Budget 2026: What It Means for Contractors and Expats

John Healey delivered his first Budget on Wednesday 28 October. I already knew the question that would be landing in the inbox: "Does this change anything for me?"

For most of our clients, the honest answer is "not much, not yet". The Budget doesn't touch how you pay yourself. Salary, dividends, National Insurance and Corporation Tax all carry on exactly as before. Where it does bite is on income from savings and property, on taking larger sums out of a company, and on how HMRC plans to collect tax over the next few years.

By one count there were 98 separate measures, and most of them are small. So rather than walk through all 98, I've picked out the ones that matter to the people we actually work with: limited company contractors, sole traders, umbrella workers, and the many Kiwis and Aussies who have income or assets back home.

What Hasn't Changed

Let's start with the good news, because there's a fair bit of it.

Income tax rates on earnings stay at 20%, 40% and 45%. The personal allowance is still £12,570, and the higher rate still kicks in at £50,270. Both are frozen until April 2031, so fiscal drag carries on doing its quiet work.

Dividend tax is unchanged at 10.75%, 35.75% and 39.35%, with the £500 dividend allowance staying put. The basic and higher rates went up by 2 percentage points in April 2026 off the back of last year's Budget, so if your dividend tax for 2026/27 looks higher when we work it out, that's why. Nothing new was added this time.

National Insurance is unchanged. Employees pay 8% and 2%, employers pay 15% on salary over £5,000, and the Employment Allowance stays at £10,500.

Corporation Tax stays at 19% for profits up to £50,000 and 25% above £250,000, with marginal relief in between.

IR35 got no mention at all. If you were hoping for a rewrite of the off-payroll rules, I'm sorry, this wasn't the year. Again.

The VAT registration threshold stays at £90,000, despite a few rumours before the Budget that it might come down.

If you're a limited company contractor taking a sensible salary and the rest as dividends, your strategy for 2027/28 doesn't need to change. Our usual salary advice still stands.

Savings and Rental Income: The Big Change for 2027

This is the headline change for most of our clients, and it lands on 6 April 2027.

At the moment, interest from savings and profits from rental property are taxed at the normal income tax rates of 20%, 40% and 45%. Last year's Budget had already announced a rise of 2 percentage points on both from April 2027. This Budget adds another 2 percentage points on top. So from 6 April 2027, the rates will be:

Basic rate: 24%

Higher rate: 44%

Additional rate: 49%

The property rates apply in England, Wales and Northern Ireland (Scotland will set its own). The savings rates apply across the UK.

The government's reasoning, set out in last year's Budget, is that savings and rents don't attract National Insurance, so higher rates bring them closer to the tax on earned income. It doesn't quite work out that way, though. A higher rate employee pays 40% income tax plus 2% employee National Insurance, which is 42%. From April 2027, a higher rate saver or landlord will pay 44%.

There are a few things that soften the blow:

The Personal Savings Allowance hasn't changed. Basic rate taxpayers still get the first £1,000 of interest tax-free, and higher rate taxpayers £500. The £5,000 starting rate for savings is also unchanged.

Mortgage interest relief rises too. Landlords get tax relief on mortgage interest as a credit at the basic rate, and from April 2027 that credit goes up to 24% as well. The headline 44% looks worse than it actually is, because the extra tax falls on the profit after interest, not on your profit before interest.

The cash ISA limit stays at £20,000. Last year's Budget planned to cut it to £12,000 for under-65s from April 2027. That plan has now been dropped, so you can keep putting the full £20,000 into a cash ISA.

To put some numbers on it, a higher rate taxpayer with £10,000 of interest outside an ISA will pay £4,180 in tax in 2027/28, compared with £3,800 now. That's £380 more. A higher rate landlord with £12,000 of rental profit before mortgage interest, and £6,000 of interest, will pay £3,840 instead of £3,600. That's £240 more, which is 4% of the £6,000 profit after interest.

If you're sitting on a decent cash balance personally, now is a good time to make sure your ISA allowance is being used every year. For directors, it's also worth looking at whether money would be better off going into a pension through your company rather than sitting in a savings account. We've written about that in our guide to company pension contributions.

If You're an Expat With Income Back Home

This is the section I'd read twice if you've got a rental property or savings in New Zealand or Australia.

The new higher rates apply to overseas property and overseas savings income too. If you're UK tax resident and your NZ or Australian income is taxed in the UK (for example, you're past your four years on the FIG regime, or you didn't claim it), the UK rate on that income goes up from April 2027.

