What Rachel Reeves’ Budget Means For Tech, Innovation & SMEs

After months of speculation, more or less intentional leaks and a last-minute slip-up from the OBR—harshly criticised by Deputy Speaker Nusrat Ghani as she introduced the Chancellor Rachel Reeves in Parliament—most of us walked into today’s Budget Announcement knowing it was going to be all about raising taxes.

With more than £26bn in tax rises, there were no surprises there. The OBR forecasts that by 2031, public sector receipts will rise to 42.4% of GDP in 2030-31: a historic high. Fiscal drag, a £2,000 cap on salary sacrifice, an increase in dividend, property and savings income tax, as well as the so-called “mansion tax” were all ubiquitous in the media in the past few weeks, only to be confirmed today.

What has not yet made headlines, however, is a reassuring commitment of this government to high-growth SMEs, tech-sector businesses and cutting-edge research.

Improvements to Key Scale-Up Schemes

EMI, EIS, VCT

Although barely mentioned by the Chancellor in her speech, the official Budget Document released minutes after Reeves finished addressing Parliament explicitly confirms the government’s intention to widen eligibility for Enterprise Management Incentives (EMI) “to allow scale-ups to join start-ups in offering tax-advantaged shares to the talent they need to grow”, as well as for EIS and VCT “to allow investors to follow-on as companies grow beyond the start-up phase.”

However, the upfront VCT Income Tax relief will be reduced from 30% to 20% to align the scheme’s benefits with EIS.

R&D Tax Relief

Moreover, the document reads: “The government will pilot a targeted advance assurance service from spring 2026, enabling small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submitting to HMRC.”

While preliminary, if well executed this could be an extremely effective way to reduce the costs and time Founders invest in applying for R&D Tax Credits, and provide further reassurance to investors.

UK Listing Relief

The Chancellor briefly announced the new UK Listing Relief, a three-year exemption from Stamp Duty Reserve Tax for companies listing in the UK, which makes shares for newly exited companies more attractive to the market, giving them a leg up over larger, established public companies.

Our Take

While official guidance on the measures above is still due to be published, it is an extremely pleasant surprise to see that Starmer’s government hasn’t forgotten the importance of growing innovative businesses and the tax reliefs that have made the UK an entrepreneur-friendly economy in the past.

We will continue covering these measures as more guidance is released.

Changes to Remuneration & Income Tax

Minimum Wage Increases

In a significant shift for small business payrolls, the Chancellor confirmed a 4.1% increase in the National Living Wage, bringing it to £12.71 an hour starting next April. Perhaps more impactful for sectors relying on younger staff—such as retail and entry-level tech support—the minimum wage for 18-to-20-year-olds has seen a steep 8.5% hike to £10.85 per hour.

Placements, Apprenticeships & Visas

While intended to boost living standards, business groups and the Resolution Foundation have warned this sharp increase in minimum wage risks pricing younger workers out of the jobs market. To offset this risk, the government is pledging over £1.5bn to guarantee placements and apprenticeships for 18-to-21-year-olds who have been on Universal Credit, as well as eligible people under 25.

Reforms to the high-skill visa system have also been announced, to bolster international hires for specialised roles, especially in tech.

Salary Sacrifice and Pensions

A cap has been introduced on salary sacrifice schemes that previously allowed workers to make unlimited tax-free pension contributions. Under the new rules, both employees and employers must pay National Insurance on direct purchases above a £2,000 cap from net salaries.

This change reduces the attractiveness of such schemes, which are often used by competitive tech firms as part of remuneration packages to retain talent.

Dividend Tax Increase

Confirming most predictions, Reeves announced a 2% increase in the rates of income tax applicable to dividends, as well as savings and property income.

From 2026-27, the ordinary rate for dividends will be increased to 10.75% and the upper rate will be increased by 2 percentage points to 35.75%. The additional rate will remain unchanged at 39.35%, effective from April 2026.

Savings and property incomes will see a 2% increase across all brackets, taking effect from 6 April 2027.

Fiscal Drag Confirmed

Navigating around manifesto pledges, the Chancellor confirmed the income tax thresholds freeze for a further three years—until 2031—once the current hold lapses next April. While technically preserving tax rates, this fiscal drag is expected to pull more people into higher bands, raising an estimated £8.9bn.

Changes to Business Tax

Writing down allowance reduction

From April 2026, the government will decrease the main rate of writing down allowances by 4% to 14%. However, in order to keep encouraging growth, starting 1 January 2026 a new first-year allowance of 40% for main-rate assets will be introduced.

Energy Costs and Levies

To alleviate overheads for businesses and households, the Chancellor announced the removal of specific social and environmental levies from electricity bills. These costs have been transferred to general taxation. While a VAT cut on household energy was ruled out, this shift in levies is designed to lower unit costs for electricity, offering some relief to energy-intensive tech infrastructure and office operations.

Electric Vehicle Taxation

Impacting logistics fleets and the green technology transition, a new tax on electric car drivers has been introduced. The budget confirmed a 3p-per-mile tax on EV drivers, and 1.5p-per-mile on plug-in hybrids, a move the Treasury had been examining for some time to recoup revenue lost from declining fuel duty receipts.

Business Rates for Retail, Hospitality & Leisure

A long-awaited business rate for RHL businesses has been confirmed, introducing permanently lower tax rates for over 750,000 RHL properties, worth nearly £900 million a year. This will be funded through higher business rates for properties with rateable values of £500,000 and above, representing around 1% of properties.

CGT Relief for EOTs Halved

The current CGT relief available on qualifying disposals to Employee Ownership Trusts (EOTs) allows business owners to sell their shares without paying any CGT. To reduce the cost of this scheme, which has become more and more popular in recent years, the relief on these disposals will be reduced from 100% to 50%, effective immediately.

Personal Finance, Property, and Wealth

Mansion Tax

Once again confirming months of speculation, Reeves is introducing a High Value Council Tax Surcharge (HVCTS) in England for residential properties worth £2 million or more.

Effective from April 2028, this charge will be based on updated valuations to identify properties above the threshold and will be in addition to existing Council Tax. New charges start at £2,500 per year, rising to £7,500 per year for properties valued above £5 million, and will be levied on property owners rather than occupiers.

Savings and Investments

From 6 April 2027 the annual ISA cash limit will be set at £12,000, within the overall annual ISA limit of £20,000, effectively forcing savers to hold at least £8,000 out of their allowance in a stocks and shares ISA.

From our Partners at Rouse

For a deeper dive into how today’s Budget impacts personal tax, inheritance, property and wealth, please read the deep dive from our partners at Rouse, with insightful comments from our colleagues Paul Woodward and Oscar Wingham.