HM Treasury has announced that the Autumn Budget will take place on 26 November 2025. We know that there is enormous pressure on the Chancellor, coming from:
- The Government’s fiscal rules
– The first is that day-to-day spending must be matched by tax revenues
– The second is the investment rule, which requires the Government to reduce net financial debt as a share of the economy - The pledge that the Government will not raise taxes on ’working people’, and there will be no increases to Income Tax, National Insurance, or VAT.
The combined effect is that the Government needs to raise funds but has left itself very limited room to manoeuvre in a challenging environment of lower economic growth and an inability to cut welfare costs. So what tax changes could it announce on 26 November? Stephen Kenny, a Partner in PKF Littlejohn’s Private Client tax team, examines the options.
What do we already know is changing?
Major tax changes have already been announced in last year’s Budget that will take effect in future tax years. These include:
- Significant changes to Business Property Relief and Agricultural Property Relief, restricting the available relief to £1million
- Reform of the UK carried interest regime from 6 April 2026
- Bringing undrawn pension within the scope of Inheritance tax from April 2027
- Income tax and National Insurance thresholds are already frozen to April 2028, it is likely we could see these extended.
What else can we expect?
There has been considerable speculation about the potential for the introduction of a wealth tax. The Government has repeatedly ruled this idea out – and we know from the countries where they have been introduced that they don’t always raise the funds expected and have the potential to damage the economy in the long run. However, the idea refuses to go away, in part because of repeated call from parts of the Labour Party and its supporters. This is a prime example of the challenges that the Chancellor will face balancing the economic reality and political ideology.
Given the tight restrictions placed on tax raising powers, it is reasonable to assume that any future increases will target ‘unearned’ income. The Government may therefore consider taxing investment income, capital gains, and further changes to pension and Inheritance tax.
Pensions
We already know that pensions will be coming within the Inheritance Tax net from 2027, but what further changes could be on the cards?
- Scrapping (or reducing) the 25% tax-free lump sum of up to £268,275?
- Ending higher rate relief on pension contributions?
- Ending salary sacrifice for employee pension contribution?This would be a significant blow for many employees and ultimately may discourage many from properly saving for their retirement.
Capital Gains Tax (CGT)
CGT rates were increased in 2024 (to 18% and 24%), and could potentially increase further. This could be combined with additional relief for the sale of business assets.
Aligning CGT rates and income tax rates remains a possibility, although this may have a detrimental effect, causing business owners to delay sales, meaning the Government won’t raise the amount expected from the reforms.
Property Taxes
There has been a lot of discussion of structural reform to Stamp Duty Land Tax and Council Tax. This could involve replacing Stamp Duty with a recurring property tax or updating council tax bands to reflect property value better.
Another option is to change Principal Private Relief, which currently exempts the full value of the main residence from CGT on disposal. This relief could be capped meaning if someone sells a high-value property – for example, a home worth more than £1.5 million – the gain above the limit will be taxable.
Alternatively, the government could introduce a new tax on high-value properties above a certain threshold.
Inheritance Tax
An option for the government here could be to Introduce a cap on tax-free transfers made in the donor’s lifetime. Rather than the existing seven-year rule, for example, there could be a lifetime cap on transfers.
Alternatively, there may be scope for the Chancellor to adjust the taper at which tax on gifts made in the seven years before death is charged. The rate of taper could be reduced or the period in which gifts are brought into charge could be extended to 10 years.
Whatever happens on 26 November, it is likely that the changes will have an impact on estate planning, investments and property. They could be especially tough on people who are asset rich but cash poor and require people to take a much more long term approach to their succession and wealth planning.
If you would like to discuss the impact of any of these changes, please contact Stephen Kenny.
First published in Professional Adviser.
