Will Taxes Rise in the 2025 Autumn Budget?

As the UK approaches the 2025 Autumn Budget, speculation is building: Will Chancellor Rachel Reeves be forced to raise taxes to fill a growing hole in the nation’s finances? With a £41 billion fiscal shortfall and borrowing hitting record levels, many believe targeted tax increases are on the horizon, affecting both households and businesses.

In this post, we break down what's driving the speculation, what areas are potentially vulnerable to tax hikes, and how individuals and business owners can prepare.

What’s Driving the Fiscal Pressure?

The National Institute of Economic and Social Research (NIESR) has warned that Reeves will need to raise taxes or cut spending to meet her own borrowing limits. Specifically, her fiscal rule to reduce debt as a share of GDP by 2029/30 has become harder to deliver as economic conditions worsen.

Key figures from June show just how tight things have become:

  • £20.7 billion: Government borrowing in June, the second-highest ever in that month.

  • £16.4 billion: Interest paid on government debt, driven by higher rates and inflation.

  • £41 billion: Estimated funding gap between projected government income and spending.

In March, Reeves had a modest £10 billion in “fiscal headroom” That cushion has since evaporated, and Labour’s commitment not to borrow for day-to-day spending limits her options.

For now, there appear to be two paths forward: deeper spending cuts or selective tax increases.

Likely Areas for Tax Changes

Reeves has publicly ruled out increases to income tax, employee National Insurance, and VAT, due to campaign promises. This narrows the government's options to more targeted, and potentially stealthier measures.

Here are some of the areas under discussion or review:

1. Personal Allowance 'Stealth Tax'

The freeze on personal income tax bands until 2028 is already dragging more workers into higher bands due to inflation. Extending this freeze could raise billions without changing official tax rates.

2. Pension Salary Sacrifice

Tax relief via salary sacrifice could be scaled back. Though popular with employees, it's costly for the Treasury and could be a target for reform.

3. Pension Tax Relief & Lump Sum Limits

Adjustments to the 25% tax-free lump sum or changes to higher-rate relief could bring in revenue but would be politically sensitive, particularly with middle-income savers.

4. Investment & Capital Gains Tax

Capital Gains Tax saw rate adjustments in the 2024 Autumn Budget. Further tweaks to investment income or dividend tax, especially for high earners, remain possible.

5. Inheritance Tax (IHT)

This is one of the most talked-about pressure points. Potential changes include:

  • Tightening taper relief rules for lifetime gifts,

  • Lowering the nil-rate band,

  • Introducing a lifetime gift cap, as speculated by thetimes.com.

These changes may disproportionately affect anyone passing on business assets or family wealth across generations.

6. Wealth Taxes

Although politically controversial and rarely used in the UK, the idea of a one-off or ongoing wealth tax, perhaps targeting ultra-high-net-worth individuals, remains on the fringes of debate.

Why Tax Rises Are Politically Tricky

The UK’s tax burden is already at a post-war high, with many workers caught by "fiscal drag." Raising headline rates would be a tough political sell, but so would deep spending cuts on services like health, pensions, or education.

Economists warn that while taxing wealth may seem easier politically, such measures typically raise far less revenue than broader consumption or income-based taxes.

This leaves Chancellor Reeves facing a tough balancing act between maintaining fiscal credibility and avoiding public backlash.

What Does This Mean For You?

If you’re a business owner, investor, pension saver, or planning for intergenerational wealth, these possible changes could impact your personal or corporate finances.

Here are steps you should consider:

  • Review your tax exposure: especially regarding frozen allowances, pension contributions, or capital gains.

  • Plan your estate proactively: potential IHT reforms make early planning even more essential.

  • Assess your remuneration strategy: particularly if you use salary sacrifice or dividend drawdowns.

  • Talk to a financial adviser: navigating these complex changes requires ongoing evaluation and guidance.

How J-Benn Finance Can Help…

At J-Benn Finance, we work with individuals and businesses to stay one step ahead of policy shifts. Whether you're looking to futureproof your pension planning or prepare for inheritance tax changes, we're here to help you navigate uncertainty with confidence.

📩 Book a consultation today to discuss how the Autumn Budget may affect your finances, and how you can stay protected.

☑️ Did you find this article helpful? Feel free to share it with colleagues or clients, and stay tuned for our Autumn Budget 2025 coverage right after the announcement.

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