Budget 2025 Investor Guide: What changes could mean for you and your money

The UK Budget, the government’s major set piece fiscal event of the year, takes place on 26 November. 

With the Chancellor, Rachel Reeves, facing a fiscal ‘black hole’ of around £30bn and seemingly adhering to her own strict borrowing rules, it’s likely that she will need to raise taxes in order to meet the shortfall.

Given the government has committed not to raise income taxes, national insurance or VAT, this leaves less room for manoeuvre. But she still has a variety of levers on which she can pull.

Unlike some previous Budgets, there are likely to be a number of important changes affecting investors.

Here we would like to detail what some of those could be and what they could mean for your money, your investments and the markets. There is always a lot of speculation ahead of a Budget and it’s important not to rush to judgment before the event.

Tax Hikes Inevitable

The Treasury assumes taxes will need to rise by £30 billion, with the Office of Budget Responsibility expected to lower its forecasts for Britain’s productivity growth. Each percentage point of growth is worth about £10bn in tax and the OBR is expected to lower its forecast by 0.2%. 

On top of that the government needs to cover the cost of lost revenues when MPs rebelled against welfare reforms. 

Finally, higher debt interest payments due to rising gilt yields have added to the burden.

It seems highly unlikely that the Chancellor would dare to tweak her fiscal rules as the reaction in the bond market would be instant and damaging. Any change would likely be seen as credibility-busting and implies higher borrowing. 

However, reducing demand in economy through tax increases and spending cuts will mean weaker growth and a higher deficit, which could also be punished by the bond market.

Net-net, fiscal restraint, higher taxes and the stifling effect this could have on the economy could see the Bank of England cut interest rates at a swifter pace, which ought to drive sterling down.

Looking at the broader stock market, tax hikes could be punished by investors in domestic shares within the UK-focused FTSE 250. A weaker sterling to reflect slower growth, higher taxes and further interest rate cuts by the Bank of England could be a boost to the internationally-oriented FTSE 100.

Personal Tax 

Expect the Chancellor to lean on an old trick – freezing personal tax allowances so more people are caught in the net. Current income tax thresholds are in place until 2027/28, but extending this to the end of the forecast period (2030) would raise billions of pounds.

Impact: Personal income and spending, may impact discretionary spending and weigh on growth.

ISAs

In its Spring Statement the government committed to a thorough review of Individual Savings Accounts (ISAs), which has led to a lot of speculation about limits on cash ISAs in particular. Currently savers can put £20,000 across cash and stock & shares ISAs every year. The government wants people invest in equities more, but talk of reducing the annual cash ISA limit has been met with fierce criticism. An alternative would be to create an additional allowance for equities – potentially for smaller companies.

Impact: It’s unclear whether reducing the cash allowance would encourage people to instead use the leftover cash to invest in equities. But a move to increase the allowance for equities would be a positive for UK-listed shares, though potentially this might be targeted at small-cap stocks.

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.

Impact: Increases to the rate of dividend tax or further cut to the allowance will further erode dividend income, particularly affecting basic rate payers, which tend to include pensioners who may be relying on dividends as income. The increasingly restrictive dividend allowance regime means it’s more important than ever to find tax-efficient ways to invest – such as an ISA or SIPP.

Pensions

Potentially on the agenda is pension tax relief – when you pay into your SIPP you get relief at the highest marginal rate, which is estimated to cost the Treasury up to £50bn annually. The problem is that reducing level of relief would deter people from saving into pension pots and the government acknowledges that people are not saving enough. The government might target higher and additional rate contributions and leave relief for basic rate payers, for instance by levelling all relief down to the basic rate. This does not come without serious complications and consequences.

A much simpler approach would be to introduce a small annual levy on pension fund values. The Chancellor might also further restrict the 25% tax-free cash that can be taken out of a pension. The Treasury may also target salary sacrifice schemes to raise additional revenue.

Impact: Reducing tax relief would have major implications for investors, and if it were to be reduced it seems likely that it would focus on higher and additional rate payers, which could seriously impact their pension planning. On the plus side, it seems on balance more likely that the Chancellor introduces an annual tax on funds, which will raise billions over the next few years without directly affecting how much people save. It could be skewed towards higher value pots, which could encourage some people to take money out of their SIPPs.

