Corporate tax changes in the Budget: what businesses need to know

The UK Budget announced by Rachel Reeves yesterday brought in several changes for UK businesses. Here, we offer an overview of what businesses need to know.

Enterprise management incentives (EMI)

From April 2026, the eligibility limits for EMI schemes will be expanded. The employee limit will be increased from 250 to 500 employees, the gross assets test will be quadrupled from £30m to £120m, and the company limit for EMI options will be doubled to £6m. The maximum holding period will increase from 10 to 15 years, and existing option agreements can be amended to accommodate this longer period without losing EMI tax advantages. 

Increases to investment limits under the Venture Capital Trust and Enterprise Investment Scheme were also announced. 

These changes will allow larger businesses to benefit from these tax-advantaged schemes and indicate that the government continues to support such schemes to support growth, both in the start-up and scale-up phases.

Employee ownership trusts – capital gains tax relief

With effect from the day of the Budget (26 November 2025), relief from capital gains tax (CGT) for those who sell their businesses to employee ownership trusts (EOTs) will be reduced from 100% to 50%.

This relief was introduced as an incentive for employee ownership and has become increasingly popular due to the attractive CGT savings for sellers. The government projected that the costs of the scheme would rise to £2bn if not curtailed, which was 20 times more than originally envisaged when the scheme was introduced 12 years ago. The reduction of the relief is therefore expected to result in a significant increase in tax revenue.

Although the 50% relief will continue to be an incentive to sell to EOTs, this reduction in relief will have a significant impact in the decision-making process of sellers. Sale to an EOT is not suitable for all businesses and has strict qualifying conditions. It often results in lower consideration paid over a number of years and additional transaction costs. The reduction in the level of CGT relief will inevitably make the EOT structure less attractive when weighing up potential exit routes for sellers.

Capital allowances

Three notable changes have been made in relation to capital allowances:

• a new first year allowance for main rate assets of 40% with effect from 1 January 2026;
• a reduction of the main rate writing-down allowance (WDA) from 18% to 14% with effect from 1 April 2026; and
• an extension of the 100% first year allowance for zero emission vehicles and charge-points until 2027.

The reduction in the main rate WDA will reduce the annual tax deductions available for capital assets, such as plant and machinery. 

The new first year allowance will increase the deduction available for new assets in their year of purchase. This is good news for businesses where full expensing is not available, such as unincorporated businesses.

Stamp duty reserve tax (SDRT) – UK listing relief

Companies which are newly listed in a UK regulated market will benefit from an exemption from the 0.5% SDRT charge on the transfer of shares and other securities for three years following listing. This change will take effect for agreements to transfer made on or after 27 November 2025.

This change is hoped to go some way to boost the shrinking listing base in the UK.

Our corporate tax and share incentives team is ready to assist with any queries arising from the budget. Please do not hesitate to get in touch if you have any questions.

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