When Rachel Reeves faced the Commons as prime minister last October to present her first budget, she acknowledged the challenging tax choices she had to make to restore financial stability.
The increased tax burden has notably affected employers, homeowners, and investors. Additionally, the Prime Minister opened the door to potentially subjecting pension savings to inheritance tax.
Shortly after the Conservative Party regained power, the budget initiated a freeze on tax policies, and coupled with rising prices and wages, more people found themselves subject to higher tax rates.
Fast forward to nearly a year later, and the country is bracing for another difficult budget. Reeves indicated this week that there are “more things to do.”
The budget reportedly has a significant deficit. Torsten Bell, the Pension Minister and former leader of a think tank, is believed to be leading the preparations. Before the election, there were commitments to raise income tax, national insurance, and VAT, which might leave little flexibility.
The rise in taxes has already reached its highest level since World War II. Critics are advocating for a reduction in government spending instead of raising taxes, though both might be necessary. The Prime Minister’s options are limited, especially as government borrowing costs have hit a 27-year high.
The countdown to November is underway, leaving savers, workers, and pensioners across the country pondering what the budget will mean for them and how they can brace for the implications.
Here, we take a closer look at what might be on the Prime Minister’s radar in the upcoming budget and how individuals can safeguard their wealth from the pressing tax climate in the UK.
Your home
With approximately £5.7 trillion tied up in property, it makes sense that the Prime Minister is exploring ways to impose additional taxes on homes.
Reports suggest that Reeves may introduce capital gains tax (CGT) on sales of high-value homes. This could result in substantial bills for homeowners; for instance, if the threshold is set at £1.5 million, a homeowner selling at a profit of £830,000 might face a CGT bill of around £200,000.
According to Daniel Austin from a real estate finance company, people are particularly anxious about their home taxes, especially high-end homeowners concerned about changes to CGT.
Other proposals for property tax might include an annual tax on homes valued over £500,000 or replacing stamp duty with an annual property tax.
Nimesh Shah from Blick Rothenberg points out that wealth is an easy target for taxation. He notes that, sadly, people need a place to live, which complicates immediate responses. Some clients are considering selling UK property and renting instead.
If a property is already on the market, it might be worth completing the sale before the budget is announced. Transferring property to family members could also be an option, albeit with legal complexities, particularly when mortgages come into play.
Tim Stovold from Moore Kingston Smith advises families to contemplate such actions cautiously and only with clear signals from the government. He warns against rushing into decisions, as relocating a property involves significant complications.
Consultants recommend being prudent and not making drastic moves based solely on speculation—it’s better to act only if a move was already planned.
Your pension
Pensions are often a focal point around budget time. Last year, Reeves announced that starting in 2027, pension pots could be included in inheritance tax calculations, potentially taxed at up to 40%, depending on the beneficiaries.
There’s concern that the cherished tax-free lump sum, which allows individuals to withdraw 25% of their pension tax-free (up to £268,275), might be at risk.
Rebecca Penney, a financial advisor, highlights that people are worried their careful financial plans could be at stake—this isn’t about luxury purchases but rather about managing essential expenses, like paying off mortgages.
These speculations, combined with the potential inheritance tax on pensions, have prompted some to take tax-free lump sums now and pass them on, although such actions should be approached thoughtfully. Aysha Marley from RSM mentioned that those who took lump sums before last year’s budget might have regretted their decisions when the rules didn’t actually change.
Further changes might affect income tax credits on pension contributions, specifically impacting higher-rate taxpayers, alongside national insurance contributions.
Stovold recommends making the most of pension contributions before the budget, noting individuals can contribute up to £60,000 annually (or 100% of salary if lower) to maximize tax efficiency.
Your savings and investments
Thoughts around the government imposing wealth taxes continue, but changes in capital gains and dividend tax rates seem more likely.
Last budget saw CGT rates increase from 10% to 18% for basic taxpayers, and 20% to 24% for higher taxpayers, with some speculating these rates could climb further.
Dividend tax rates might also see an increase across the board, possibly aligning more closely with income tax rates.
The simplest way to shield your investments from capital gains and dividend taxes is to utilize tax-advantaged accounts. You can invest up to £20,000 a year in an ISA, which allows tax-free growth and income on those funds. Plus, an additional £60,000 can go into a pension without tax implications. Outside of an ISA, you can earn limited dividends and capital gains without tax liability.
Scott Gallacher emphasizes that cash savers haven’t seen major changes to their personal savings allowance, which remains at £1,000 for basic rate taxpayers. Maximizing ISA contributions remains the most effective strategy for preserving wealth.
Your income
Income tax rates have remained unchanged since April 2021 and are frozen until at least 2028, which is generating significant revenue for the Treasury. The Budget Responsibility Office predicts this will bring in over £38 billion for the 2029-30 tax year, and many anticipate that Reeves will extend the freeze.
Laura Ripley from BRI Wealth Management notes that while not a headline increase, this situation is quietly pushing many into higher tax brackets as wages increase, limiting disposable income.
As salary increases push individuals up against various tax thresholds, concerns arise over potential national insurance payments on rental and investment income.
Austin emphasizes that landlords should reassess ownership structures, as holding properties through companies may currently be more efficient, potentially offsetting national insurance costs.
Your inheritance
Looking ahead, regardless of what happens in November, you might face increased inheritance tax liability. The Office of Budget Responsibility expects that around 10% of properties could be subject to inheritance tax by 2030 due to pension changes and frozen thresholds.
This percentage could rise further after the budget announcement. If you’ve lived in a property for seven years, your gifts during that time are generally tax-free; however, there are concerns that lifetime limits might be imposed. There are discussions about eliminating tapered relief which would affect the inheritance tax calculations on gifts made within a certain period before death.
Wealth manager Alex mentions the urgency surrounding these potential changes and the interest clients have in minimizing inheritance tax through gifts, which the government can easily target—especially given the current favorable rules.
Alice Haine from Evelyn Partners suggests that purchasing whole life insurance policies can help beneficiaries cover inheritance tax bills. She recommends “Co-Life, Second Death” policies for married couples or civil partnerships to ensure that transfers upon death aren’t taxed.
Moreover, if you’re considering giving away significant assets or gifts, it’s wise to do so before the budget while keeping thorough records of those transactions.
Shields advises that individuals should evaluate their options regarding ISAs, pensions, or property transfers before the budget, especially if those changes won’t strain finances.
