Autumn Budget predictions 2025 – Are further tax rises on the horizon?

With costs rising and record-high borrowing, analysts estimate Reeves will need to raise taxes or cut spending by around £20bn to meet her ‘non-negotiable’ financial rules, however, the government has limited scope for spending cuts if it is to honour its manifesto commitments. As a result, the Chancellor may need to think about material tax adjustments to convincingly balance the books, though political realities could dampen the final announcements. The government’s messaging that “the world has changed” can also be seen as softening the ground for tax rises, maybe even singeing the edges of some of those manifesto commitments.

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Personal tax rises

Business tax rises

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Personal Tax and pensions

Wealth Tax

The recent appointment of several economic advisers to the Prime Minister signals a possible shift in thinking at the heart of government. Notably, many of these advisers are known proponents of a wealth tax, an idea that continues to generate debate. While the Chancellor has so far dismissed the prospect, their influence may keep the conversation alive, especially as pressure mounts to find new sources of revenue amid growing fiscal challenges.

Income Tax

After Reeves’ pre-Budget speech, it was rumoured that the government would be breaking its manifesto commitment not to raise Income Tax. However, amid internal backlash and improved fiscal projections, the Government has now reportedly abandoned plans for Income Tax rises, including the rumoured 2p increase to the Basic Rate.

It is now being suggested we are more likely to see a further freeze on thresholds, and so while Labour’s manifesto pledge will remain officially intact, rising wages would push more earners into higher tax bands, increasing government revenue without altering rates.  

Reeves could also look at other measures that would technically comply with the manifesto while increasing the burden on high earners. One option could be the introduction of a new band above the current additional rate, targeting top earners without breaching existing commitments, but there may be further twists in the run-up to 26 November. 

Pensions

Pensions could face further reform, even following the planned introduction of Inheritance Tax changes from April 2027. Potential measures might include capping tax relief on contributions at 30% or reducing the annual pension contribution allowance from its current £60,000. These adjustments would mark a significant shift in how retirement savings are incentivised.

It’s also possible that the threshold for the annual allowance is reduced from the current £260,000 of income. Both were increased in 2020 to encourage doctors to stay in the NHS due to Covid, but this pressure has now lessened.

Inheritance Tax

After nearly two decades of stability, Inheritance Tax (IHT) could be poised for reform. Potential changes include the introduction of a lifetime gifting limit and an extension of the current ‘seven-year rule’ to ten years or more. There is also speculation that the Capital Gains Tax base cost uplift on death may be restricted, applying only to assets where IHT is actually paid. These adjustments would mark a significant shift in estate planning and wealth transfer strategy.

Capital Gains Tax (CGT) exit charge

Recent and anticipated tax changes are already influencing taxpayer behaviour, with many exploring overseas relocation to ease the financial burden. In this context, a Capital Gains Tax exit charge remains a viable option. Given the wave of departures ahead of the non-dom regime’s abolition, the decision not to introduce an exit charge simultaneously may appear to be a missed opportunity. Nonetheless, its eventual implementation would still serve to ensure that UK-generated gains are appropriately taxed for those affected.

Additionally, there are rumours that the Government could introduce a new levy targeting the sale of expensive residential properties, specifically those priced at £500,000 or more. This mansion tax could be simpler to administer than a broader wealth tax and might even serve as a substitute for Stamp Duty Land Tax, which many view as a barrier to property market fluidity.

CGT on residential property

Could we also see changes to CGT for residential properties? At present, the profits from the sale of a primary home are fully exempt from CGT, provided certain conditions are met. However, it has been reported that we could see an introduction of a cap on this exemption for properties valued above a specific threshold, potentially between £500,000 and £1.5 million. Such a move could lead to a notable increase in tax revenue from the sale of high-end homes.

Additionally, there are rumours that the Government could introduce a new levy targeting the sale of expensive residential properties, specifically those priced at £500,000 or more. This mansion tax could be simpler to administer than a broader wealth tax and might even serve as a substitute for Stamp Duty Land Tax, which many view as a barrier to property market fluidity.

National Insurance Contribution (NIC) on rental income

There is growing speculation that the Government may extend NIC to include rental income earned by private landlords, whether operating individually or through partnerships. Currently, NIC for the self-employed is levied at 6% on annual profits between £12,570 and £50,270, with an additional 2% applied to earnings above that threshold.

