Below, we explore what might be on the Chancellor’s radar – though it is worth emphasising that, for now, these remain just speculation rather than confirmed policy changes.
The economic backdrop
Rachel Reeves’ first Budget in October 2024 introduced a record £40 billion in tax rises. At the time, she indicated that such measures would not be repeated in 2025.
However, the economic landscape has continued to deteriorate. With UK growth sluggish, the global economy still fragile, and a fiscal gap now approaching £50 billion, the pressure to increase government revenue is mounting. While headline-grabbing tax rate hikes may be avoided, the focus is likely to shift toward more subtle, less visible tax increases.
Income tax threshold freeze extended?
A strong candidate for inclusion in the Budget is a further extension of the freeze on Income Tax thresholds. As wages rise but thresholds remain static, more people are pulled into higher tax bands—a phenomenon known as “fiscal drag.”
- For example, someone earning £100,000 could pay an additional £7,000 in tax if the freeze continues.
- Those earning £80,000 may see a £5,635 rise.
- At £50,000, the extra burden could be around £4,632.
Extending the current freeze, which is due to end in 2028, could bring an additional 1.4 million people into the top tax bracket (earning over £125,140).
Capital Gains Tax (CGT): Further reform?
Capital Gains Tax is likely to come under further scrutiny. In the last Budget, the Chancellor increased the lower rate from 10% to 18% and the higher rate from 20% to 24%.
Possible next steps could include:
- Raising CGT rates again,
- Applying differentiated rates to specific asset classes (e.g. second homes), or
- Further reducing the annual exemption allowance (currently £3,000, down from £12,300 in 2022/23).
While the allowance has already been cut significantly, further reductions could be seen as a relatively low-risk revenue raiser.
Inheritance Tax (IHT): A controversial target
IHT remains a politically charged issue. Recent reforms have already announced that private pension pots will be subject to 40% IHT from April 2027, along with reduced reliefs for farmers and business owners.
Further potential measures include:
- A lifetime cap on tax-free gifts passed on before death, or
- Tightened asset reliefs.
A cap on lifetime gifting would be especially controversial, possibly limiting the ability of families to support younger generations with education or housing. Administering such a system could also pose logistical challenges for HMRC, given the need for decades-long gift-tracking.
Those potentially affected may want to review their estate planning strategies and gifting plans ahead of the Budget.
Property taxes: A structural shake-up?
There is mounting speculation about a broader overhaul of property taxation. Options reportedly under consideration include:
- Replacing stamp duty and council tax with a new annual levy based on property value,
- Introducing new, higher council tax bands to capture more from high-value properties, or
- Removing the current CGT exemption for primary residences sold above a certain threshold (e.g., £1.5 million).
Any of these changes would mark a significant policy shift and could disproportionately affect homeowners in high-value regions such as London and the South East.
ISAs under review
As part of a broader savings reform review announced in the Spring Statement, there is speculation that the annual ISA allowance—currently £20,000—could be cut, particularly for cash ISAs.
Though politically unpopular, reducing ISA limits may be seen as an easy way to tighten tax relief without a direct rate increase.
Corporation tax: Changes still possible
Despite assurances that there will be no further rise in Corporation Tax, the Chancellor may still consider:
- Tweaks to employer National Insurance contributions, or
- Sector-specific changes, particularly for industries lobbying for relief, such as hospitality.
Trade bodies such as UKHospitality have argued strongly against the impact of the Employer’s NI hike implemented in April 2025.
Salary sacrifice under pressure
Salary sacrifice arrangements – where employees trade part of their gross salary for tax-free benefits (such as pension contributions, childcare vouchers, company cars, cycles to work and gym memberships) have gained popularity, especially after the April 2025 Employer NI increase.
However, changes may be coming. The government could:
- Cap the amount that can be sacrificed (impacting higher earners), or
- Remove the National Insurance (and possibly income tax) exemptions entirely.
Any move to curb salary sacrifice would likely affect both employees and employers, particularly in sectors relying heavily on such schemes for pension contributions and benefits.
Final thoughts
With a widening fiscal gap and economic uncertainty, the Chancellor faces a difficult balancing act. While outright tax rate hikes may be avoided to preserve voter support, more technical and less visible changes could still raise significant revenue without the headlines.
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Oscar heads our tax department and provides advice on tax structuring, planning and compliance services to entrepreneurs and their businesses.
