Autumn Budget Latest: What we know so far about possible tax hikes and changes

“We all have to do our bit,” the Chancellor, Rachel Reeves, said on Tuesday as she set out her “values” guiding the decision-making process for the Budget on 26 November.

Although the speech contained little in the way of specifics, it was taken by many as preparing the ground for difficult tax hikes, which the government feels essential to fill a fiscal black hole of up to £40bn. 

The message was that this will be “a Budget for growth with fairness at its heart”. Fairness is the watchword for what might change.

So, what do we know so far and what taxes could change? Here’s our rundown of some of the most likely changes and those that have gained some traction. Caution: speculation about tax changes can get a little frenzied before a Budget and this one seems unusually febrile.

But there is no doubt that the government is facing an unusually unpleasant fiscal situation and therefore big changes to taxation are distinctly possible.

Income Tax

The elephant in the room is income tax, and a possible manifesto-breaking hike to this tax, which would hit the broadest base of taxpayers. Unlike reversing the last Conservative government’s cut to employee National Insurance Contributions, it would affect pensioners, landlords and the self-employed. A hit to pensioner incomes would be politically difficult, but income tax is often regarded as the most progressive taxes.

However, no one has raised income tax since the 1970s and breaking a manifesto pledge is taboo.

The National Institute of Economic & Social Research (Niesr), a think tank, says a 2p rise on the 20% basic rate of income tax would raise an extra £20 billion. A 5p hike to the 40% higher rate would add a further £10 billion, it said.

One option, being put forward by the Resolution Foundation, is to raise income tax by 2p across all three bands and cut 2p from NICs. This could be poltically appealing by shielding “working people”, but would therefore land on pensioners etc to foot the £6bn this would raise.

VAT

Value-added tax on goods and services seems a less obvious and less “fair” way to raise tax. But the imposition of VAT on private school fees was a sign that Labour is not afraid to use this tax lever if required and if it fits in with its ideological stance. 

NICs

Reeves raised £25bn by increasing employer NICs last year, to the dismay of businesses. The move hit growth and was deeply unpopular - it seems that income tax would be a “fairer” way to target working people with a manifesto-busting tax raid.

Freezing Thresholds

If the Chancellor wants to avoid breaking the manifesto pledge to raise income tax directly, arguably the easiest method is by extension of the freeze in personal tax thresholds, potentially raising £7.5 billion if done for two years, according to the Resolution Foundation. This so-called “stealth taxa” is a big earner for the Treasury. The Conservative government froze the thresholds, which include the £12,570 tax-free personal allowance, in 2021. The freeze is due to end in 2028 but could easily be extended to 2030. It could wait to 2026 extend the freeze but the pressing need for fiscal rules to met and fiscal headroom to be enlarged suggests this is a likely scenario.

LLPs

One option talked about in recent days is for a £2bn raid on limited liability partnerships (LLPs), corporate structures used by professionals as solicitors and GPs. Partners aren't classed as employees, so the firm does not pay employer's National Insurance. One option open to the Chancellor is to change how partners are treated for NICs, which could raise £2bn. This would bring higher-earning professionals with PAYE earners – a move that could be seen to fit with “we all have to do our bit”.

Landlords

The Resolution Foundation has also recommended landlords paying NICs at a 20% rate, with an additional 8% rate on property earnings above £50k. This could raise £3bn.

Mansion tax

Reeves is thought to be considering some kind of property tax – a straight selling tax seems tricky so one option is to simply double council tax rates on properties in the highest two bands, which the Institute for Fiscal Studies says could raise £4.2bn.

Pensions

Directly meddling with the triple-lock seems unlikely – the government couldn’t even get relatively small changes to winter fuel payments through. Instead it could well look at the 25% tax-free lump sum – speculation has been so high on this front that some pension experts have been thinking about taking their lump sums early. Another area under consideration will be the tax relief on higher earners paying into pension schemes. 

Cash ISAs

Reeves has long toyed with the idea of cutting the £20,000 annual allowance for cash ISAs,,ostensibly to encourage more people to invest in the stock market. But this could also push more people into traditional savings accounts, where interest is taxable.

CGT

Changes to Capital Gains Tax seem likely.  The government raised Capital Gains Tax at the last Budget, increasing the lower level from 10% to 18% and the higher rate from 20% to 24%. The Chancellor could also reduce the annual exemption allowance – although this has already been slashed in recent years from £12,300 to just £3,000.

Dividends

The tax-free dividend allowance is £500 per year – down from £5,000 a few years ago. Lowering this level would not be practical, but not unimaginable. More easily, the current marginal dividend rate of tax, ranging from 8.75% to 39.35% based on your earnings, could be brought in line with income tax.

Inheritance Tax

The chancellor has already moved to make unused private pension pots subject to inheritance tax of 40% from April 2027, whilst farms and businesses have also been hit. Further changes are possible but are seen as trickier to roll out as the system is complex.

One option under consideration is a lifetime cap on the value of gifts that someone can pass on before they die. Taper relief rates – the level of discount to IHT received by living at least three years after gifting, could also be altered. 

Exemption from IHT may change - the freeze on the nil-rate band, which has been set at £325,000 since 2009, is due to expire in April 2028. This seems a likely candidate for extension.