Reportedly the Labour Government needs to find an additional £40bn in tax from the Autumn Budget 2025.
Arguably some of this is due to the impact of the increase to employers’ NIC, the knock-on effect to inflation, unemployment, Government interest payments, and the U-turn on pension benefits. But never mind the causes. The important question is what might the Government do next to get more tax out of the UK population, and what does this mean for you?
Will manifesto tax pledges hold?
Rachel Reeves pledged not to raise taxes for “working people”. This appears to mean no increase in income tax or NIC rates on employees, and no change to the VAT rate.
Changing these would solve her problem quickly, but is probably unlikely. Which means she needs to find other ways to raise the money. She and her Treasury colleagues also need to be careful of unintended consequences. Hopefully this year’s tax changes will be more thoughtful and considered than those in 2024.
Possible areas for tax changes
Pensions
- Abolish or restrict the tax-free lump sum?
- Bring back the lifetime limit on pension savings, taxing higher-value pots?
- Restrict tax relief on contributions?
- Abolish NIC relief on employer contributions?
ISAs
- Reduce the annual allowance (currently £20,000)?
- Withdraw tax-free status?
Capital gains tax (CGT)
- Increase CGT rates?
- Restrict or withdraw reliefs (e.g. business incorporation relief)?
- Note: the rate of BADR (Business Asset Disposal Relief, formerly Entrepreneurs’ Relief) already rises from 14% to 18% in April 2026.
- Restrict the tax-free allowance on selling a primary home?
Stamp duty
Multiple Dwellings Relief was abolished in England in 2024, but it still applies in Wales and Scotland. This could be aligned across the UK in the next Budget. Stamp duty rates could also be increased.
National Minimum Wage
An increase in the National Minimum Wage is almost certain.
Inheritance Tax (IHT)
Changes already scheduled:
- The £1m limit to Agricultural and Business Property Relief (APR/BPR) applies from April 2026.
- AIM shareholdings fall from 100% to 50% relief in April 2026.
- Pensions brought into IHT from April 2027.
Other possible moves include extending the 7-year gifting rule to 10 years, or adding a cap to lifetime giving.
Employment
The Government could look at restricting salary sacrifice or salary exchange arrangements, limiting the tax advantages currently available.
Small businesses
For small businesses, compliance and thresholds may tighten further. Making Tax Digital (MTD) starts in April 2026, and there could also be a reduction in the VAT registration threshold.
Buy-to-let
Another area under discussion is property income. National Insurance Contributions could be charged on rental income from buy-to-let properties.
What does this mean for you?
Is there an action you should consider before the October Budget? You need to be careful not to act under pressure, but if you were planning a transaction anyway, advancing it may be sensible.
- Taking a pension lump sum? Consider doing so before Budget day. (Always take advice from a regulated pensions adviser.)
- Selling an asset? Try to exchange contracts before Budget day.
- Incorporating your business? Do it before Budget day.
- Selling your business? Act before the BADR rate change in April 2026. Or look at an Employee Ownership Trust.
- Buying or selling property? Aim to complete before Budget day in case of stamp duty changes.
- With IHT changes to APR/BPR and AIM shareholdings already scheduled, review your estate planning now.
We’re experts in this area and happy to help. Get in touch at [email protected].