Property

With indirect wealth taxes the flavour du jour, there is strong speculation that the Chancellor will overhaul property taxes. One possibility is the introduction of CGT on the sale of your primary residence if it exceeds a certain value. The Chancellor might opt for a new tax on the sale of high-value homes, or even introduce new, higher council tax bands. One option reportedly under consideration is allowing homebuyers to spread the cost of stamp duty – though invariably changes to stamp duty produce symmetric changes in house prices. The Chancellor could also introduce national insurance on income earned by landlords from rental earnings.

Impact: Applying any CGT to the sale of primary residences would be a major change and would undoubtedly affect savings and investments of those caught in the net as it would likely have secondary effects on gifting to children and inheritance tax. Whilst changes will likely have a negative impact for those affected (ie, paying more tax), the broader impact will be assessed on whether changes get the property market moving. Housebuilders and estate agent stocks may be impacted by any changes, particularly relating to stamp duty. It’s hard to see how raising taxes on property will improve the market dynamics but clarity could help as speculation around reform is distorting the market.

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%. Research indicates that 

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.

Impact: Investors may choose to sell assets like shares early in order to avoid the increased rate of tax.

Wealth/luxury

Wealth taxes are never easy to implement but the Chancellor may be minded to raise more cash from the wealthiest in the country via increased VAT on luxury goods such as cars and yachts. The government may also increase air passenger duty on private jets.

Impact: Ultimately modest for the economy as a whole but clobbering the rich may be counterproductive.

IHT

The last Budget saw notable changes to Inheritance Tax relating to farms and pension pots. The most consequential change is the plan to include any unused value of pension pots within a person’s estate for IHT purposes. The entire IHT regime, with rules around gifting and so on, is complex. There is a strong sense that the Chancellor can use simplification as a tool to increase revenue from IHT.

Impact: Changes to gifting rules could see people sell equities to gift cash to their family – but investors should be careful about the long-term impact of rushing to cash in pension pots and other investments. 

Bank Levy

UK bank profits have risen in recent years, and this makes them a potential target to raise revenues – and politically safe one at that. The bank surcharge of 3% on top of the main corporate tax rate of 25% could be raised, while the Treasury could change rules so banks would have to pay tax on the interest received on funds they hold at the Bank of England.

Impact: The main impact of taxing banks more would be on banks’ profits and therefore share prices – specifically the UK’s largest lenders Lloyds, Barclays, NatWest, HSBC and Standard Chartered. But it could also be negative for growth and weigh on the broader market – if banks lend less the economy might suffer.

Gambling Tax

Bookmakers are readying themselves for duties on online gambling to be raised, but the Chancellor could take a swipe at the whole industry. Former Chancellor Gordon Brown has called for taxes on online gambling to rise by £3bn to fund an end to the two-child benefit cap. Over 100 Labour MPs have called on the Chancellor to implement the recommendations of the Institute for Public Policy Research (IPPR), a think tank.

It has suggested raising the Remote Gambling Duty on online slots, poker and online bingo from 21% to 50%; raising the Machine Games Duty on cash-prize slot machines from 20% to 50%; and raising the General Betting Duty on sports betting, online or in betting shops, excluding horse racing, from 15% to 30%.

Impact: Negative for bookmaker shares.

Energy Profits Levy (EPL)

Currently, oil and gas companies in the UK’s North Sea are paying a 38% energy profits levy on top of other corporate taxes. The EPL was introduced when energy firms posted bumper profits following the surge in oil and gas prices after the Russian invasion of Ukraine. It’s currently slated to end in 2030 but could end sooner if prices remain subdued. The question for the industry is whether the government tightens or raises the levy. Calls to end the EPL seem to be landing on deaf ears.

Impact: Oil and gas shares, such as Shell, BP, Ithaca, Harbour Energy.

Housebuilders

One more thing - watch for chancellor to use the Budget to reinforce commitment to housebuilding - key to the government's pro-growth agenda it seems - which could deliver a boost to housebuilder shares.