came in the form of the reduction of the income tax relief available through VCTs, reduced from 30% to 20%. This change comes despite the Chancellor’s longstanding support for VCTs and their role in fostering growth and backing the UK’s early-stage business ecosystem. The apparent rationale behind this is to further balance the tax reliefs available across VCTs and EIS.
The previous Budget introduced significant changes to the inheritance tax (IHT) relief available for assets qualifying for Business Relief (BR). From April 2026, the first £1 million of qualifying assets will benefit from 100% IHT relief, while the value of qualifying assets above this threshold will receive relief at 50%. The latest Budget has softened these rules slightly by allowing any unused portion of the £1 million allowance to be transferred between spouses. This adjustment enhances the attractiveness of EIS and BR investment products as effective tools for inheritance tax mitigation and broader estate planning.
In an increasingly high-tax environment, the EIS and VCT product range continue to offer a stable and reliable source of tax relief. It is worth remembering that the sunset clause for both schemes was recently extended to April 2035, ensuring they remain a consistent and dependable option in a fiscal landscape that is constantly shifting and becoming progressively more punitive. Offering tax free capital growth, 20-30% income tax relief on the value of the investment, and in the case of the VCT, tax free dividend income, the EIS and VCT remain credible and dependable tax efficient investment products, helping to offset some of the increased demand on higher rate taxpayers.
This is Calculus’ understanding of the budget. Calculus does not provide financial, legal, investment or tax advice. Tax treatment is subject to change and depends on individual circumstances.