You still get credit for the tax you've paid back home, so you're not taxed twice. But the UK only collects the difference between its rate and the tax you've already paid overseas. When the UK rate goes up by 4 percentage points, that difference gets bigger.

For example, Ruby is a Kiwi data engineer contracting in London through her own company. She's been here six years, so she's well past her FIG years. She owns a two-bedroom rental in Tauranga that makes about £8,000 a year after mortgage interest, and she's a higher rate taxpayer in the UK. Assuming the New Zealand tax on that rental is already less than the UK charge at today's rates, from 2027/28 her UK top-up tax on that rental goes up by roughly £320 a year. Her salary and dividends are taxed exactly as they were. It's not a disaster, but it's also not nothing.

There are a few other things in this Budget that expats should know about.

HMRC is about to get much better information on overseas property. The UK is joining an international agreement to automatically exchange information on property ownership, starting in 2029/30. HMRC already receives data on overseas bank interest under the Common Reporting Standard, which is why so many people have been getting letters about their overseas savings interest. Property is next. We don't yet know which countries are taking part.

There's a new legal duty to correct mistakes from April 2028. If you know something on a past tax return is wrong, you'll have a legal obligation to put it right. HMRC's own notes say that a known error left uncorrected will be treated as deliberate, and deliberate errors carry much higher penalties. On the positive side, if HMRC sends you a correction notice (your first in six years) and you put things right by its deadline, there will be no penalty for a careless error. And owning up before HMRC asks already keeps penalties much lower under the current rules.

Offshore penalties are being reviewed. The government will consult on reforming the offshore penalty regime later this year. We don't know yet which direction it will go.

Put those three together and the message is fairly clear. If there's overseas rental income or interest from past years that hasn't made it onto a UK tax return, it's better to sort it out now while the rules are known. We've explained why the big hairy penalty figures you read about usually aren't what people actually pay, and this is exactly the kind of thing our disclosure service handles.

Some good news for anyone who has gone home. Making Tax Digital for Income Tax will not apply to "expected non-resident customers" until further notice. If you've moved back to New Zealand or Australia and kept a UK rental property, this looks like you're off the hook for quarterly reporting for now. We're waiting for HMRC to confirm exactly who qualifies.

The FIG regime is being kept under review. No changes were made this time, but the Budget says the government will keep assessing whether the new residence-based regime is "striking the right balance", using evidence that comes in next year. If you're weighing up whether to claim FIG, nothing changes today.

As always, we look after the UK side. For anything on the New Zealand or Australian side, we work alongside your accountant back home, or we can put you in touch with one of our partners.

Thinking of Closing Your Company?

There are two changes here. One is fairly simple, and the other is a bit of a "watch this space".

Business Asset Disposal Relief Is Being Halved

Business Asset Disposal Relief (BADR) lets you pay 18% Capital Gains Tax when you close or sell your company, rather than the higher rate of 24%. At the moment it covers up to £1 million of gains over your lifetime. For disposals made on or after 6 April 2027, that lifetime limit drops to £500,000. The 18% rate itself doesn't change.

For most contractors, this makes no difference at all. If you're closing your company through a members' voluntary liquidation with £150,000 of retained profits, you're nowhere near the new limit. If you've got more than half a million pounds sitting in your contractor company, firstly, nice work. Secondly, the extra tax is capped at £30,000. A £1 million gain would cost £210,000 after April 2027, compared with £180,000 today.

The people who need to think about this are:

1. those with large retained reserves
2. anyone who has already used some of their BADR allowance on a previous company sale or closure
3. anyone who regularly opens and closes companies

If that's you, talk to us before April 2027. The usual anti-avoidance rule still applies if you're planning to go back to contracting after closing your company, and that's still the bigger practical risk for most people. We covered both in our BADR and MVL guide.

A Rewrite of the Rules on Taking Money Out of Companies

This is the most technical part of the Budget. It doesn't affect anything yet, but it's worth knowing about.

From April 2028, the government is overhauling the rules on how money taken out of a company is taxed, to stop people taking out profits as capital (taxed at 18% or 24%) when the money is really income (taxed as a dividend at up to 39.35%). The government expects it to raise around £800 million a year, so it's not just tidying up.

For a typical contractor, ordinary salary and dividends aren't affected at all. Nothing in the announcement specifically targets the usual route of closing a company through a members' voluntary liquidation. But the general anti-avoidance rules on taking capital out of companies are being rewritten, so we'll be looking closely at the draft legislation when it's published in 2027.

