What UK tax rises can we expect next?
Seven areas the Chancellor may target in the November budget
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
The UK Autumn Budget 2025 will be delivered on 26 November. The UK’s anaemic economic growth may necessitate further tax increases to meet the government’s spending commitments and fiscal rules.
As we approach budget day, speculation is mounting over which tax measures Chancellor Rachel Reeves will include this year. While the government remains tight-lipped so far, that has not stopped growing debate over its next tax moves.
With the Labour government keen to avoid raising income taxes on working people, it is likely to focus on taxing wealth more heavily.
Here we look at seven potential areas Chancellor Rachel Reeves may be focusing on as she plans her budget.
- Inheritance tax (IHT)
While the 2024 budget already targeted inheritance tax, further reforms could be implemented, particularly to gifts.
The Chancellor could opt to reduce or remove the current gift reliefs. She could also change the Potentially Exempt Transfer (PET) rules by revising the taper relief rate bands that apply and extending the seven years you need to live after making a tax-free gift to ten years. The Telegraph reported that the Treasury is considering a lifetime cap on the value of gifts that you can make before you die.
Last year’s budget extended the freeze on the two inheritance tax bands to 2030. This could be extended again, if not this November then in a later budget.
Confirmed IHT reforms from the 2024 budget:
- The agricultural property relief and business property relief will become much less generous from April 2026. From this date the 100% relief will only apply to the first £1 million of combined agricultural and business property. A 50% relief will apply to assets above this.
- Qualifying AIM shares (alternative investment market) are currently exempt from inheritance tax after two years of ownership. From April 2026 they will be subject to inheritance tax, but at a reduced rate of 20%.
- In a significant change impacting many families, from April 2027 inherited pensions will become liable for inheritance tax. This is in addition to the income tax levied on the beneficiary, so when your heirs receive the balance of your fund, they could pay an effective total rate of 67% if you die after the age of 75.
- Pensions
Significant media speculation has focussed on whether the Chancellor is considering targeting the 25% tax-free Pension Commencement Lump Sum. She could reduce the £268,275 limit, perhaps to £40,000, or lower the 25% tax free entitlement itself. There were similar rumours before last year’s budget, but the PCLS was untouched.
Note that no changes have been announced and this is just a rumour at present, and if you do take the PCLS the decision is irreversible. Pension decisions should be aligned to your long-term retirement objectives, rather than on media speculation.
- Capital gains tax (CGT)
It would not be a great surprise if the government opts to align capital gains tax rates with income tax ones, an idea which has been floated around for several years. Although the main CGT rates increased last year to match those applied to real estate, the top 24% rate is far below the top 45% income tax rate.
The capital gains tax allowance could also be cut, though the annual exempt amount has already dropped from £12,300 in 2022 to £3,000 in 2024.
Before the October 2024 budget rumours and speculation prevailed about a potential ‘double death tax’, and this has resurfaced. In this case, capital gains tax would be applied on top of inheritance tax when assets are passed on death. The Office of Tax Simplification is one of several think tanks which has suggested this in the past.
Currently, when someone dies, their estate is only liable to inheritance tax. Beneficiaries basically acquire the assets at the current market value, and if they later sell the asset, they are only taxed on the gains made from the date of death. These rules could change so that death is treated as a disposal of assets, and gains arising from purchase date to date of death are taxed at CGT rates up to (currently) 24%. The net value of the whole estate would then be assessed for 40% inheritance tax.
- Other investment taxes
Dividends – The dividend allowance could be abolished and/or the tax rates increased.
ISAs – The government is keen to encourage equity investment, and may therefore reduce the cash ISA limit while maintaining the equity contribution at £20,000
- Income tax thresholds
The government will want to maintain its manifesto pledge to not increase income tax rates, although some have called for this pledge to be reconsidered. In any case, it can still increase income tax revenue by extending the freeze on income tax thresholds beyond 2028.
This approach has proved very effective at drawing more earners into higher income tax bands. For example, this tax year over 7 million people are expected to fall within the 40% income tax band – a 60% increase since the Conservative government first froze thresholds in 2021-22. The Office for Budget Responsibility (OBR) expects that extending the freeze to 2029-30 would raise an extra £48 billion.
Considering last year’s budget pledged to end the freeze in 2028, the government may choose to wait another year before announcing an extension (if they do extend it at all).
- Landlords and rental income
Landlords have been hit by many tax measures over recent years, but there may be more to come.
Many speculators suggest that the taxation of rental income may be brought in line with taxation on employment income. This income could become subject to National Insurance Contributions, and/or tax rates aligned with income tax bands.
- A wealth tax
Speculation over a wealth tax and what form it could take has been building for months, especially after prominent figures within the Labour Party, such as Lord Kinnock, have expressed support for implementing a tax on wealth. In July, a cross-party group of MPs called for a debate on wealth tax, suggesting an annual 2% tax on assets over £10 million would raise £24 billion a year.
The Chancellor is perhaps more likely to opt (if at all) for a tax on higher value property than on total wealth. For example, she could replace stamp duty with an annual tax on high-value property, potentially homes over £500,000. Council bands have not been changed since 1991 and could be updated so that so high-value properties/regions pay more tax while lower value ones pay less. Another option is to amend the capital gains tax exemption for primary residences, so homes over a certain amount become subject to tax.
While a wealth tax would be a bold move, other countries impose a full or partial versions. For example, Spain levies a tax on total worldwide wealth, France used to but now limits it to real estate assets, while Portugal applies a tax on local high value properties.
Looking ahead
While some tax reforms are announced in advance and implemented from the start of future tax years, others can apply instantly, leaving little or no time to respond. Last year’s immediate capital gains tax hike and the extension of the pensions overseas transfer charge to EU QROPS caught many people out.
Other than the pensions/inheritance tax reform, which is confirmed, the other tax rises discussed here is just speculation for now. It is a summary of potential tax reforms that have been circulating in the media recently. While some policy issues may be under discussion, no official announcements have been made. Any eventual changes to tax policy, including timing, thresholds and scope, could differ significantly.
It is fair, however, to expect that there are further tax rises to come. The Chancellor has to meet the government’s fiscal rules, at a time when UK growth remains sluggish, the Spring Spending Review allocated substantial additional funding to defence and the NHS, and borrowing has been higher than expected. She will be looking for ways to raise revenue and/or cut costs, and taxing the wealthy is less likely to anger voters than other avenues.
While UK tax reforms of course hit UK residents the hardest, British expatriates are often impacted too. The tax on QROPS transfers last year and IHT being applied to pension funds are prime examples.
If you are concerned about what the future holds, take professional advice for your circumstances and objectives, to determine if there any steps you can take to protect your wealth and legacy.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
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