What the Budget means for gaming studios and their founders

Budget 2026 brought no meaningful change to the Video Games Expenditure Credit (VGEC), the tax credit studios claim on the cost of making games, even though the industry had pressed for it to be enhanced. The measures most likely to affect studios, developers and other games businesses lie elsewhere, particularly the Capital Gains Tax (CGT) payable by owners on a sale, the VAT cost for smaller studios using overseas developers and contractors, and the cost of employing staff.

The table sets out the main changes and when they apply, and each is explained in the sections below.

Measure	What it means	From
Business Asset Disposal Relief (BADR)	The 18% CGT rate on selling a qualifying business will apply to no more than £500,000 of lifetime gains, down from £1m.	6 April 2027
Founders’ Relief	A new 10% CGT rate on founders’ share sales, with detailed conditions still to be finalised. It appears designed for founders of larger, high-growth companies.	6 April 2027
VAT on overseas services	The reverse charge will be limited to VAT-registered businesses. Overseas suppliers will generally need to register for UK VAT and charge UK VAT on supplies to studios that are not VAT registered.	April 2027
National Living Wage	The minimum hourly rate for workers aged 21 and over increases 3.9% to £13.21.	1 April 2027
Company Share Option Plan (CSOP)/EMI 2	Employees can hold tax-advantaged options worth up to £120,000, twice the current limit, on top of any EMI options.	6 April 2027
Capital allowances	The first-year allowance on equipment rises to 50% and the annual writing-down allowance falls to 12%.	1 January and 1/6 April 2027 respectively
Corporate Interest Restriction	VGEC will no longer count as profit when working out the interest restriction for groups with more than £2m of net interest costs.	1 January 2027
Personal savings income	Income Tax on interest increases to 24%, 44% or 49% for basic, higher and additional rate taxpayers.	6 April 2027
Skilled Worker visa sponsorship	Certificate of Sponsorship fees and the Immigration Skills Charge paid by the employer become exempt from Income Tax and Class 1A NICs.	28 October 2026

How much tax will I pay if I sell my studio?

A founder selling their company will pay CGT on the gain, which for most will be charged at a rate of 24%. BADR cuts that rate to 18% on a capped amount of lifetime gains, and from 6 April 2027 the cap falls from £1m to £500,000. As the rate itself is unchanged, the maximum potential lifetime saving halves from £60,000 to £30,000.

Founders’ Relief is potentially considerably more generous, providing a proposed 10% rate on up to £10m of qualifying gains. However, the detailed conditions remain subject to technical consultation and, as currently proposed, set a high bar. A founder would need to have owned at least 25% of the shares when the company began trading and to have held them for at least five years, and before the sale the company would need turnover of at least £10m and at least 15 full-time employees.

The company would also need to meet two of three tests: strong growth in turnover, strong growth in headcount, or significant Research & Development (R&D) spending on which R&D tax relief was claimed in the three years before the sale. Few independent studios are likely to meet these conditions, and those that claim VGEC rather than R&D relief on their development costs may struggle with the R&D test, which leaves the relief open mainly to studios that have grown large quickly. On the basis of the proposed conditions, the relief may be available to relatively few founders of independent games studios.

If you are planning a sale, compare the tax due under the current rules with the position once the changes take effect in April 2027, as completing before or after 6 April 2027 could make a big difference to your net proceeds. Special rules apply to deals signed before that date and completed after it, so the timing of signing and completion both need planning.

Will using overseas developers change my VAT position?

Under current rules, when a UK studio buys services from an overseas supplier, for example freelance developers, advertising services, quality assurance (QA) or art contractors, the supplier does not charge VAT. The studio accounts for it instead under the reverse charge, and a studio that is not VAT registered must count those purchases towards the £90,000 registration threshold, which means its overseas spending alone, if large enough, can mean it is required to VAT register.

From April 2027, only VAT-registered businesses will apply the reverse charge. That removes the risk of being pushed into registration, but overseas suppliers will need to register for UK VAT themselves and charge UK VAT, generally at 20% on their invoices, which an unregistered studio cannot recover. For an unregistered studio, the VAT could therefore increase the cost of affected outsourced services by as much as 20%. Studios that outsource heavily should weigh that cost against registering voluntarily, which would let them reclaim the VAT, subject to normal VAT recovery rules, and groups with an overseas studio should check whether it now needs a UK VAT registration of its own.

What will it cost to employ and reward staff?

On 1 April 2027, the National Living Wage for workers aged 21 and over rises to £13.21 an hour. That increases the cost of roles commonly paid near the minimum, such as community management and player support, and is likely to lift junior developer salaries that sit just above it.

A Company Share Option Plan (CSOP) gives employees the right to acquire shares in the future at a price fixed when the option is granted. Provided the relevant conditions are met, no Income Tax or employee’s National Insurance contributions should arise when the option is exercised, with any subsequent increase in value generally falling within the Capital Gains Tax regime when the shares are sold. From 6 April 2027, the value of CSOP options that each employee can hold will increase to £120,000, twice the current limit. EMI options will no longer count towards that limit, and the permitted CSOP exercise period will be extended to 15 years. This will give growing studios greater scope to use equity incentives to recruit and retain senior employees

Studios hiring from abroad also gain. Where the employer pays the certificate of sponsorship fee and Immigration Skills Charge for a Skilled Worker visa, those payments are now exempt from Income Tax and are not treated as a taxable benefit in kind, so the employee is not taxed on them.

What else should studios know?

Equipment

Most studios can already deduct the full cost of PCs, development kits and servers in the year they buy them through the Annual Investment Allowance, so the capital allowance changes will not affect most new purchases. The main effect is to slow relief on older equipment still being written off over time.

R&D and VGEC claims

For R&D claims made from 1 April 2027, studios claiming relief on work such as engines or technical software development will no longer have to file a claim notification form in advance. HMRC will also simplify the Additional Information Form that supports R&D claims from autumn 2027. VGEC claims also require an Additional Information Form, so this is a welcome sign that the Government is moving towards lighter, not heavier, information requirements.

Borrowing by larger groups

Groups with net interest costs above £2m a year can face limits on how much interest they deduct from taxable profits. The calculation is detailed, and from 1 January 2027 VGEC will be excluded from the profit figure it uses, which will reduce the deduction for some larger, debt-funded groups. Most studios will not be affected.

Owners' savings

Income Tax on savings interest rises from April 2027, so owners who expect to hold large cash balances, such as sale proceeds, and earn interest on them, will pay more tax.

What should studios do now?

If you are planning a sale, compare the tax under the current and post-April 2027 BADR rules before agreeing heads of terms, the outline terms of the deal.
If you are not VAT registered, review overseas supplier contracts and pricing, and consider whether registering voluntarily would reduce your costs.
Build the new National Living Wage into 2027/28 payroll budgets and review share option schemes against the new CSOP limit.

To discuss how Budget 2026 affects your studio, contact our Gaming team using the form below.

This article reflects announcements made on 28 October 2026. Several measures remain subject to consultation and Finance Bill 2026-27.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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