Article last updated 17 October 2025.
This time last year, the headlines were buzzing about the infamous £22bn “black hole” in the nation’s finances. Despite large tax rises, a new black hole has opened up, thought to be about £30bn.
This places Chancellor Rachel Reeves in a bind. Labour has pledged not to raise income tax, VAT, or national insurance – the three taxes that generate more than half of the government’s tax receipts. There’s already been considerable speculation swirling in the press about what levers the Chancellor can pull to raise more money, while keeping the commitments she promised when taking office.
Simon Bashorun, Head of Advice at Rathbones Private Office, talks us through the biggest potential changes that could affect your finances. These changes could affect your plans to help loved ones get on the property ladder or reduce the amount of time you dedicate to volunteering with your favourite charity.
Wealth tax
Ahead of last year’s general election, Labour said it wouldn’t implement a wealth tax. However, Reeves has increasingly come under pressure from Labour back benchers and trade unions to reconsider this stance. Suggestions include a 2% levy on assets above £10mn, potentially raising an estimated £12bn each year, and a one-off 1% levy on household wealth above £1mn.
We feel we’re unlikely to see this in the Budget because:
- It would be incredibly complex and take years to plan and implement.
- Many people who would be affected by such a tax are internationally mobile so could easily avoid it.
- History has shown that these taxes don’t generate significant revenue. Twelve developed countries had wealth taxes in the 1990s – now the number is only three. The only one of these bringing in much revenue is Switzerland.
- Since we already have taxes on wealth in the form of inheritance tax and capital gains tax (CGT), these two taxes would also need reforming at the same time, to avoid the problem of double taxation.
- Rachel Reeves ruled it out at the Labour Party's annual conference.
Inheritance tax and changes to gifting rules
Reeves announced significant reforms to IHT in last year’s Budget. These included plans to end the non-domicile regime, capping the relief that can apply to business and agricultural assets, and the inclusion of pension assets in estates for IHT purposes.
Previously, non-doms – people resident in Britain but with their permanent home outside the country – could be taxed only on UK income and gains and avoid tax on foreign income and gains for up to 15 years, as long as these were not transferred to the UK. The new rules mean the first four years of foreign income and gains are not taxed, but they will be after that. IHT on worldwide assets applies to long-term UK residents who’ve spent at least ten of the last twenty tax years in the UK.
The new rules for non-doms were applied in April 2025. The changes to business relief and agricultural relief will take effect in April 2026 and pensions will be included in the estate from April 2027.
We would be surprised to see any further announcements in this area, given the increases last year and the fact that any revenue generated would take time to come in. After all, Reeves needs to fill her fiscal black hole now, rather than later. But we can’t rule out any changes, given Reeves’ generally limited options to increase revenue.
There’s also been talk in the press about reducing or at least capping tax-free gifts and possibly changing taper relief. While nothing is confirmed, if you were in any case already thinking about making gifts in the near future, you might wish to consider doing so before the Budget.
Property and capital gains tax
With same-day CGT rises from the last Budget still fresh in people’s minds, the public will be nervous of any talk about this.
The latest speculation is that Labour might end the CGT exemption that applies to your main residence. This ‘mansion tax’ would be focused on high-value properties, with top-rate taxpayers paying 24% on any gains when selling – the same rate they pay on additional homes they own.
We think it unlikely this will be introduced as it would be extremely unpopular with voters, contentious among tax experts, and a likely cause of problems in the property market. In fact, last year the Labour government rejected the idea of CGT on primary residences.
However, we’re not surprised that the government is, according to press reports, considering ways to increase taxes on property in one way or another. One idea that’s been floated in the press is charging national insurance on rental income. Another is to reform or entirely replace council tax so that the most valuable properties are taxed much more.
Potential changes to pension tax-free cash
If you have significant pension assets, you may find yourself glued to the news in the run-up to the Budget. There have been reports that the tax-free lump sum allowance, currently 25% of the pension pot, ordinarily up to a value of £268,275, which you can take from age 55 (age 57 from April 2028), could be reduced. This has prompted many people to withdraw money from their pension pots ahead of the Budget – a move that could negatively impact their future finances.
Withdrawing money from your pension pot before you actually need it reduces the total amount of money invested in a tax-efficient way. That could mean smaller future gains. On top of this, if you’re taking out less than the maximum amount of £268,275, you’re potentially missing out on the chance of a larger tax-free lump sum in the future.
In our view, tinkering with pensions can sometimes lead to challenges and unexpected outcomes. Reducing the tax-free cash benefit or removing it altogether could raise concerns about pensions as a reliable savings option for retirement. It would be wise for the government to approach any changes with careful consideration and consultation with industry experts.
If there are any changes announced in this area, we think the government will allow time for them to come into effect.
What should you do?
Speculation about the Budget is likely to increase in the weeks beforehand. It’s important to remember that we can only plan effectively based on current rules. Snap reactions based on speculation that may or may not happen could leave you worse off. If you already had financial plans in place, you could work with your adviser to check the advantages and disadvantages of taking action before the Budget, making sure to do this in good time.
We’re keeping a close eye on developments as Budget day approaches. If you have any questions about how your finances could be affected, please get in touch with us via the button below.
This information is based on our current understanding of HMRC tax regulations in the UK. Tax treatment depends on your individual circumstances and may be subject to change in future.
