Newsletter: October 2025
We’ve enjoyed a glorious summer with four heatwaves. However, it seems the government has experienced even more heat what with challenges on immigration, ministers resigning, the cost-of-living crisis and ever declining popularity following their election victory just over a year ago.
Who would want to be a politician, certainly not us!
Speculation is rife as to what the Chancellor may do in her Autumn budget statement, and I thought you might find it useful to understand some of main areas being strongly touted for tax increases. Of course, these are speculative as nothing is certain until the day Chancellor Reeves stands up in Parliament.
Freezing tax thresholds for longer
The current freeze on income tax thresholds and personal tax allowances is gradually dragging many individuals into paying tax for the first time and pushing higher earners across the higher (40%) and additional rate (45%) thresholds as their incomes increase over time.
The current freeze for income tax thresholds is in place until 2027/28 but extending it to the end of the economic cycle (i.e. to 2030), could raise billions in revenue without technically “increasing income tax rates” – and it wouldn't feel like a tax rise for most taxpayers, thereby meeting Labour’s manifesto pledge of not increasing taxes on the ‘working class’.
Many pensioners will now be paying income tax as the effect of the triple lock on their state pension pushes them above the basic rate (20%) threshold.
Wealth Tax
There has been plenty of talk around the government implementing a wealth tax to collect additional revenue. It is the case though that there have been plenty of examples in EU states that suggest this wouldn’t work; the associated ‘flight risk’ of wealthy individuals and the complexities of implementing it successfully here in the UK could make the idea unattractive.
The UK can ill afford to see droves of entrepreneurs leave the country and building business in countries with more favourable tax regimes.
A wealth tax would be hard to justify as a ‘pro-growth’ policy, and the political dangers for the Government are probably going to make this option unlikely.
Property Taxes
The Chancellor may look at putting in place some indirect taxes on wealth. Taxing items that ‘wealthy’ people own seems significantly easier to implement. For example, new higher bands of Council tax or further moves on second homes could raise additional tax revenue in a targeted way. The added political benefit being that this would be carried out by local authorities and not central Government!
There have also been rumours of HM Treasury considering changes to the Capital Gains Tax (CGT) rules for private homes. Gains on the sale of your home are usually exempt from all CGT, but by removing the exemption where the value of the home exceeds a fixed threshold (say above £500,000), the Chancellor could significantly increase the tax collected from ‘high value’ property sales. The average value of homes in the UK is £299,000 so a threshold of £500,000 wouldn’t be too difficult to hit for a lot of people.
Rental income may become liable to NIC
It is understood that the Government is considering bringing rental income of private landlords within the scope of National Insurance Contributions.
Landlords will need to declare rental income on quarterly ‘Making Tax Digital for Income tax’ software (which is being phased in from 2026/27), which would be relatively straightforward for HMRC to collect NIC on rental income.
Investments
Regular statements by the Prime Minister about "fixing the country" for those who work hard but lack savings, and from the Chancellor about boosting investment in equities, have led to speculation over changes to the tax rules on dividends and cash ISAs.
The Chancellor seems to have ruled out a reduction in the annual ISA limit from its current £20,000 for the time being. An interim alternative might be to create a new allowance specifically for small company investment thereby creating funds to be available for small businesses to use to grow and expand.
Similarly, it might be easy for the Chancellor to simplify the taxation of dividends to align them with income tax rates though the current £500 tax free allowance for dividends is likely to continue as the practicalities of taxing smaller amounts would not be cost-effective for HMRC to collect.
Pension tax relief changes
With the annual cost of providing tax relief on pension contributions estimated at £45-£50bn, it is easy to see why there is always speculation about reducing tax relief at each Budget.
Reducing income tax relief is a complex option because of the interaction with the tax system and the way that tax relief is given on employer pensions schemes. Any reduction in income tax relief could deter people from saving for retirement and the Government has only recently acknowledged that most people do not save enough.
In the 2024 Budget, the Chancellor announced that residual pensions funds (and lump sum death benefits) would be liable to Inheritance Tax (IHT) on the death of the pensioner after 6 April 2027. This is predicted to collect £1.46bn a year by 2029/30. But this is probably only the start.
One way to raise tax revenue from pension funds might be to apply a levy on pension fund values – a small percentage added to the annual charges that pension fund managers already make. A 0.25% fund levy would hardly be noticed by most pension savers and would be minimal compared to the tax relief they already get and tax-free growth in their pension funds. However, this would still raise billions for the Government.
Tax-free cash on pension funds has (as it always does) come in for more speculation. The government has previously restricted the amount of tax-free cash on pensions to a maximum of £268,000 (and some change) so we don’t expect further reductions to the amount people can take from pensions tax-free.
Fuel Duty rises
In March 2022, fuel duty rates at the petrol station were cut by 5p per litre and successive Chancellors have maintained this ‘reduction’ ever since: fuel duty rates last went up in 2011. Of course, at every Budget since then the Chancellor has announced that they will freeze fuel duty and has had to address the cost of doing so. We perhaps didn’t feel the benefit of the freeze as wholesale fuel prices continued to rise over the same period.
If fuel prices remain at current levels (close to prices in 2012 according to the RAC) and CPI inflation reduces before the Budget, it seems quite possible that the Chancellor might implement a small fuel duty increase and this could raise billions for the Chancellor, not just the big oil companies.
‘Sin’ taxes – changes to gambling levy, tobacco, alcohol and sugar taxes
The Government is in the process of reforming the remote gambling levy, it seems quite possible that increasing the tax rates on gambling companies will prove attractive. The public doesn’t appear to mind seeing extra tax on gambling and other ‘sin’ products and this could raise significant revenue for HMRC.
Similarly, if inflation is falling at the time of the Budget, taxes ‘for our own good’ on sugar, tobacco, and alcohol may well be increased – with some specific exceptions to support pubs and restaurants.
In summary, the state of the public finances might warrant more tax rises or cuts to public spending, but the expectation is that it’ll probably be both. The government has boxed itself into a corner by increasing spending significantly over the last year and seeing the interest payments on the money it borrows rise substantially. There are some fairly simple ways of increasing the amount of tax the government can take which don’t require large changes to current pension, ISA or other investment arrangements.
The value of your investments is not guaranteed, and they could fall. You might not get back what you invested.