Budget Speculation: Are Tax Rises Looming?

The Chancellor, Rachel Reeves, gave a surprise ‘pre-Budget’ speech last week that appeared to pave the way for tax rises in the Budget on 26 November 2025.

What did she say?

The Chancellor’s scene setting speech outlined her priorities to cut NHS waiting lists, reduce the national debt, and improve the cost of living.

Quoting world challenges such as the continuing threat of tariffs, persistent inflation, the increasing cost of government borrowing, and pressures on public finances, the Chancellor acknowledged that productivity in the economy is weaker than previously thought.

This all means increasing pressure on revenue for the government.

The Chancellor indicated that her Budget would support businesses in creating jobs, innovating and protecting families from high inflation and interest rates. She further said: “If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit …”

This is the clearest indication yet that tax rises are coming for everyone. So, what could this mean for you in the Budget? Let’s explore some of the possibilities.

Changes already due to take effect in 2026 and 2027

There are still some measures announced in Autumn Budget 2024 that have not taken effect yet. These are:

• Capital Gains Tax (CGT): The rate of CGT where Business Asset Disposal Relief (BADR) applies will increase from 14% to 18% from 6 April 2026.  
• Inheritance Tax (IHT): Restrictions on 100% relief for business and agricultural property will take effect from 6 April 2026. Unused pension funds and death benefits will be brought into IHT estates from 6 April 2027.

In addition, the new Making Tax Digital for Income Tax (MTD for IT) becomes mandatory for self-employed individuals and landlords with turnover over £50,000 from 6 April 2026. While not a tax increase, there is an increase in compliance costs to those affected.

Predictions for Autumn Budget 2025

Manifesto promises included not increasing National Insurance, income tax or VAT rates. The October 2024 Corporate Tax Roadmap commits to keeping the small profits rate and marginal relief and not increasing the 25% main rate of corporation tax. Enhanced research and development tax reliefs and the £1 million annual investment allowance for plant and machinery capital allowances are also to be kept.

However, the Chancellor’s speech now casts a doubt on these commitments. Here are a few of the possibilities we could see.

• Freeze on income tax thresholds extended: Income tax thresholds and the tax-free allowance are currently frozen until 6 April 2028. This could now be extended to 5 April 2030, bringing more people into tax.  

• Increase to income tax rates: A one or two percentage point increase could be made to income tax rates. To generate sufficient tax revenues, it seems likely that the basic rate of income tax would need to be increased, not just higher rates.

• National Insurance and partnerships: A current hot topic is the suggestion that the government sees partnerships as receiving a tax break because partnership profits are distributed without having to pay 15% employers’ NI. This might result in the introduction of an additional partnership NI contribution for partners. Current speculation suggests this might be limited to LLPs rather than all types of partnership.  

• Flat rate relief for pension contributions: Pension savings are currently given tax relief based on the saver’s marginal income tax rate. This could be changed so that all savers receive the same flat rate of income tax relief. This would collect more tax from higher earners.

• Reduce pension income tax-free lump sum: Individuals can often take a tax-free lump sum from their pension when they reach retirement age. Reducing the amount that can be taken tax-free could be one of the options being considered by the Chancellor.

• Cut Cash ISA saving limits: It was reported earlier in the year that the Chancellor was interested in restricting the amount that can be saved into a cash ISA. Nothing has happened on this so far, however, this could form part of the Budget announcement.

• Increase the BADR rate further: The CGT Business Asset Disposal Rate is already due to increase to 18% from 6 April 2026. This could be increased further. Another CGT possibility is that the CGT rates could be aligned with income tax rates. This might mean the current 18% rate being increased to 20% and the current 24% rate being increased to as much as 40% or 45%.

• Cap Principal Residence Relief (PRR): When an individual sells their home they pay no tax, no matter how much they receive, as PRR is unlimited. However, another possible measure could see PRR being capped.

• Further restrictions to IHT reliefs: Possible measures could include changes to the Potentially Exempt Transfer (PET) regime, reducing or removing taper relief on gifts given three to seven years before the donor’s death, and introducing annual or lifetime limits on exempt giving.

• VAT: There could be a mixture of good and bad news for VAT. One possibility could be a cut to the 5% VAT rate on household energy. However, privately funded healthcare might perhaps be subject to 20% VAT, like private education.

What should you take away?

Of course, predictions and possibilities of what might happen are speculative. However, the Chancellor’s determination to stick to her fiscal rules that keep the financial markets happy, coupled with the need to generate additional revenue, strongly suggest that there will be some wide-ranging changes in the Budget.

We will keep you updated on the Budget and any changes it brings. If you would like to discuss your personal situation and whether there are any actions you could take before the Budget, please get in touch. We would be happy to help you!

See: https://www.gov.uk/government/speeches/chancellors-scene-setter-speech-ahead-of-budget-2025