Its budget week! The budget will take place this Wednesday, 26 November 2025, with Chancellor, Rachel Reeves, expected to announce tax rises which will affect the entire population.
Sluggish growth of 0.1% in Q3, inflation at 3.6%, unemployment at 5%, and a fiscal gap estimated at £22–30 billion has resulted in Reeves looking for ways to generate more funds to help the economy and tackle the cost-of-living crisis.
Reeves has previously pledged not to raise headline rates of Income Tax, National Insurance, or VAT, but there have been speculations that she may break these pledges along with significant “stealth” tax measures through freezing thresholds.
What could happen?
1. Income Tax Threshold Freeze Extended
Personal Allowance (£12,570) and Higher Rate Threshold (£50,270) may be frozen until 2030 (currently 2028), meaning individuals at all levels will pay more tax. Freezing thresholds brings more taxpayers into higher bands (“fiscal drag”) as wages increase, including pensioners as State Pension rises.
2. Property Taxes
The introduction of a “Mansion Tax” or council tax surcharge for bands F–H (homes typically £1m+) will affect the housing market significantly with annual costs rising on the upkeep of houses. There has already been a reduction in transactions in anticipation of this coming in.
A possible stamp duty reform may take place. The abolishment of stamp duty land tax could happen, being replaced by a seller-based levy or a national property tax. It has been floated that such a national tax would be on the value above £500,000, changing the payment from a one-off tax when purchasing a home, to a low annual tax.
3. ISA Changes
Cash ISA allowance could drop from £20,000 to £12,000 to encourage investment in stocks/shares to help fund growth. Rather than the safe option of receiving interest, taxpayers will be pushed to the risky business of investments in a struggling economy, should they wish to save more for their future.
4. Dividend Tax
The rate at which dividends are taxed at may rise from 8.75% towards 20%, and dividend allowance could shrink. This would be a big blow to business owners, who at the point of receiving dividends from their companies have already paid corporation tax on the profits.
A rise to 20% is very unlikely, especially if the national insurance tax is also applied, which is discussed further on.
5. Pension Salary Sacrifice
An introduction of a national insurance cap on the exemption for pension contributions via salary sacrifice may also be introduced. An exemption cap at £2,000/year for contributions would likely mean less people take up the option.
6. Electric Vehicle Road Pricing
In what seems to be counterproductive in their aim for net zero, a pay-per-mile tax (rumoured 3p per mile) to replace lost fuel duty revenue is expected to go to consultation.
It has been suggested that this will affect all car owners, including electric cars, but is not something that is likely to be implemented immediately due to the consultation required.
7. Inheritance Tax
It is likely that changes to inheritance tax (IHT) will be looked at. The thresholds have not changed for a number of years and with the changes to APR and BPR which are being introduced from April 2026, IHT is an area that could prove fruitful without impacting the ‘working people’ that Labour swore to protect.
8. National Insurance
The potential application of national insurance to partnerships, dividends and rental income could have major implications for businesses across the UK. Currently, national insurance is not paid on either and there are suggestions that an 8% rate could be applied for basic rate payers, or 2% applied to higher and additional rate payers.
If the whispers are to be true is will have a major impact some large law and accounting firms across the country, who may look to restructure. The application to dividends, however, may require some serious analysis before a change in structure, especially is the dividends tax rates increase too.
Landlords will take another hit, further reducing the incentives for residential portfolio in the UK.
9. Exit Tax
It is understood that there was active consideration to introduce an exit tax on those leaving the UK. The tax would introduce a tax charge on unrealised gains, on assets which and individual holds at the time they become non-UK resident. The rate is likely to be in line with capital tax rates, although a rate of 20% has been mentioned.
This would need to be introduced almost immediately to prevent a large outflux of wealthy individuals from leaving prior to the legislation coming in.
If you are worried about the budget and how it may affect you, please get in touch with our team who help you through the changes.
