One Budget to Rule Them All: The 2025 Budget’s Hunt for Revenue

As the Chancellor of the Exchequer gears up to announce her second Budget on 26 November 2025, with talk of a further £50bn ‘black hole’ in the nation’s finances to plug, it seems that speculation has built up around almost every single feasible tax hike she could implement.

Let’s take a (slightly cynical) look into some of the rumoured changes doing the rounds.

Labour’s mantra seems to be that as long as it can’t be deemed to impact ‘working people’ then any and every tax rise is on the cards. Having said that, most governments will leak plausibly deniable tax policy changes to the media, running with those that receive a broadly positive response and shelving any that are too controversial, after flatly denying they ever planned to change them, of course.

National Insurance

The perennial tax change for Labour, it would seem. Not content with upping the rate paid by employers last October, there are now rumours that national insurance will be applied to everything but the kitchen sink. Here are a few of the possible candidates:

Partnerships – currently businesses that trade as a partnership, and that pay the partners via drawings (profits) from the business, are not subject to employer’s national insurance. Changing this is mooted to raise nearly £2bn and that would fall predominantly on wealthy ‘professionals’ like lawyers, accountants, bankers etc. I’m sure that Labour will make an argument that such professionals couldn’t possibly fall within the definition of ‘working people’ to justify the tax grab

Rental Income – buy-to-let landlords have been targeted before, with the restriction on allowable loan interest, so why not have another go? It is suggested that subjecting landlord’s rental income to 8% national insurance would raise another £2bn. This would further erode the diminishing profit margins and likely result in landlords pushing up rents, not to mention the impact on the housing market, which has already been flooded with ex-rental properties and recently recorded the first downturn in house price inflation in 18-months. Every action has an equal and opposite reaction!

Salary Sacrifice – poor old salary sacrifice on pension contributions could be sacrificed on the altar of black-hole-plugging. These arrangements effectively turn salary, which is subject to income tax and national insurance, into a tax-free employer pension contribution. Various ways to enact potential changes have been proffered, including subjecting the contributions to both income tax and national insurance, or introducing a £2,000 tax-free limit, after which income tax and/or national insurance will be applied.

Inheritance Tax (IHT)

Lifetime Cap - Another trip to the ‘IHT well’ for the Chancellor, who targeted farmers and pension savers in her last Budget. Not content with that, it is rumoured she is considering a lifetime cap on the value of gifts that can be made before death. This would mean that the potentially exempt transfer is potentially no longer going to be potentially exempt, it is potentially going to be unexempt. Simples!

Taper Relief - As we all know, if you survive for the requisite seven years after making a ‘no strings attached’ gift, the value of that gift drops out of charge to 40% Inheritance Tax. Taper relief applies between years four and seven, incrementally reducing the 40% rate down to 0% after the seventh year. There are further rumours that this taper relief could be removed or changed …tapering the taper relief, if you like.

Property Taxes

Again, a myriad of proposed changes are doing the rounds, which can be summarised as follows:

Mansion Tax – various iterations of this exist, from applying a special higher rate of capital gains tax to properties sold for more than £1.5m, to removing the main home exemption for properties of that value or more.

Wealth Tax – a straightforward 2% tax on assets over £10m. Now, that is simples.

Council Tax –the council tax bands, set way back in the early 1990s, could be changed, to broadly apply a higher charge to more valuable properties.

Stamp Duty Land Tax – we all know that SDLT is confusing. Very confusing for some, so changes could well be on the cards. Wholesale reform is mooted, to remove SDLT on property transactions up to £500k altogether, but with higher SDLT rates applied to more valuable property transactions. One can only imagine the roars of laughter in the House of Commons if the Chancellor announces she is reforming or rescinding SDLT after recent political events.

Pensions

Gordon Brown famously raided pensions in 1997, when he abolished the tax relief on dividends paid to pension funds. He also introduced the pension annual allowance in April 2006, so Labour has form when it comes to tax grabs on pensions.

Currently, the Treasury gives more than £50bn in tax relief for pension saving, most of which goes to wealthier taxpayers, who can get 20%-25% tax relief on top of the basic rate 20% tax relief all pension savers receive.

Here are a few suggestions on what could change:

25% tax-free lump sum – heavily rumoured for last October, this could be reduced, and if it is, it will reportedly bring in, you guessed it, another £2bn in tax revenue.

Pension tax relief – Abolishing the higher rate and additional rates of tax relief for a flat rate of 25% applied to all pension savers could bring in up to £20bn a year. This would fill about half of the purported black hole in Ms Reeves’ finances, so for that reason alone it must be on the drawing board, and with sufficient political spin to show they are only targeting wealthy working people, it looks a very tempting proposition. It would be a bold move, that’s for sure.

Lifetime allowance – the outgoing Conservative government abolished another Gordon Brown pension tax that was cooked up in 2004. The lifetime allowance limited the overall value that could accrue in pension schemes to varying caps over the years. When abolished, the lifetime allowance stood at £1,073,100. Labour bemoaned the eradication of the cap at the time, so could very well reimpose it. Sorry doctors, back to retirement you go!

And finally…

As if all that wasn’t enough, some other (possibly more outlandish) tax changes being proposed:

Cash ISAs – heavily rumoured last year, but not in fact changed, the £20k annual limit for cash contributions to ISAs could be scaled back to just £5k. Or it could all just be another red herring.

Citizenship taxation – The United States and Eritrea are the only two countries that currently apply citizenship-based taxation, with the rest of the world adopting residence-based tax rules. Could the UK jump ship and slap tax on non-resident British citizens, forcing them to file UK tax returns on their worldwide income? That would take a very bold chancellor indeed!

Exit tax – we are entering Corbyn heaven now. A UK exit tax would likely take the form of capital gains tax applied to the assets of UK-residents leaving the UK, to prevent them from taking gains abroad to get an exemption from UK tax. Would the last former non-domicile to leave the UK please turn out the lights in their unsold mansion?

Should we all therefore be rushing to make gifts to the kids, or the cat, before the Budget? Well, probably not, as such speculation is just that, and planning around speculation is a dangerous game. Having said that, if you are contemplating a major transaction, restructuring or lifetime event in the near future, it would probably be a good idea to discuss with your advisors the pros and cons of whether you should enter into the mechanics before the Budget, or wait until the announcements have been made.

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