The UK Autumn Budget 2025 is fast approaching. The UK’s anaemic economic growth may necessitate further tax increases to meet the government’s spending commitments and fiscal rules.
Updated 13.11.25
As we approach budget day on 26 November, speculation has mounted over which tax measures the Chancellor will include this year. After the Office for Budget Responsibility downgraded productivity forecasts, it is estimated that the government needs to fill a black hole in public finances of between £20 billion to £30 billion.
On 4 November, Rachel Reeves delivered an unprecedented pre-budget speech in Downing Street, which set the scene for broad tax rises.
The Chancellor said that she will “make the choices necessary to deliver strong foundations for our economy” and to prevent a return to austerity, against a background of sluggish growth, high borrowing costs and persistent inflation. She explained that everyone will have “have to contribute” and do their bit.
However, she refused to be drawn into any specifics of what she is planning for the budget.
Here we look at seven potential areas Chancellor Rachel Reeves may be focusing on as she plans her budget.
1. 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 thresholds 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.
2. 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.
On 11 November, the Telegraph reported that Treasury officials had ruled out any cuts to the amount of lump sum that can be taken tax free. This follows reports of many retirees rushing to take early lump sums to avoid being hit by higher taxes.
Remember, 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.
3. 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.
4. 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
5. Income tax thresholds
The government would have hoped to maintain its manifesto pledge to not increase income tax rates, but the possibility has increased since the Chancellor’s 4 November speech. The Times reported that the Chancellor is seriously considering a two-pence rise in income tax but alongside a two-pence cut to National Insurance. This would protect workers while targeting landlords and pension income.
In any case, she 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.
6. 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.
7. 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 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.
With offices in the UK and across southern Europe, Blevins Franks can support you whether you are considering leaving the UK, have no intention of moving, or are already an expatriate. We will help you determine the best solutions to protect your wealth based on your situation and goals. If moving abroad is an option, we have in-depth knowledge of taxation in France, Spain, Portugal, Cyprus, Malta and Monaco, and how to use their tax regimes to your advantage – you may be pleasantly surprised at how much tax you could save.
Contact Blevins Franks for an initial consultation today.
