Budget 2026 was laid before Parliament on 28 October 2026, and for anyone who owns, buys or refinances commercial property, the most important pages are not the tax tables. They are the forecasts. Borrowing costs, rental demand and lender appetite all take their cue from inflation, growth and the gilt market, and the Budget sets out where the Office for Budget Responsibility (OBR) thinks those are heading. This guide starts there, then walks through the measures that matter most to owner-occupiers and property investors: business rates, capital allowances, Business Asset Disposal Relief, property income tax and SME finance.
The Budget's own summary is that it "rejects broad-based tax rises" and leaves the headline rates of income tax, National Insurance and VAT unchanged (Budget 2026, Executive summary). That is broadly true at the headline level, but several targeted changes land squarely on property owners, and the timing of most of them is April 2027.
The economic picture behind borrowing costs
Inflation has turned up again
The backdrop is an energy shock. The Budget points to the effective closure of the Strait of Hormuz from February 2026, which pushed Brent crude up by around 60% and UK wholesale gas up by nearly 200% by October (Budget 2026, paras 3.2 and 1.12). Consumer price inflation reached 3.5% in September, and the OBR expects it to peak at 3.8% in the first quarter of 2027 before returning to the 2% target by the third quarter of 2028 (paras 1.13 and 1.37).
On a year-average basis the OBR has CPI at 3.1% in 2026, 3.4% in 2027 and 2.1% in 2028 (Table 1.1).
What the Budget says, and does not say, about interest rates
This is the point most commentary will gloss over: the Budget gives no forecast or assumption for Bank Rate. Interest rate decisions sit with the Bank of England's Monetary Policy Committee, whose 2% CPI target is reaffirmed in the document (para 6.4). What the Treasury does offer is a qualitative picture:
- "Higher inflation has led to higher interest rate expectations, with households, firms and governments facing tighter financial conditions" (para 1.15).
- Since the conflict began, "UK gilt yields have increased broadly in line with the G7 average", with all G7 countries seeing borrowing costs rise to or near multi-decade highs (para 1.15).
- "Lower borrowing helps the Bank of England to reduce inflation, reducing mortgage costs for households and borrowing costs for businesses" (para 1.26).
No numeric gilt yield forecast is published either. The OBR does expect the government to pay an average of £14 billion a year more in debt interest than it forecast in the spring (Executive summary; para 1.21), and gilt sales for 2026-27 rise by £4.4 billion to £250.6 billion, weighted towards short-dated gilts (para 1.46; para A.11).
Why gilts matter to a commercial mortgage
Fixed-rate commercial mortgages are usually priced off swap rates, which move closely with gilt yields, plus a lender margin. Variable-rate loans track Bank Rate or SONIA. So when gilt yields rise, new fixed-rate offers tend to follow, and stress-tested affordability tightens. Because lenders test interest or debt service cover at a stressed rate, higher market rates shrink the loan a given rent or profit can support, even when the property value is unchanged.
The honest reading of Budget 2026 is that it aims to ease the pressure over time by keeping government borrowing in check, but it does not promise lower rates on any timetable. Borrowers planning a purchase or refinance in the next 12 to 18 months should model their numbers at today's pricing with headroom, rather than banking on cuts.
Growth and business investment
The OBR has nudged 2026 growth up to 1.2%, but expects it to slow to 1.0% in 2027 "as the impacts of higher energy prices feed through to consumers and businesses and higher interest rates weigh on the economy", before recovering to 1.6% in 2028 and 1.8% in 2029 (para 1.32).
Business investment tells a split story. Outturn has been strong, with growth of 4.8% in the first half of 2026, driven largely by buildings and structures, intellectual property and machinery (paras 1.7 and 1.8). The forecast, though, is flat: 0.0% for 2026 as a whole and minus 0.5% in 2027, recovering to 1.0% in 2028 (Table 1.1).
That points to a cautious 2027, with lenders looking closely at trading resilience.
Business rates: big changes for retail, hospitality and leisure
The most generous measures in the Budget go to retail, hospitality and leisure (RHL) premises in England, all from 1 April 2027:
- Small Business Rates Relief for RHL properties. The threshold for 100% relief rises from a rateable value of £12,000 to £18,000, and the tapered relief threshold from £15,000 to £21,000. The Treasury says around 70,000 more high street businesses will be taken out of rates altogether (paras 6.190 and 3.22). These higher thresholds apply only to qualifying RHL properties, not offices or industrial units.
- Pubs, social clubs and live music venues. Relief rises by 20 percentage points, from 15% to 35%, except for venues with a rateable value of £1 million or more (para 6.189). The average saving is put at over £3,000 per pub next year (para 3.21).
- A real-terms freeze. Bill increases for qualifying RHL properties are capped by CPI inflation in 2027-28 and 2028-29 (para 6.191). The cap does not cover increases from improvements to the property.
The Treasury's summary is that "half of all RHL properties in England will not pay business rates at all" (para 3.23). Not everyone gains: vape shops and Adult Gaming Centres lose access to the RHL multipliers from April 2027, and vape shops also lose Small Business Rates Relief (para 6.195). Ratepayers whose bills fell or rose only slightly at the 2026 revaluation will keep paying the 1p Transitional Relief Supplement for two more years (para 6.193).
