Chancellor John Healey announced in Budget 2026 on 28 October 2026 that the Income Tax trading allowance will triple from £1,000 to £3,000 from 6 April 2027, letting people earn up to £3,000 a year from a small trade or side business without paying tax on it or reporting it to HMRC.
The same Budget halves the lifetime limit on Business Asset Disposal Relief (BADR), the relief many owners use when they sell up, from £1 million to £500,000 for disposals on or after 6 April 2027. A new Founders' Relief, with a 10% Capital Gains Tax rate on up to £10 million of lifetime gains, starts on the same date but only for companies with at least £10 million of turnover.
What changes
HMRC's overview of tax legislation says people whose trading and miscellaneous income is fully covered by the allowance "will no longer have to declare or pay tax on this income". The Self Assessment reporting threshold for trading income also rises to £3,000. Both changes will be made in Finance Bill 2026-27.
The documents published so far do not say how many people will benefit: the tax information and impact note for the measure was listed as "live shortly" when this story was written.
What it means for a small firm
Small Cap News calculation: someone who already uses their Personal Allowance in a job and takes £3,000 a year from a side business currently pays 20% basic rate tax on £2,000 (£3,000 less the £1,000 allowance), which is £400. From 2027 to 2028 the whole £3,000 is covered, a saving of £400 a year. A higher rate taxpayer would save £800.
The BADR change works the other way. BADR gains are taxed at 18%, against the 24% main rate for higher rate taxpayers. Small Cap News calculation: a higher rate owner with a £1 million gain pays £180,000 today, before the annual exempt amount. From 6 April 2027, with only £500,000 covered by the relief, the bill rises to £210,000, which is £30,000 more. The Treasury says three quarters of BADR claimants will still get relief on their whole gain.
Who Founders' Relief is for
The technical consultation sets tight conditions. The founder must have held 25% of the shares when the trade began, held shares for five years and been UK resident for five tax years. The company needs at least £10 million of turnover and 15 qualifying full-time employees in the year before the sale, and must pass two of three tests: 25% average annual turnover growth, 25% headcount growth, or at least £1.5 million of qualifying R&D spending. BADR claimed from April 2027 reduces the £10 million limit. The consultation closes on 30 November 2026.
Cost and reach
The Budget scorecard puts the cost of the trading allowance at £225 million in 2028 to 2029 and £180 million in 2031 to 2032. Founders' Relief costs £260 million in 2027 to 2028, rising to £300 million by 2031 to 2032. The BADR cut raises £60 million in 2027 to 2028 and £305 million by 2031 to 2032.
Key facts
- Trading allowance rises from £1,000 to £3,000 on 6 April 2027
- Self Assessment trading income reporting threshold also rises to £3,000
- BADR lifetime limit falls from £1 million to £500,000 on 6 April 2027; the rate stays at 18%
- Founders' Relief: 10% CGT on up to £10 million of lifetime gains from 6 April 2027
- Consultation on Founders' Relief closes 30 November 2026
Source: HM Treasury, Budget 2026 (gov.uk), HMRC "Budget 2026: Overview of tax legislation and rates" (gov.uk), HM Treasury "Founders' Relief: technical consultation" (gov.uk) and the response to the Tax Support for Entrepreneurs call for evidence, published 28 October 2026. See also: Data & Surveys, Funding and how to send us your news.