What the Budget means for unincorporated businesses

Amongst the raft of announcements made by Rachel Reeves today, what are some of the key points relevant to unincorporated businesses and farmers?

Inheritance tax (IHT) changes

Following the announcement of the significant inheritance tax (IHT) changes coming into effect from April 2026 made last year, one further tweak was announced today. The £1m limit on relief for business property or agricultural property at 100% per person will now be made transferrable between spouses and civil partners. Whilst this change will be welcome to many, it does not change the need for business/ and farm owners to carefully consider their succession planning in light of the significant changes coming next year.

Investment allowance

For those unincorporated businesses making investments in plant and machinery in excess of their £1m annual investment allowance there was some further good news today. Whilst companies can achieve full expensing (i.e. full tax relief on an unlimited amount) on the purchase of new and unused plant, full expensing is not available to unincorporated businesses. However, from 1 January 2026, there will be a new 40% first year allowance for main rate assets (excluding cars or second hand assets). Assets which are leased will not be excluded from this new relief. However, as a fundraising measure, the government have also announced that there will be a decrease in main pool writing down allowances by four percentage points from 18% to 14%.

For those investing in zero emission cars and electric vehicle charging points, the 100% tax relief which had been due to end next spring, has been extended to 5 April 2027.

Business taxes

Whilst there may not have been any headline changes to the rates of income tax or national insurance for the self-employed, the fiscal drag caused by the thresholds not rising for a further three years (extended from 2028 to 2031) will raise significant tax for the government.

Some businesses in the retail, hospitality and leisure sector may benefit from the permanently lower business rates. There are also likely to be more people qualifying for apprenticeship support in the SME sector including fully funding eligible people aged under 25. However, businesses will need to budget for the expected increase in national minimum wage from 1 April 2026. The main rate will increase to £12.71 per hour (£10.85 per hour for 18-20 year olds and £8.00 per hour for 16-17 year olds or apprentices).

For those businesses using salary sacrifice for pension contributions, the rules in this area will be changing from 2029. Going forward the amount which can be sacrificed without paying NIC will be capped at £2,000 per employee.

Further announcements were made today in relating to closing the tax gap, which is believed to be the greatest amongst SMEs. There will be a more tech-driven approach to avoid errors. From April 2029 it is planned that all VAT invoices will have to be issued as e-invoices.

For those wishing to exit their business, it has already been announced that the capital gains tax (CGT) rate for business asset disposal relief will match the main lower rate of 18% from 6 April 2026. For those claiming relief before that date the relief can be claimed at 14%, giving a maximum tax saving of £100,000 (being £1m at 14% instead of 24%).

Today’s budget did not deliver any one headline-grabbing announcement, but there are lots of minor changes which incorporated businesses will have to digest alongside increased costs and compliance requirements.