Budget 2025: EVERY tax that could be hiked, from income to pensions and property

Brace yourself for some real financial pain. On Wednesday November 26, Chancellor Rachel Reeves will stand in front of Parliament and deliver Labour’s Autumn Budget.

Tasked with filling the Government’s fiscal black hole, £20bn at the last count, and getting the economy growing, it now looks almost inevitable that Ms Reeves will inflict punishing tax hikes on Middle Britain.

There has been a raft of speculation about the areas the Chancellor could target in her bid to balance the books.

Britons’ personal wealth is firmly in Labour’s sights, with taxes on pensions, savings and property among those that could be ratcheted up. The Treasury is refusing to confirm – or deny – rumours.

Our comprehensive guide takes you through everything that the experts think could be coming – and the sensible measures you can take to batten down the hatches.

INCOME TAX

It was previously rumoured that Labour would increase the rate of income tax by 1p or 2p on the pound, breaking its manifesto pledge to protect ‘working people’.

Another option was to put up the rate of income tax by 2p, while cutting National Insurance by the same amount. 

This would be cost neutral for workers, but would raise money from income that isn’t currently covered by national insurance, including savings interest, dividends, and rents, and from those over state pension age, who are exempt from NI.

However, Rachel Reeves is now said to have U-turned on the plan, fearing a backlash from the public and MPs. 

Even with no income tax rise, there is still a way the Chancellor could sneak in an effective income tax rise through the back door.

At the moment, someone can earn £12,750 before they start to pay any income tax, an amount known as the personal allowance.

On any amount between the personal allowance and £50,271 they pay 20pc income tax, known as the basic rate. Those earning between £50,272 and £125,140 become higher-rate taxpayers and pay 40pc on that slice of their income. Above £125,141, additional-rate taxpayers pay 45pc and lose their personal allowance.

There was previously a long-standing principle that tax thresholds should rise in line with inflation. However, the basic and higher rate thresholds have been frozen in England, Wales and Northern Ireland since 2021.

As wages have increased in the past four years, more people have been dragged into higher tax bands, helping raise more money – a phenomenon known as fiscal drag.

A £50,271 salary has far less purchasing power than it did five years ago. A worker earning that sum today would only have needed £40,243 for the same standard of living back in 2021 when the thresholds were first frozen.

The thresholds will be frozen at least until the end of the 2028-29 tax year. But Ms Reeves is said to be considering extending the freeze for even longer, meaning more people will be pushed into paying higher tax rates.

Being pushed into a higher tax band also means you are more likely to be taxed on any interest you earn on savings.

Continuing the freeze could also have another politically disastrous consequence. The full state pension is predicted to rise to £12,535 next year, so failing to increase the £12,750 personal allowance means that come 2028, even many of the lowest-income pensioners could be forced to pay income tax on their state pension.

WHAT YOU CAN DO NOW

If you are close to tipping over into a higher tax band, consider paying more into your pension if you can afford it.

With workplace salary sacrifice schemes your contributions are taken from pre-tax income. So boosting the amount going into your pension could take your taxable income back below the relevant threshold. 

You cannot access pension savings until age 55 and this is due to rise to 57 in April 2028. If you can afford to lock the money away, it doesn’t hurt to save extra for retirement even if an income tax hike doesn’t arrive.

If you’re worried that being in a higher tax band would mean being charged more tax on your savings or dividends from stocks and shares, and you are married or in a civil partnership, there is another trick you could use.

If one partner is in a lower tax band, the higher-paying partner can transfer their savings or investments into their name.

Make sure you’re taking full advantage of the £20,000 annual Isa limit, too – this could also be set to change in the Budget. 

INHERITANCE TAX

LIFETIME CAP ON GIFTS

Ms Reeves could also introduce a lifetime cap on how much money can be given away tax-free – a move which would turn inheritance tax planning on its head.

As an individual, your estate needs to be worth more than £325,000 to incur inheritance tax. This can be doubled to £650,000, jointly, for married couples or civil partners.

Those who leave their home to direct descendants get an extra £175,000 allowance each. This creates a maximum joint total of £1million that a couple can pass on tax-free to children and grandchildren.

One of the simplest ways to avoid incurring inheritance tax is to give away money while you are still alive.

At the moment, you can gift £3,000 per year without any inheritance tax concerns.

