The lead up to Budget day

However, we are where we are, and something must change to reverse the UK’s fortunes. This is a long game, there can be no quick fix. So Rachel very much has her work cut out.

So here are some thoughts on some of the leaks, our views on what might happen, and if any action should be taken prior to the event.

The housing market is desperately slow (from £500k upwards). In part this is due to a lack of economic confidence, interest rate uncertainty and our out dated regulation around house buying which is both expensive and time consuming. This is an area that would benefit from a shake-up. We think changing to a new property tax based upon the value at purchase, with properties under £500,000 exempt is possible, that would help kick start the housing ladder.

A new “mansion tax” has been mooted, along with the removal of Capital Gains Tax (CGT) relief on a person’s “principal private residence” on homes of £1.5m and above. Furthermore, there is expectation of stamp duty to be introduced on the transfer of shares of property-rich companies and a reform of council tax bands or introduction of a new value-relative council tax. Could be interesting….though a mansion tax would cause uproar particularly in the South and wealthier UK suburbs. Political suicide if that happens so we see this as unlikely. A reform of council tax bands is however long overdue, so is a possibility.

Private landlords holding buy to lets in their personal name may have to start paying National Insurance on their rental profits which is likely to lead to higher rents and greater uncertainty of landlords leaving the market. A greater supply of properties would be encouraging for first-time buyers but is likely to increase rents even further. Average UK rents in August 2025 were 5.7% higher than August 2024. We think this is unlikely as it would be complicated to police NI and would hurt a large portion of the working population who are renting.

While the 2024 Budget already targeted inheritance tax, further reforms could be implemented, particularly to gifts.

Reeves has suggested she may reduce or remove the current gift reliefs. She could also change the Potentially Exempt Transfer (PET) rules by revising the taper relief rate bands that apply and extending the seven years you need to live after making a tax-free gift to ten years, or even introducing a cap on lifetime gifts. We think the latter is highly unlikely, though the 7 year rule could easily be extended – an easy win.

Last year’s budget extended the freeze on the two inheritance tax thresholds to 2030. This could be extended again, if not this November then in a later budget – Likely….

Significant media speculation has focused on whether the Chancellor is considering targeting the 25% Tax-free Pension Commencement Lump Sum. She could reduce the £268,275 limit, perhaps to £100,000 cap or simply lower the 25% tax free entitlement itself. There were similar rumours before last year’s budget, but the PCLS was untouched. – We think change here is likely, though expect any to be set from a future date, rather than from midnight on Budget day, leaving time for planning decisions to be more measured.

Back to Capital Gains Tax again…..It would not be a great surprise if the government opts to align capital gains tax rates with income tax ones, an idea which has been floated around for several years. Although the main CGT rates increased last year to match those applied to real estate, the top 24% rate is far below the top 45% income tax rate. We think CGT rates will rise progressively, though it is unlikely that they get all the way to income tax levels, as the government also needs to encourage investment.

The capital gains tax allowance could also be cut, though the annual exempt amount has already dropped from £12,300 in 2022 to £3,000 in 2024. – Could well be abolished from next tax year.

Dividends – The £500 dividend allowance could be abolished and/or the tax rates increased – Likely, removal of the allowance is an easy win, without significant pain.

The government will want to maintain its manifesto pledge to not increase income tax rates, although some have called for this pledge to be reconsidered. In any case, it can still increase income tax revenue by extending the freeze on income tax thresholds beyond 2028 – This approach has proved very effective at drawing more earners into higher income tax bands. For example, this tax year over 7 million people are expected to fall within the 40% income tax band – a 60% increase since the Conservative Government first froze thresholds in 2021-22. The Office for Budget Responsibility (OBR) expects that extending the freeze to 2029-30 would raise an extra £48 billion. Sadly, last year’s Budget extended the freeze to 2028!

Confirmed IHT reforms from the 2024 budget:

• The agricultural property relief and business property relief will become much less generous from April 2026. From this date the 100% relief will only apply to the first £1 million of combined agricultural and business property. A 50% relief will apply to assets above this.
• Qualifying AIM shares (alternative investment market) are currently exempt from inheritance tax after two years of ownership. From April 2026 they will be subject to inheritance tax, but at a reduced rate of 20%.
• In a significant change impacting many families, from April 2027 inherited pensions will become liable for inheritance tax. We await the outcome of the pension’s consultation (promised by 16th January 2026), to ensure we can plan for clients as effectively as possible. This should give us time before 6th April 2027, when legislation formerly changes.

Looking ahead, while some tax reforms are announced in advance and implemented from the start of future tax years, others can apply instantly, we might expect an increase in fuel duty, which seems likely given the current low cost of oil comparative to recent years.

Other than the pensions/inheritance tax reform, which is confirmed, the other tax rises discussed here are just speculation for now. While some policy issues may be under discussion, no official announcements have been made. Any eventual changes to tax policy, including timing, thresholds and scope, could differ significantly, so careful thought should be taken before making any decisions.

It is fair, however, to expect there are further tax rises to come. The Chancellor has to meet the government’s fiscal rules, at a time when UK growth remains sluggish, the Spring Spending Review allocated substantial additional funding to defence and the NHS, and given borrowing costs have been higher than expected, the Chancellor has had to borrow significantly more than she expected to this time last year.

There is certainly nothing elementary about the task (or the tax) that lies ahead.

However, ….as always, our team will be monitoring the Budget closely and will be in touch immediately after the Budget next month with our thoughts and plans to help our clients maximise efficiencies.