There's one part that really caught my eye. If you're UK tax resident and you borrow money from your own company in New Zealand or Australia, the plan is that you'll face a UK tax charge on that loan from April 2028. It would work in a similar way to a loan from a UK company to its director, except that the temporary charge falls on you personally rather than the company, and is refunded when the loan is repaid. That's a fairly big step. The UK can't tax your NZ company directly, so it's going to tax you on what you take out of it instead. Payments from overseas companies that count as capital under local company law could also start being taxed as dividends in the UK.

We need to see the rules written up first. But if you own a company back home and you're taking money out of it while you live in the UK, put this on your radar for 2028.

One small win while we're on directors' loans. HMRC had proposed new reporting requirements for loans and other payments between companies and their directors. Those have been dropped "at this time".

Sole Traders and Side Income

There are a few bits of good news here, and one change to plan for.

The trading allowance trebles. From 6 April 2027, the trading allowance goes up from £1,000 to £3,000. If you've got a small side income, like occasional freelance work, selling things you make, or tutoring, you can earn up to £3,000 a year tax-free without needing to report it. Compared with the current £1,000 allowance, that's up to £400 a year more in your pocket for a basic rate taxpayer, or £800 for a higher rate taxpayer. It can't be used against income from your own limited company, but it's handy if you're an umbrella worker or employee with a sideline.

Mileage rates go up. The 55p a mile rate for the first 10,000 business miles, which was brought in as a temporary measure earlier this year, is now permanent. From 6 April 2027, the rate for miles over 10,000 goes up from 25p to 35p. This applies to sole traders using simplified mileage, and to directors and employees claiming for their own car. If you drive 15,000 business miles a year, that's an extra £500 you can claim tax-free.

A bit of breathing space on Making Tax Digital. If your self-employment and rental income (before expenses) is over £30,000 and you're joining Making Tax Digital in April 2027, you won't get penalty points for late quarterly updates during your first year. You'll still need to send the updates before you can file your tax return, so this is breathing space rather than a free pass. We've got a practical guide to getting set up, and Joy Pilot handles the quarterly updates for you.

Payments on account are changing from April 2029. At the moment, most self-employed people and directors with large dividends pay their tax in two lump sums, in January and July. From April 2029, these will be replaced by smaller, automatic payments taken during the year, rather like moving from an annual bill to regular instalments. If you're also employed, you'll be able to choose to pay through your tax code instead.

How often these payments will be taken hasn't been decided yet, and neither have the details of the changeover year. Some commentators are already warning that the changeover year could mean paying well over a year's worth of tax in twelve months. That's speculation at this stage, but it's worth getting into the habit of putting money aside each month now, so 2029 doesn't come as a shock.

Self-employed parental pay. From April 2029, self-employed fathers, partners and adopters will be able to claim parental pay for the first time.

Umbrella Workers

For anyone working through an umbrella company, including our own No Worries Red Umbrella, this was a quiet Budget.

There were no changes to IR35 or the rules for umbrella companies. The joint and several liability rules that came in from April 2026 carry on as they are, and they continue to put the risk on agencies that use non-compliant umbrellas. Working with an FCSA-accredited umbrella remains the safe option.

Your income tax and National Insurance rates haven't changed, but because thresholds are frozen, a pay rise means more of it gets taxed.

The National Living Wage goes up to £13.21 an hour from 1 April 2027.

The £2,000 cap on National Insurance-free pension salary sacrifice still starts in April 2029, as announced last year.

From April 2028, you'll be able to claim tax relief on work expenses through your tax code, whatever the amount, rather than having to do a tax return just to make the claim.

HMRC Is Going Real Time

The theme running through the whole Budget is that HMRC wants tax paid closer to when the income is earned, collected automatically, and errors fixed without being chased. Here's the timeline:

April 2027: Company car benefits go through payroll each month instead of being reported on a P11D at the end of the year. If you've got an electric company car through your limited company, we'll take care of this in your payroll.

April 2028: The new legal duty to correct mistakes starts, and amended company tax returns must be filed online. Companies House also moves to software-only accounts filing. The good news is that the separate plan to make small companies file a profit and loss account publicly has been paused.

April 2029: Payments on account move to in-year payments. Businesses must have a Direct Debit set up for VAT and PAYE. You can still pay another way, but anything unpaid by the due date will be collected by Direct Debit. VAT invoices will also need to be issued electronically.

July 2029: HMRC gets the power to collect smaller tax debts (up to £5,000 for individuals and £10,000 for companies) directly from bank accounts, by regular instalments. It will start with companies, with individuals following later. This is aimed at people who repeatedly ignore HMRC, not those who are talking to HMRC or have a payment plan in place.

