How Chancellor Rachel Reeves could increase taxes
Discover what the Autumn Budget could mean for workers and pensioners
On 26th November, 2025 Chancellor Rachel Reeves is set to deliver her second budget. The budget arrives to a backdrop of weak economic data, public finances under significant strain and narrow fiscal headroom. The outcome of the new measures are likely to be a pivotal moment for the future of the UK economy.
The National Institute of Economic and Social Research (NIESR) has issued a stark warning. If no action is taken, the government is likely to miss its fiscal rule, which requires that day-to-day spending is covered by tax receipts by a significant £41.2 billion by 2029/30. To stay on track, Chancellor Rachel Reeves will need to implement further tax increases or significantly cut spending.
This raises important questions about the policies being considered in the Autumn Budget and who might face the greatest financial impact.
COULD FREEZING TAX THRESHOLDS TIGHTEN YOUR FINANCES?
Freezing Income Tax thresholds has become one of the most effective, yet hidden, methods of collecting taxes. While Reeves previously stated in the Spring Budget that this freeze would end in 2028, she has since avoided reaffirming that promise.
Extending the freeze until 2030 would exacerbate fiscal drag, a process in which wage increases push taxpayers into higher tax brackets without providing a meaningful boost to their purchasing power.
WILL PENSION TAX PERKS COME UNDER SCRUTINY?
For decades, pensions have benefited from generous tax incentives, including relief from Income Tax and National Insurance to promote saving for retirement. However, these benefits may soon be subject to further review given the significant cost to the treasury. We believe it is worth considering any lump sum or carry forward contributions before the budget particularly for higher rate and additional tax payers that could be at risk to any changes in pension tax relief.
Reeves could consider limiting the 25% tax-free lump sum that retirees can withdraw or replacing the current system with a flat rate of tax relief regardless of an individual’s earnings. Such changes would have a significant impact on pensioners, particularly those who rely on lump sums for secure retirements, as well as workers using salary sacrifice schemes for long-term savings. Given the nation’s retirement dreams and plans are directly linked to accessing this tax free cash at retirement we believe it is unlikely any changes will be implemented to current accrued benefits and tax free cash without transitional relief.
ARE NATIONAL INSURANCE CHANGES ON RENTAL INCOME COMING?
Beyond Income Tax, landlords may also come under scrutiny. While they already pay Income Tax on rental profits, this does not include National Insurance contributions or VAT on lettings. Reeves could introduce new taxes on property earnings or change the rules for rental income entirely.
This could raise tax liabilities for small landlords and potentially lead to rent increases. Renters might then bear the financial burden as landlords attempt to pass on these costs.
IS THE NATIONAL INSURANCE THRESHOLD SAFE?
Although Labour’s current manifesto commits not to increase National Insurance rates, both employee and employer contributions could still be subtly adjusted.
One option might be to lower the National Insurance threshold, which is currently set at £1,048 per month. A lowered threshold could lead to increased payroll expenses for both employers and employees.
There has also been a suggestion employer national insurance contributions could be levied on Limited Liability Partnership profits.
WILL RACHEL REEVES RETHINK VAT, DIVIDENDS OR WEALTH TAXES?
Reeves might focus on increasing revenue by adjusting existing tax policies instead of introducing new ones. For instance, expanding VAT to more goods and services currently exempt or increasing the additional rate of Income Tax, which starts from £125,140, are potential options.
Furthermore, Inheritance Tax could also be amended. The current tax-free allowance of £325,000 (for 2025/26), unchanged since 2009, might be reviewed for a possible reduction. Meanwhile, exemptions could decrease for agricultural assets or gifts made outside the seven-year rule, potentially increasing liabilities for families aiming to pass down wealth.
CASH ISA ALLOWANCE CAP
The government has been exploring changes to Individual Savings Accounts (ISAs) to nudge more savers toward stock market investments.
Proposed limit on Cash ISA contributions — At present, savers may place up to £20,000 per year into a Cash ISA tax‑efficiently. Ministers are considering capping this allowance, which would reshape the savings landscape. A cap could push more individuals into stock market investments, potentially improving long‑term returns. Conversely, it would increase the number of savers exposed to tax: basic‑rate taxpayers currently enjoy up to £1,000 of tax‑free interest, higher‑rate taxpayers have a £500 allowance, and additional‑rate taxpayers receive no interest allowance.
WEALTH & PROPERTY TAXES
Ahead of the Autumn Budget, the Treasury is reportedly considering new wealth taxes targeting property, pensions, and land to raise revenue.
Progressive property tax — One proposal would replace council tax and stamp duty with a progressive property tax, levying higher rates on homes valued above £500,000. This would be a major shift affecting existing homeowners and buyers of high‑value properties.
Land and pension levies — The government may also consider additional charges on property and land ownership to tap accumulated wealth. These ideas are speculative but signal a focus on wealth as a funding source.
CAPTIAL GAINS TAX
Under Rachel Reeves, Capital Gains Tax rates were raised in her first Budget. The rate for basic-rate taxpayers increased from 10% to 18%, while higher-rate taxpayers now pay 24%, up from 20%. There has been speculation that capital gains taxation could be aligned with income tax rates and also more extreme measures such as removing the primary residence exemption, although we feel this is unlikely given the likely backlash from voters.
SALARY SACRIFICE
Exchanging gross pay for tax‑efficient benefits (pensions, childcare, company cars, etc.) has grown significantly over the last 5 years and notably since the April 2025 employer NI rise. The government is reviewing these schemes and may cap sacrifice amounts, target higher earners, or remove NI reliefs and Income Tax exemptions. Such changes would significantly affect employees and employers, especially sectors relying on salary sacrifice for benefits.
INHERITANCE TAXATION
The government is reviewing Inheritance Tax (IHT) rules that could affect estate planning. The seven‑year rule could be extended or replaced by a lifetime gift allowance, delaying or limiting tax‑free gifts.
The “surplus income” exemption—which allows regular gifts from income that don’t reduce the donor’s standard of living—could also face tighter rules or limits. These changes would weaken common gifting strategies.
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available The Financial Conduct Authority does not regulate estate planning, tax advice or trusts.