The document does not publish 2027-28 multiplier values, so it is too early to say what any individual bill will be. For an owner-occupier, though, lower occupancy costs feed straight into trading profit, and that is the figure a lender uses to judge whether the business can service a mortgage.
Capital allowances: faster relief up front, slower relief after
The Budget keeps corporation tax capped at 25% and keeps full expensing (para 2.54). It changes the main rate pool in two directions:
- The main rate first-year allowance rises from 40% to 50% for expenditure incurred on or after 1 January 2027.
- The main rate writing-down allowance falls from 14% to 12% from 1 April 2027 for corporation tax and 6 April 2027 for income tax (para 6.251).
Overall this raises money (£765 million in 2027-28, Table 6.1 item 58), because businesses with large existing pools get relief more slowly. The document does not set out exactly which assets the 50% allowance covers or how it interacts with full expensing, so take advice before relying on it. For owner-occupiers planning a fit-out, new plant or machinery in their premises, the timing of spend around January and April 2027 is worth discussing with an accountant.
Selling up: Business Asset Disposal Relief halves
For owner-managers whose company owns its premises, this may be the change with the largest single impact. The lifetime limit on gains eligible for Business Asset Disposal Relief, which gives an 18% rate of capital gains tax, falls from £1 million to £500,000 for disposals made from 6 April 2027 (para 6.261). The Treasury says three-quarters of claimants will still get relief on their whole gain (para 2.53).
A new Founders' Relief, a 10% rate on up to £10 million of lifetime gains, is aimed at founders of "high-growth, innovative companies" and is still subject to consultation (para 6.257). It should not be assumed to cover ordinary trading businesses. No change to headline capital gains tax rates is announced.
If a sale of the business, or a separation of the property from the trading company, was planned for 2027 or 2028, the 6 April 2027 date now matters. Selling the trade while keeping the freehold, or moving the property into a separate structure, each carries tax and lending consequences that need professional input.
Landlords: property income tax rises
Individuals with rental income face higher rates from 6 April 2027. Property income will be taxed at 24% (basic), 44% (higher) and 49% (additional) across England, Wales and Northern Ireland (para 6.246). This combines Budget 2025's two-point increase with a further two points announced now (para 2.50). The government will also consult on wider third-party reporting of property income data (para 6.157).
This hits personal landlords, including owners of a shop with a flat above who let the flat in their own name. Company landlords pay corporation tax, so the change does not apply to them directly, although the Budget itself does not comment on ownership structures. Scotland is not covered by this measure.
For lenders the effect is indirect: rental cover is usually tested on gross rent, but a higher tax bill leaves a personal borrower with less spare cash.
SME finance and the British Business Bank
The British Business Bank receives an extra £5 billion of capacity, taking it to £30.6 billion. That funds a £6.5 billion expansion of the Growth Guarantee Scheme, £165 million for community lenders and a new £450 million venture debt product (para 4.46). Since inception the Bank has guaranteed £16 billion of lending and supported more than 260,000 businesses (para 4.42).
The Budget does not say whether Growth Guarantee Scheme lending can be used to buy property, so it should be treated as a working capital and growth tool rather than a mortgage substitute. The Chancellor also asked the Financial Policy Committee to deliver its bank capital reforms "quickly" (Box 4.E), and a Strategic Sites Accelerator will mobilise around £700 million for strategic commercial sites (para 6.98). The Budget makes no claim about commercial mortgage volumes.
What to do now
- Re-run your numbers at current pricing. With no Bank Rate path in the Budget and inflation still rising into early 2027, assume today's fixed-rate levels when testing affordability, and build in a margin for a higher stress rate.
- Check your rateable value. If you occupy retail, hospitality or leisure premises in England with a rateable value up to £21,000, the April 2027 relief changes could reduce your costs. Lower overheads improve the trading profit lenders assess.
- Diarise 6 April 2027. It is the date for the BADR limit, the property income tax rise and income tax capital allowances changes. Speak to your accountant about the order of any sale, restructure or capital spend.
- Review personal property holdings. Landlords holding semi-commercial or mixed-use property personally should look at the net effect of the higher rates on their cash flow before refinancing.
- Start early on refinancing. Fixed-rate offers usually have a limited validity period. If your current deal ends in 2027, begin conversations six months ahead so you can compare options.
Key dates
- 28 October 2026: Budget laid; some measures effective immediately.
- 1 January 2027: main rate first-year allowance rises to 50%.
- Q1 2027: OBR forecasts CPI inflation to peak at 3.8%.
- 1 April 2027: RHL business rates reliefs, pub relief increase and corporation tax writing-down allowance change take effect.
- 6 April 2027: BADR limit falls to £500,000; property income tax rates of 24%, 44% and 49% apply.
- Q3 2028: OBR expects inflation back at the 2% target.
Brought to you by Business Mortgages Broker
This guide was prepared with Business Mortgages Broker, which arranges owner-occupier business mortgages for UK trading companies buying or refinancing the premises they trade from. Its founder, Matt Lenzie, has 25 years in financial services, raising debt and equity, and has arranged around £400m of property finance.
Source: HM Treasury, Budget 2026 (HC 726), 28 October 2026. This article is general information only and is not tax or financial advice. Commercial Mortgages Broker is not authorised by the FCA and does not give regulated advice or personal recommendations.