The precise mechanics of how this would be implemented remain uncertain. For instance, individuals who receive both employment or self-employment income and rental income might see these combined when calculating NIC liability. It’s also unclear whether landlords operating through a company, such as a sole shareholder or a ‘close company’, would be subject to the same rules.

The existing ‘rent-a-room’ relief, which exempts a portion of rental income from income tax, is expected to apply to NIC as well. Another unresolved issue is whether rental income subject to NIC would count as ‘pensionable earnings’ for the purpose of calculating pension contributions.

With the rollout of quarterly reporting under Making Tax Digital for income tax from 2026/27, HMRC would likely find it relatively easy to begin collecting NIC on rental income.

Partnerships could face employer NIC charges

Could Rachel Reeves be considering extending the equivalent of employer NIC to professional partnerships such as lawyers, accountants and doctors?

Currently, members of LLPs are classified as self-employed, which means they do not pay Employer NIC. However, this proposed change would introduce a new Employer NIC charge, aligning tax treatment more closely with that of traditional employees.

The research group Centax has produced a report comparing the NIC paid on partnership profits with NIC paid on employed earnings (including that paid by the employer), suggesting an extra NIC charge of 13.04% (a marginal tax increase for affected partners of around 6.9%) could realise £1.9bn annually for the Government. 

This would apply to partnership profits after taking account of a partner’s exempt amount (equivalent to the secondary NIC threshold) and a partnership allowance of £10,500 per partner.  It is suggested that a two-partner partnership would need to have profits of more than £90,000 to pay the increased NIC.

Concerns, however, remain about the impact on mid-level professionals and the broader economy, as well as how structuring responses to this proposed change could interact.

If implemented, the change would be expected to take effect from April 2026, marking one of the most significant shifts in partnership taxation.

Business tax

National Minimum Wage

2026-27 National Minimum Wage (NMW) and National Living Wage (NLW) rates are expected to be confirmed in the upcoming Budget. The Low Pay Commission (LPC) currently projects a 4.1% rise in the NLW to £12.71per hour for workers aged 21+, keeping it at least two-thirds of median earnings. The final rate may range from £12.55 – £12.86, depending on economic conditions. The government is also considering aligning the 18–20 year old NMW rate with the NLW, simplifying the structure and improving fairness, though this could mean a sharper increase if done in one step.

The Fair Work Agency (FWA), launching in April 2026 under the Employment Rights Bill, will also strengthen enforcement of minimum wage laws as well as holiday pay and statutory sick pay, marking a shift to proactive, state-led enforcement to protect vulnerable workers and ensure fair pay.

With all these changes, NMW compliance will only become more important and critical for businesses, as demonstrated by the recent 500 employers who were named for underpaying workers, given the complex technicalities that need to be adhered to.

Apprenticeship Levy

With the rebranding to the “Growth & Skills Levy” already underway, a relatively low-friction option might be increasing the Apprenticeship Levy from its current 0.5% on paybills over £3 million. This adjustment could be positioned as part of a broader investment in workforce development, potentially more palatable than changes to NIC or income tax.

National Insurance Contributions

Less popular, however, would be revisiting employer NIC easements. At present, employers pay no Class 1 NIC for workers under 21 or qualifying apprentices under 25. Removing this relief, especially alongside the extension of the National Living Wage (NLW) to those aged 18 and over, could impact hiring decisions and shift the profile of entry-level employment.

A more complex and potentially disruptive proposal would be to apply Class 1 employer NIC to pension contributions, either directly, or apply employee and employer Class 1 NIC to an amount over a Pension Salary Sacrifice threshold limit (£2,000 currently being mooted in the media). This would significantly increase costs for employers, undermine the benefits of pension salary sacrifice schemes, and risk dampening enthusiasm for workplace pension investment. Such a move could widen the gap between private and public sector pension provision.

Employment related tax exemptions

On a more positive note, there may be scope for enhancing certain employment-related exemptions. Raising the annual function exemption from £150 to £250 per head could stimulate spending in the hospitality sector while helping employers better recognise staff contributions. Similarly, increasing the Trivial Benefit and Long Service Award thresholds would reflect inflationary pressures; many employers now struggle to stay within the £50 limit for simple gestures like birthday flowers.