2029/30: Automatic exchange of overseas property information begins.

None of this needs action today. But you can see the direction of travel, and it's one where being organised costs a lot less than not being.

A Couple of Things That Aren't for You (Probably)

The Budget introduced a new Founders' Relief, which offers a 10% Capital Gains Tax rate on up to £10 million of gains. It sounds very generous until you read the conditions. Your company needs at least £10 million of turnover and at least 15 full-time staff, and it has to pass two of three tests: fast turnover growth, fast headcount growth, or at least £1.5 million of research and development spending. You also need to have held at least 25% of the shares from when the business started trading, held them for five years, and been UK resident for five tax years in a row. It's aimed at high-growth companies, not contractor companies. It's still nice to know it exists.

There was also more detail on the new council tax surcharge for homes in England worth over £2 million, a temporary rise in the extra tax on bank profits, and a long list of duty changes on everything from gambling machines to plastic packaging. I'll leave those to someone else.

Summary

How you pay yourself doesn't change. Salary, dividend, National Insurance and Corporation Tax rates are all the same, and thresholds remain frozen until 2031.

From 6 April 2027, tax on savings and rental income rises to 24%, 44% and 49%. Mortgage interest relief rises to 24% too, so for landlords the extra tax falls on the profit after interest.

The cash ISA limit stays at £20,000, so use it.

Kiwis and Aussies taxed in the UK on rental income or savings back home may pay more UK top-up tax from April 2027, where the tax back home is lower than the UK charge. HMRC is also getting better information on overseas property, and a duty to correct errors starts in April 2028.

The BADR lifetime limit halves to £500,000 from 6 April 2027. Most contractors closing their company won't be affected.

The rules on taking money out of companies, including loans from NZ and Australian companies to UK residents, are being rewritten from April 2028. Watch this space.

The trading allowance goes up to £3,000. The 55p mileage rate is now permanent, and miles over 10,000 go up to 35p from April 2027.

From April 2029, payments on account are replaced by in-year payments, so it's worth building a monthly tax-saving habit now.

There were no changes to IR35 or the rules for umbrella companies.

Frequently Asked Questions

Has dividend tax gone up again?

No. Dividend tax went up in April 2026 because of last year's Budget, to 10.75% at the basic rate and 35.75% at the higher rate. This Budget didn't change it, and the £500 dividend allowance stays as it is.

Should I change my salary and dividend split?

Probably not. Nothing in this Budget changes the maths of salary and dividends. If you'd like us to double-check your numbers for 2027/28, just ask.

When do the higher rates on savings and rental income start?

From 6 April 2027, so the 2027/28 tax year. Your 2026/27 income is taxed at the current rates.

Does the new property rate apply to my rental in New Zealand or Australia?

Yes, if you're UK tax resident and that rental income is taxed in the UK. You'll still get credit for tax paid back home, but where that tax is lower than the UK charge, your UK top-up will go up.

I'm planning to close my company. Should I do it before April 2027?

Only if this gain plus any BADR you've claimed before is likely to go over £500,000. If you're closing through a members' voluntary liquidation, the date the money is actually paid out to you matters too. For most contractors the new limit makes no difference. Either way, let's talk before you start, as there are other rules to think about when you close a company.

I borrow money from my NZ company. Is that a problem?

Not yet. The new rules are due to start in April 2028, and the detail won't be published until 2027. If you're UK resident and do this regularly, it's worth talking to us now so we can plan ahead.

Will HMRC really take money from my bank account?

Only in limited circumstances, from July 2029, starting with companies. It's for established debts of up to £5,000 (or £10,000 for a company), and only where someone has repeatedly failed to deal with HMRC. There will be affordability checks and a right of appeal. If you're on a payment plan or talking to HMRC, it won't apply.

Has anything changed for IR35?

No. There were no changes to IR35 or the off-payroll working rules in this Budget.

Can you help with the New Zealand or Australian side?

We handle the UK side and work alongside your accountant back home. If you don't have one, we can put you in touch with partners we work with in New Zealand and Australia.

If you're not sure how any of this affects you, get in touch with No Worries Accounting. We've been guiding Kiwi and Aussie contractors through the UK tax system for over twenty years, and we're happy to talk it through, no obligation, no sales pitch (well, maybe a small one 🙂).

This article is general information based on the Budget documents published on 28 October 2026, not personal tax advice. Several of the measures are still subject to consultation and draft legislation, so the details may change. Have a quick chat with us before you act on any of it.