A new Prime Minister always brings a fresh round of tax speculation. With Andy Burnham entering Downing Street and John Healey taking over at the Treasury, taxpayers, investors, business owners and retirees are naturally asking whether significant reforms are on the horizon.
The reality is that, while there have been hints and headlines, there is currently more speculation than certainty. For now, the most important tax changes are not the ones that Burnham and Healey might introduce, but those that are already scheduled to take effect over the coming years.
That said, the views both men have expressed over the years could offer some clues about the direction of travel.
A difficult economic inheritance
The new Prime Minister and Chancellor inherit a challenging economic backdrop. Government debt remains high, public spending pressures continue to mount, and economic growth has been weak. At the same time, there are competing demands for more spending on defence, healthcare, social care and infrastructure. The challenge will be finding ways to fund government priorities while maintaining fiscal credibility and avoiding negative market reactions.
Both Burnham and Healey have indicated support for the Labour Party’s fiscal rules and have so far maintained commitments not to increase the main rates of income tax, VAT or employee National Insurance. If that position holds, any revenue-raising measures may need to come from elsewhere.
“The greatest challenge facing the UK’s tax system is no longer simply the level of taxation, but the uncertainty surrounding it.”
David Morley, Head of Wealth Structuring, Blevins Franks
Income tax: pressure to ease the burden?
One area attracting attention is income tax thresholds. Fiscal drag has become an increasingly important source of revenue for the Treasury. While headline income tax rates have remained unchanged, frozen allowances and thresholds have steadily pushed more taxpayers into higher bands.
Burnham has previously suggested that the personal allowance deserves closer attention and has spoken about the impact threshold freezes have had on lower earners. Whether he can translate this into actual policy remains to be seen.
Taxpayers would welcome any increase in the personal allowance. However, given current pressures on public finances, significant reforms could prove expensive. Many observers expect the government to proceed cautiously rather than announce sweeping income tax reductions.
Could capital gains tax face renewed scrutiny?
There has been recurring speculation that future governments could seek closer alignment between capital gains tax rates and income tax rates. Such a move would increase the tax burden on many investors and business owners but could potentially raise substantial revenues for the Treasury.
Supporters argue that wealth and investment gains are often taxed more favourably than earnings from work. Critics counter that higher CGT rates could discourage entrepreneurship, investment and business succession.
At present there are no formal proposals on the table. However, if the Treasury seeks additional revenue while keeping promises not to raise income tax rates, capital gains tax could remain firmly in the spotlight.
Will the wealth tax debate return?
Since Labour’s 2024 election victory, there has been periodic discussion of wealth taxes. Burnham has previously argued that assets may be taxed more lightly than earned income and has sometimes advocated reforms to property and wealth taxation. However, he has stopped short of explicitly supporting a comprehensive annual wealth tax.
The practical challenges are considerable. Wealth taxes can be complex to administer, difficult to value accurately and politically controversial. Many economists believe governments are more likely to target specific assets or reliefs than introduce a broad-based wealth tax. Nevertheless, the debate is unlikely to disappear, particularly as the Treasury searches for ways to fund growing spending commitments.
Inheritance tax may be the area to watch most closely
Perhaps the greatest uncertainty surrounds inheritance tax (IHT).
Burnham’s past support for replacing the current inheritance tax system with a lower-rate levy on a broader range of estates has resurfaced in recent media reports. More recently, Downing Street denied any immediate plans for a universal “death tax”, but social care funding remains a major government priority and political challenge.
Whether significant reforms emerge in this Parliament is impossible to predict, but inheritance tax is likely to remain under review as a potential source of funding.
For families, this matters because IHT receipts have been hitting record levels as property values have increased while allowances remain frozen – and more estates will become exposed to inheritance tax once pensions are included from April 2027.
Pensions remain vulnerable
Successive governments have looked at pension tax reliefs and allowances when searching for revenue. While no major pension reforms have yet been proposed by Burnham or Healey, uncertainty itself can be damaging. Rumours of pension changes often prompt investors to make rushed decisions that later prove unnecessary.
Blevins Franks Head of Wealth Structuring, David Morley, explains:
“Over recent years, the run-up to successive Budgets has become characterised by prolonged speculation over possible tax changes, particularly around pensions, capital gains tax and inheritance tax. That uncertainty has real-world consequences. Ahead of recent Budgets, many individuals accelerated financial decisions, including taking tax-free pension cash earlier than they had intended, because they feared long-standing reliefs might be withdrawn. In many cases, those changes never materialised, but the decisions were irreversible. Research since suggests many people later regretted acting on Budget rumours rather than on their long-term financial plans.”
We strongly recommend you take professional advice before making important pension decisions, especially if they are based on speculation.
Don’t forget the changes already scheduled for April 2027
While media attention focuses on what the new leadership might do, do not lose sight of changes that are already planned. Significant changes are already coming even if the new Chancellor makes no additional announcements.
Most notably, from April 2027 unused pension funds and certain pension death benefits are due to become subject to inheritance tax as part of an individual’s estate. This significant inheritance tax reform will affect many families who previously viewed pensions as an effective estate planning tool.
At the same time, tax thresholds are scheduled to remain frozen until 2031, meaning fiscal drag will continue pulling more people into higher tax bands.
There are also planned increases in tax rates on savings and rental income from 2027, alongside various administrative reforms affecting businesses and taxpayers.
What should taxpayers do?
It’s important to find the balance between staying ahead of potential tax changes and overreacting to speculation. Budget rumours often prove inaccurate and major tax changes can take years to consult on and implement. While taking action under today’s known rules can prove beneficial in some cases, in others acting on unconfirmed reports can lead to unintended consequences.
Navigating that uncertainty is difficult. Discussing your concerns and objectives with a professional financial adviser helps remove emotion from the decision-making process, allowing you to assess your options objectively and make informed choices based on your circumstances rather than media headlines.
For British expatriates and those considering relocating, taking advice is particularly important. The interaction between UK tax rules and overseas residency has become increasingly complex, especially regarding pensions, inheritance tax and cross-border estate planning. With the major pension/IHT change next year and the possibility of further UK reforms, reviewing arrangements may help avoid costly surprises and ensure your planning remains aligned with your country of residence and long-term objectives.
Every situation is unique and tailored advice is essential. Contact Blevins Franks today to review your tax and wealth management strategy and ensure your assets are structured as efficiently as possible.
We specialise in helping individuals and families organise, grow and protect their wealth. From tax planning and retirement strategies to investment growth and asset protection, our trusted specialists provide clear, tailored advice designed around your goals and your circumstances. Our focus is simple: to give you clarity, confidence and peace of mind.
