No big surprises: What has really changed in the Budget?

John Healey may have led the Ministry of Defence but there was no shock and awe in his first budget as the Chancellor!

In what can be described as a positive if not rather bland budget for the Channel Islands financial services industry, there were no headline grabbing changes to the rates of capital gains tax, reduction in the pensions commencement lumpsum allowance or a capital gains tax exit charge but rather numerous small tweaks and changes.

Amongst the most significant changes were an additional 2pc on rates of income tax payable for savings and property income from 6 April 2027 in addition to the previously announced 2pc increase. Meaning from 6 April 2027 the following rates of tax will apply:    

• Basic rate: 24%
• Higher rate: 44%
• Additional rate: 49%

All other headline tax rates are to stay the same.

In addition to the above, which featured in the Chancellor’s speech the following have also been announced within HMRC and the Treasury’s post budget publications:

Tax Treatment of Pension and Lump Sum Death Benefits Under the Two-Year Rule

As announced at Budget 2026, the government will introduce legislation in Finance Bill 2026-27 to remove the two-year rule for pension and lump sum death benefits.

This will mean that tax-free pension and lump sum death benefits will no longer become taxable solely because they are paid more than two years after the pension scheme administrator first knew, or could reasonably have been expected to know, of the member’s death. The change will apply both where a payment would otherwise be taxable as pension income of the recipient and where it would otherwise be subject to the special lump sum death benefits charge. 

The measure will have effect in relation to payments made on or after 28 October 2026.

Inheritance Tax: Preventing Unintended Deductions for Liabilities in Trust Arrangements

As announced at Budget 2026, the government will introduce legislation in Finance Bill 2026-27 to amend the inheritance tax rules on liabilities and trust property.   The legislation will provide a statutory rule for taking liabilities properly incurred by trustees into account when valuing settled property for inheritance tax purposes, align their treatment with personal liabilities and extend existing debt deduction restrictions and anti-avoidance rules to ensure that certain liabilities funded using value originating from a beneficiary’s own estate cannot reduce inheritance tax charges. 

The measure will have effect for deaths and other chargeable events occurring on or after 28 October 2026.

Capital Gains: Gains of offshore companies attributed to UK residents etc : protected cell companies

As announced at Budget 2026 the government will introduce legislation in Finance Bill 2026-27 to amend the capital gains participator rules for non-resident close companies, to ensure that they apply to protected cell companies. 

These changes will take effect from 28 October 2026.

Capital Allowances: Reduce the main rate writing-down allowance and increase the main rate first-year allowance

As announced at Budget 2026, the government will introduce legislation in Finance Bill 2026-27 to increase the main rate first-year allowance to 50% for expenditure incurred on or after 1 January 2027 and to reduce the main rate writing-down allowance to 12%, to take effect from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.

Stamp Duty Land Tax: Group Relief

As announced at Budget 2026, the government will introduce legislation in Finance Bill 2026-27 to amend the Stamp Duty Land Tax Group Relief rules, so that a winding up of a vendor does not prevent the relief from being clawed back within the usual three-year period if the purchasing company later leaves the group.

The change will take effect from 29 October 2026. 

Offshore Penalty Reform Consultation

As announced at Budget 2026, the government will publish a consultation later this year on reform to the offshore penalties framework. Any legislation will be introduced in a future Finance Bill following consultation responses.

Summary

Overall, I think the islands can be pleased with the Chancellor’s first budget and take comfort from the lack of significant changes that will impact our industry.