Notches on the wall: a small business owner reads the 2026 Budget

I am a small business owner. I’ve worked hard for many years and continue to do so. I don’t have a dream to run a mega corporation or change the world.

If I strive for something, it is to secure a good future for my family, for my clients, for my staff and dare I say it – the community around me. For most small business owners this process takes years of dedicated work and like the proverbial ant you add a little bit to your estate if you’ve had a good year. Maybe, if you are financially inclined you even track this progress and rejoice that all your hard work is paying off.

And subconsciously I add a few notches on it with every new budget. Too grim perhaps?

Let’s dig in.

Let’s assume you are a small business owner who aspires to save enough so you can retire and live comfortably, maybe even travel a little, help your children in key moments of their life. You’ve heard of the 4% rule, you’ve done some planning on what you will need, maybe you even have a financial advisor.

So you start saving and investing.

50% of your net worth is in residential property – the equity in your own mortgaged home and one additional property you are renting out. A further 30% is locked in your private pension – you have been more prudent than most and have sacrificed current enjoyment so you have some security once you retire.

You have 10% in a stocks and shares ISA, so your money is earning a return in a world where inflation has outpaced interest for most of your living memory. A further 5% is sitting in a savings account – not really in an ISA wrapper, as this is more of an emergency fund and you have to dip in and out of it on a regular basis to smooth out the business profits you are relying on to cover your cost of living.

You’ve also heard that taking some bets on stocks and crypto, as long as you limit your exposure to a manageable % of your portfolio, is a good idea – so you’ve done some stock picking, crossed your fingers and bought crypto too for the final 5% of your net worth.

It’s that time of the year again and you see clips of the Chancellor brandishing a red briefcase and news clips start filtering through your social media channels –

You are thinking this does not sound too bad – hey, you may even get £100 towards your energy bills this winter if you meet some arbitrary criteria.

Then you get a call from your accountant. It is not good news – you will be paying 4 percentage points more tax on your rental property profit and on your cash savings too. And hey – that piece about holding tax rates and thresholds – it means you are worse off by about £700 a year if you earn £35,000, or £3,500 a year if you earn £65,000, compared with thresholds that had kept up with inflation since 2021. By 2031, someone starting on £35,000 will have paid around £6,500 more in total.

Hm, 4% is … I can deal with that. But then you remember you had to deal with a lot more in the last few years.

In 2017 they stopped allowing your biggest rental business expense – interest on the mortgage (by 2020 all you got was a 20% tax credit instead).

Then there was giving rights to councils to introduce whatever schemes they fancy to regulate the quality of the property you are renting. This resulted in large admin fees for the council, a flat that had more flashing emergency exit signs than the leisure centres from your youth and higher rent for your renters. Good thing you live locally to the rental property so you can spend the evenings doing any “remediation” work that the council has asked for. Paying a contractor would have cost an arm and a leg.

Then came the Renters’ Rights Act: you’ve heard the horror stories from friends where they cannot evict non-paying tenants for many months. And that recent ruling where the tribunal not just refused a rental increase but reduced the existing rent by around 12%.

You seriously thought about selling before this draconian legislation came into force. But you persevered, mostly because you did not see a real alternative to invest in if you sold. You wish you had sold – now is definitely a bad time with prices being where they are in your neighbourhood.

With your mood somewhat dented, your mind is grappling for something to bring back your usual positive self. Of course – you still have your pension. This has been a great investment for you – return over the last 10 years has far outpaced inflation and all works on autopilot with no late calls from tenants.

But wasn’t there some change that was not so good for you in the previous budget, or perhaps the one before it? You call back your accountant – no good news – if you are prudent enough not to spend all of your pension before you die, from April 2027 it falls within your inheritance estate and your children may have to pay 40% inheritance tax on it, and if you die after 75, income tax on top when they draw it: up to 67% in total.

Oh well, we will just have to spend it all, right? You’ve seen these YouTube videos about dying with zero, where billionaires commit to give it all away before they die. It will be a bit trickier for you of course – if you don’t time it right you may be eating beans in a cold room for a few years before the end – but you have done harder things.

The uneasy feeling is not going away so you check your savings balance to make sure you have enough to cover your expenses for 2-3 months if things turn really bad. You’ve seen the videos from France and you know you will not be able to recover quickly, if at all, if your shop gets burned.

All is good. Every day you can see the interest trickling in – it covers your coffee in the morning and a pint in the evening. This 4 point increase in tax will hardly make a difference.

But the accountant mentioned that the overall rate you will now be paying is getting on for half of the interest? You are weighing up whether you should cut the coffee or the pint.

At least there is the business. It never made it onto your net worth spreadsheet, but it was always the real retirement plan. You’ve had a couple of approaches over the years and you keep telling yourself that in five years or so you will find the right buyer, sell up and finally take that long trip.

You even did the sums once: a £1 million gain, 10% tax, £100,000 to HMRC and the rest is yours. You call your accountant one last time. The 10% became 14% last year and 18% this April. From April 2027 the relief covers only the first £500,000 and the rest is taxed at 24%.

Same sale, £210,000 in tax. You could sell now and pay “only” £180,000 – but nobody has offered to buy it this week.