Vehicle related tax benefits

Finally, vehicle-related benefits may come under further scrutiny. Following the April 2025 changes to double-cab pick-ups, we could see updates to the definition of carbon-efficient vehicles under Optional Remuneration rules, the introduction of a “fuel benefit” charge for private electric charging of company cars and a review of van benefit calculations. However, any significant changes here would need to be carefully balanced against the government’s green agenda and its commitment to supporting working people.

Equity Reward & Share Schemes

While we do not anticipate any direct changes to share incentive plans under a Labour Government - given its historical support for employee ownership - there is a possibility that broader tax reforms could indirectly affect the attractiveness of these incentives.

One area of speculation is a potential increase in capital gains tax rates. If implemented, this would not eliminate the benefits of tax-efficient share incentives, but it could diminish their overall efficiency. However, assuming capital gains tax rates remain below income tax rates - and factoring in the additional burden of National Insurance— share incentives falling within the capital gains tax regime are still likely to offer meaningful tax advantages and remain worthwhile.

Should there be adjustments to income tax, such as the introduction of a new higher-rate band, this could impact non-tax-advantaged share incentives. In particular, employees choosing options may find themselves pushed into the highest tax bracket, reducing the net benefit of such schemes.

The Enterprise Management Incentive (EMI) scheme, introduced by a Labour Government in 2000, has proven to be a resilient and highly effective tool for smaller businesses. Given its longstanding success and alignment with Labour’s pro-employee stance, expectations have been raised that there may be positive developments with rumours of an increase in the individual EMI value cap (currently £250,000), which has been unchanged in 13 years.

Other hoped for changes include expanding EMI eligibility to larger companies (currently limited to those with up to 250 employees and £30 million in gross assets), or raising the individual limit under the Company Share Option Plan (CSOP), which currently stands at a relatively modest £60,000.

VAT

VAT reform is another area reportedly under consideration, though any changes will need to be handled with care. A rise in the headline rate seems unlikely; it would breach a manifesto pledge and risk fuelling inflation at a time when household budgets are already stretched. That said, the Chancellor still has room to manoeuvre.

One option could be lowering the VAT registration threshold, currently set at £90,000. A reduction to the rumoured £30,000 would bring many more of the UK’s 5.5 million small businesses into the VAT system, potentially raising around £2 billion. While this would increase compliance obligations and force some businesses to choose between absorbing the cost or raising prices, it could also allow them to reclaim VAT on expenses and reduce the distortion caused by the current “cliff edge” threshold.

Another area ripe for reform is the notoriously complex zero-rating of food. The current rules, where chocolate-covered cakes are zero-rated but chocolate-covered biscuits are not, have led to years of litigation and confusion. With zero-rating costing the Treasury £25.6 billion in 2024, even modest changes could generate significant revenue. Options range from removing zero-rating entirely, applying a reduced rate (such as 5%) to certain categories, or targeting specific items like ultra-processed foods. However, any shift here would need to be carefully framed to avoid public backlash and unintended inflationary effects.

There has also been speculation around extending VAT to private healthcare, though recent comments from Health Secretary Wes Streeting suggest this is unlikely to materialise.

Finally, the Chancellor could explore introducing a new higher rate of VAT for luxury goods and services. This would target those with greater disposable income, rather than affecting everyday essentials, would also add further complexity to an already intricate tax system.

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Previous changes that will be introduced from April 2026 and April 2027

Business Relief (BR) and Agricultural Property Relief (APR) will be restricted

Only the first £1 million of combined agricultural and business property will qualify for BR and APR relief at 100% from April 2026. Any value above £1 million will only obtain relief at 50% (effectively reducing the main IHT rate from 40% to 20%).

In addition, the rate of BR that applies to AIM shares will be reduced from 100% to 50% from April 2026, without the first £1 million receiving 100% relief.

Read more on these changes

Taxation of pension death benefits from April 2027

From April 2027, pension funds will be subject to Inheritance Tax (IHT). Proposals suggest the individual's nil rate band will be apportioned between the normal estate and the pension fund, leading to a complex calculation of how much tax is due on and from the pension fund and how much comes from non-pension assets.

Read more on these changes