In what’s being seen as an “emergency” speech the Chancellor claimed to be “setting the context” for her November 26th Budget. By refusing to rule out tax rises she has almost confirmed the fears of families and businesses that tax rises are coming. In today’s speech there was no confirmation of which taxes will increase or who will be most affected by the changes.
In an economy that has seen many significant changes since last year’s Budget it’s perhaps predictable that tax hikes would have been on the cards despite Labour’s promise not to raise taxes for working people. Unfortunately it looks as though the Budget will hold very little good news for the year ahead as the Chancellor seeks to deliver a “Budget for growth with fairness at its heart.”
There has been much speculation about what might change, but despite the speech on November 4th we’re still not much closer to clarity on what we can expect on November 26th.
It looks relatively likely that the Chancellor will use inheritance tax as a route to raising funds, with possible changes including:
Rumours continue that CGT rates could be aligned with income tax bands (20%, 40%, 45%). Despite the Chancellor stating she does not want to deter investors, such an increase would likely change investor behaviour and reduce expected Treasury revenue which may mean that any changes are less extensive than predicted. She may also consider ending CGT relief on death, meaning beneficiaries could face tax on gains made during the deceased’s lifetime.
The possibility of a so-called ‘mansion tax’ on high-value residences has long being discussed. However, as reform of this type is likely to take a significant amount of time to implement it’s seems more possible that this will be more of a long-term goal.
Rachel Reeves has previously mentioned that everyone ‘will have to contribute’ leaving the press to speculate that an increase to income tax is on the cards. Even a rise 1p rise could generate up to £10bn to help plug the black hole in the economy, so despite a promise not to increase taxes for working people it looks like this could now be a possibility.
Last year’s budget also included a ‘stealth tax’ on income tax with a freeze on personal and higher rate tax thresholds until 2028. There is a possibility that this could also be extended.
In last year’s budget employers were hit with rises to Employers’ NI. There are rumours that there may be changes to ensure that those who are self-employed pay rates which are similar to those of employees paying NI via PAYE.
Whilst it’s unclear how this would be implemented there is some speculation that landlords will be required to pay NI in some form. It is not yet clear whether this would be based on rental profits or employment income – either way it would need to be implemented in conjunction with measures to deal with landlords incorporating their property portfolios to avoid the NI charge. With mandated digital records for some landlords coming from 2026 (Making Tax Digital) there could be a way for HMRC to calculate payments using this information.
Although the process for implementation is still unclear last year’s Budget added unused pension pots to the list of assets subject to Inheritance Tax (IHT) from 2027.
The press believe that the tax-free amount that can be taken from a pension pot may be adjusted. This currently stands at 25% for most savers once they reach the age of 55. There is some suggestion that the Chancellor might cut the maximum that can be taken in a lump sum from £268,275 to just £100,000. Some believe she may remove the entitlement to a tax-free lump sum entirely.
The process of ‘salary sacrifice’ can bring benefits to both employers and employees in the form or reduce National Insurance Contributions. There is a possibility that limits may be set on this in the future to reduce losses to the Government from savings on NIC.
Whilst it appears to be less likely, there is the chance that the Chancellor might make adjustments to the VAT threshold. This is potentially complicated as it may reduce growth of small businesses as owners strive to stay below the threshold. If they were to significantly reduce the threshold, to perhaps £30k there would be a sudden influx of tens of thousands of new registrations for VAT into an already over-stretched department.
The Chancellor has suggested that she would like to go further to reform business rates to help small businesses expand into new premises. We await details of what those reforms might look like.
It seems relatively likely that the Chancellor will announce another major rise in the National Minimum Living Wage. The Low Pay Commission has suggested that the National Living Wage (NLW), payable to those aged 21 and over, should rise from to £12.86 (currently £12.21) This increase, in combination with 2024’s Employers NI increases may mean businesses are more reluctant to employ new staff.
There may even be a move to extend the NLW to those aged 18–21, which could further increase employment costs for businesses and potentially impact entry-level job opportunities for younger workers.
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