With the UK economy stalling, hopes have faded that growth alone will be enough to avoid future spending cuts or tax rises. As the Government rules out reductions in major areas such as the NHS, pensions, and benefits—which together account for the bulk of public spending—attention turns to where the Chancellor might seek to raise additional revenue in the upcoming Autumn Budget on 26 November 2025.
In our latest blog, Matthew Denney, Tax Partner at Bevan Buckland, explores potential areas the Government may target for tax increases, shares insights based on conversations with clients, and offers his perspective on what businesses and individuals should watch for as the budget approaches.
The “Big Three”
Income tax, NICs, and VAT make up nearly 60% of total tax revenues. A manifesto not to increase taxes on “working people” is going to leave the Chancellor somewhat hamstrung. The Government got around this with the fudge of raising employers’ NI last but underestimated the impact it would have on growth. Had the Government consulted more widely, it might have gained a better understanding of this. The fact that the budget is later than ever this year highlights the problem you have when you rule out income tax and VAT rises.
The idea of increasing the basic rate of income tax by 2% and reducing employees’ and self-employed NIC by 2% is gaining currency. No overall increase for “working people,” but increasing taxes on pensions, investments, and, of course, landlords. That seems much neater to me than putting NI on rent but not on other savings income.
I expect the freezing of allowances will be too tempting and will continue beyond 2028. The amounts this can raise really move the dial. By 28/29, this could be as much as nearly £50bn.
Suppose they retain the triple lock but freeze personal allowances. In that case, they will need to find a more straightforward method than self-assessment to tax pensioners whose state pension exceeds the personal allowance. It is an interesting debate as to which would be the bigger vote loser – breaking the triple lock or pushing the state pension above the tax allowance and sending pensioners an annual tax bill in the post.
I am going to rule out increases to dividend rates of tax. There hasn’t been much noise about this, and as we have seen with employee NI increases, changes to and increases in the effective taxation on businesses will almost certainly dampen investment and are more likely to change behaviours than raise significant additional tax. A company needs to make profits and pay up to 25% corporation tax to pay dividends. Add the two together, and you get an effective tax rate of over 50%.
A Pure “Wealth Tax”
I cannot see a straight wealth tax being introduced. The numbers are enticing: 2% on assets over £10m would theoretically raise £24bn a year. The history of our tax system is constant tinkering. Nothing new that is too complicated to administer. I can think of some that were easy enough to administer, such as tax on enveloped dwellings or the soft drinks levy, but nothing new that needs a whole new department of HMRC to administer. It is easy to say it will raise £24bn, but designing and implementing? Any benefits are too uncertain and too far in the future to address the current problems. I don’t think the OBR will report favourably on such an approach, and so it will not help with the fiscal rules. We know from Wealth Taxes elsewhere in the world that they are not that effective. Spain’s version, the Solidarity Tax, introduced in 2023, raised less than £2bn in 2024.
I think it is getting more headlines than it deserves. It sounds great until you look at the practicalities.
The Other Wealth Taxes
I am now much less certain! Where else can the Chancellor go? We have already seen changes to IHT, including relief for businesses and farmers, as well as the removal of the IHT exemption on pension savings. What else can be done?
Council Tax
There is a logic to reforming council tax. There is logic and fairness to taxing property proportionate to its value. Alongside some dramatic reforms to reduce SDLT/LTT, such as encouraging transactions like downsizing, I can see this could be fairer and raise more tax. But see above. Successive governments have not been good at undertaking the hard work of fundamental reform. Hence, I think it will be ducked once more or become part of a lengthy consultation.
Capital Gains Tax
Many in the Government have advocated for higher rates of CGT, with the belief that the tax system favours wealth over Labour. However, the Laffer curve is real. We don’t have the evidence yet, but receipts were inevitably going to surge and then drop, given the existing rate increase to 24% had been forewarned.
Interestingly, Labour has always been more generous with CGT than the Tories. Gordon Brown introduced the 10% tax on “business assets”. Darling gave us the 18% flat rate, but Osborne gave us the 28% main rate, and Sunak slashed the BADR allowance from £10m to £1m.
More importantly, we have never had a CGT rate simply aligned with income tax rates without something else, such as indexation allowance or taper relief.
If I had to bet, no increase to capital gains tax.
I am going to go out on a limb here. I think the base cost uplift on death will go. Maybe not this November, but some sort of consultation to remove it. Arguably, it is over-generous when there is neither IHT nor CGT (which can happen).
Inheritance Tax
We are quite different from many other countries. Gordon Brown effectively put an end to the easiest IHT planning that old-style life interest trusts afforded us, but making gifts and surviving for seven years is still available. If you compare to other countries, they often operate with an overall lifetime allowance on all gifts or simply tax the recipient. Again, I believe that fundamental reform, which is more logical, is too hard. Hence, I think the temptation is to make the 7 years 10 years. They will then have to amend the legislation so that it is not retrospective, which will only add to the existing mess of tax legislation—complexity and unfairness reign.
Landlords
It has been a while since the Treasury targeted landlords. In fact, Jeremy Hunt reduced CGT on residential property from 28% to 24%. It is probably time they were in the Treasury’s sights once more! Somehow or other, landlords will be subject to NI. I’m going to give this a 50:50 chance.
VAT Threshold
Lastly, the Treasury will continue to tinker with the VAT threshold. Please believe me when I tell you that the best thing we can do is to reduce the VAT threshold to something like £30k. The current threshold simply discourages people from growing. It is as counterproductive as the tapering of the personal allowance when income is over £100k. The current threshold is at the worst point possible in terms of a disincentive.
Property
The long shot – highly unlikely in this budget but not impossible at some point – could be bringing all property into scope for CGT. Rises in property values are the main driver of increasing wealth inequality. Therefore, if a government is looking to reduce “unearned” wealth inequality, then bringing all property, including one’s main home, into scope for CGT has some logic. Unthinkable in the past as it would not go down well with homeowners, but as rates of home ownership have declined and there are increasingly radical calls to do something about wealth inequality and the housing market, I would put an each way bet on this coming in at some point in the future, maybe with some offset in IHT and SDT, taxing property at the point of sale as opposed to the point of purchase or death, with some form of rollover relief for people selling to upsize.
Summary
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