For property owners, landlords and developers, the 2026 Autumn Budget included several changes to Tax on Income, VAT Simplification and SDLT changes.
If you own rental property personally, this means higher tax costs and a wider gap between the tax treatment of personally owned and company-owned properties.
These changes will affect UK companies investing in qualifying plant and machinery, particularly those whose expenditure exceeds the available £1 million Annual Investment Allowance (AIA), or who are part of a group that must share the AIA limit. Companies planning significant capital expenditure over the next several months will benefit from reviewing the timing of their expenditure to maximise available relief.
Qualifying plant and machinery may include IT and office equipment, manufacturing equipment, machinery and tools, and certain other commercial equipment. Cars and second-hand assets are excluded from the first-year allowance.
The increase in the main rate first-year allowance from 40% to 50% means that qualifying expenditure will result in a greater initial deduction.
As a result, companies considering significant capital expenditure should review their planned expenditure and whether the timing of contracts, delivery and expenditure brings the investment within these rules. Companies should consider whether capital expenditure can be timed to qualify for the increased allowance from 1 January 2027, where this is commercially appropriate and the expenditure does not qualify for more generous relief under full expensing or the AIA.
The increased first-year allowance may reduce taxable profits and accelerate corporation tax relief, improving cash flow where a company has taxable profits against which to use the deduction. Conversely, the lower writing-down allowance will reduce the annual deduction for companies with existing balances in the main rate pool, as well as expenditure subsequently allocated to that pool. This may increase taxable profits and accelerate tax payments compared with the previous 14% rate, all other things being equal.
Businesses within the quarterly instalment payments (QIPs) regime should consider whether revised capital expenditure plans affect their expected taxable profits and instalment payments.
The changes do not remove the need to consider alternative capital allowances regimes, including full expensing, the annual investment allowance (AIA), the structures and buildings allowance (SBA) and special rate allowances. The most appropriate treatment will depend on the asset and the relevant conditions.
A company incurs £100,000 of qualifying expenditure on plant and machinery that is eligible for the 50% main rate first-year allowance from 1 January 2027.
Assuming the expenditure qualifies in full and ignoring other allowances and restrictions, the initial deduction would be £50,000, compared with £40,000 at the previous 40% rate.
At a corporation tax rate of 25%, this additional £10,000 deduction could represent an initial tax saving of £2,500, assuming the company has sufficient taxable profits to benefit from the relief.
Separately, consider a company with £100,000 in its main rate pool at the start of an accounting period. A 14% writing-down allowance would provide a deduction of £14,000, whereas a 12% allowance would provide a deduction of £12,000. The reduction would therefore defer relief on £2,000 of expenditure, equivalent to £500 of corporation tax at 25%.
The changes create an opportunity for companies to review the timing of capital investment to maximise available tax relief. The increase in the main rate first-year allowance to 50% will accelerate relief for eligible expenditure, while the reduction in the main rate writing-down allowance to 12% will slow relief for expenditure remaining in the main rate pool.
The headline rates should not be considered in isolation. Full expensing, AIA and other allowances may provide more generous relief for eligible expenditure, meaning that the practical benefit of the new 50% first-year allowance will depend on the assets involved and the relief otherwise available.
The date on which expenditure is treated as incurred is also important as placing an order or signing a contract does not necessarily determine the applicable rate. Companies should confirm the relevant timing rules before changing their investment plans.
For accounting periods spanning 1 April 2027, the transitional rules for calculating the writing-down allowance should also be checked.
The 2026 Autumn Budget also announced changes to simplify the R&D tax relief claims process by:
Removing the Claim Notification Form should reduce administrative requirements, particularly for companies making their first R&D claim or returning to claiming after a period without claims.
Simplifying the AIF should also reduce the administrative burden associated with supporting claims. However, companies will still need to provide the required information to HMRC and meet the remaining R&D claim requirements.
Our team can support you as a business to assess your eligibility for R&D tax relief, prepare supporting information and assist with the claims process.
The Budget introduces a more generous employee share option scheme, with the Company Share Option Plan (CSOP) now known as Enterprise Management Incentives 2 (EMI2). The CSOP name will remain in legislation.
The individual EMI2 option limit will double from £60,000 to £120,000.
The maximum period for exercising options while retaining tax advantages will increase from 10 to 15 years.
The interaction between EMI and EMI2 option limits will be removed, allowing eligible employees to benefit from the full allowance under each scheme.
EMI2 is available to qualifying companies across all sectors and sizes, making it particularly relevant to businesses that have outgrown EMI or cannot qualify because of their activities. Both schemes allow selected employees to benefit from future growth in share value. Subject to the relevant conditions, gains on exercising options can be free of Income Tax and National Insurance, although Capital Gains Tax may arise when the shares are sold.
For employers, these changes provide an opportunity to review how they attract, motivate and retain key people. Businesses with existing CSOP arrangements, or considering employee share ownership for the first time, should assess how the increased flexibility could support their plans.
Our tax team can help you assess eligibility and design a share incentive arrangement that fits your business.
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