If someone wants to gift more than that, they can – but there is a catch. If they die within seven years, HM Revenue & Customs charges inheritance tax on the gift if their estate exceeds the IHT thresholds.

How much depends on how many years have passed since the gift was given, ranging from 40pc after one year to 8pc after six years. This rule is designed to stop people dodging inheritance tax by giving their assets away shortly before they die.

If you live for seven years after making a gift there is effectively no limit on how much you can give away. This is the key allowance Ms Reeves could look to curb by imposing a lifetime limit.

She may also consider extending the seven-year rule, perhaps to ten years.  

Gifting has surged in the past year after the Chancellor announced plans to bring unspent pension pots into the inheritance tax net from 2027.

WHAT YOU CAN DO NOW

If you plan to give away money then it may be wise to do so now. Even if a controversial lifetime gifting limit isn’t introduced, you will have started the clock ticking on the seven-year rule.

It may also be worth taking advantage of a separate IHT rule, which says people can give away money without worrying about inheritance tax if it is made as regular gifts from ‘surplus income’.

This requires meticulous record keeping for your executors, so note down your intentions, all gifts and evidence it has not affected your standard of living.

You could also consider smaller gifts over a longer period. 

CAPITAL GAINS TAX

A HIKE TO CAPITAL GAINS TAX RATES 

Capital gains tax (CGT) is charged when someone sells liable assets, such as stocks and shares, buy-to-let properties, second homes, other investments and certain valuable possessions.

Each year individuals get a capital gains tax-free allowance of £3,000, which has been slashed from £12,300 in 2022.

Above this, CGT is levied at different levels dependent on your income tax level. Capital gains are added to your overall income to decide the rate you pay.

Ms Reeves increased capital gains tax rates in last year’s Budget. Basic rate taxpayers are now charged 18pc rather than 10pc previously, while higher and additional-rate taxpayers are charged 24pc rather than 20pc.

Campaigners have pushed for capital gains tax rates to be made equal with income tax rates – which would mean 20pc, 40pc and 45pc.

WHAT YOU CAN DO NOW

Selling assets now could lock in a lower tax rate on profits if the Chancellor opts for a raid. But after hikes in the last Budget, Ms Reeves may not target CGT again.

So, don’t panic and rush into a sale unless you were planning to cash in anyway. Shaun Moore, tax and financial planning expert at Quilter, says: ‘Disposals should only be made if they are part of a long-term plan — reacting to rumour risks crystallising tax liabilities unnecessarily.’

CAPITAL GAINS ‘MANSION TAX’

Another highly controversial plan being mooted is to charge people capital gains tax when they sell their main home, if it is worth more than a certain amount. One threshold that has been discussed is £1.5million.

This could hurt those who bought a home for a modest sum many years ago and have benefited from house price rises.

SAVINGS

CASH ISAS IN THE CROSSHAIRS

The cash Isa forms the bedrock of Britain’s savings system, providing a home for up to £20,000 to be put aside each year with no tax to pay on the interest or investment profits.

At the moment, savers can split this annual allowance however they like between a cash Isa and stocks and shares Isa.

But the Chancellor is keen for Britons to put more cash into stocks and shares Isas to boost the country’s flagging economy.

To encourage this, it is possible Ms Reeves could impose a limit on annual cash Isa contributions. 

Reports on how far it could be hacked back vary from £12,000, all the way down to £4,000.

WHAT YOU CAN DO NOW

You could consider diverting a portion of your savings into a cash Isa now, especially if they aren’t already in a tax-free savings account with a good interest rate – 4pc or more.

Check the top cash Isa rates in This is Money’s best-buy savings tables. 

If you need access to the money use an easy-access Isa and do not tie yourself into a fixed term. 

INVESTING

DIVIDEND TAX HIKE

The Chancellor could also look at aligning the dividend tax rates paid by investors in stocks and shares with income tax rates.

The current dividend tax rates are 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate taxpayers and 39.35 per cent for additional rate taxpayers, compared to 20, 40 and 45 per cent for income tax.

Increasing the rates would particularly affect business owners who draw income mainly from dividends. 

‘Increases to the rate of dividend tax or further cut to the allowance will further erode dividend income, particularly affecting basic rate payers, which tend to include pensioners who may be relying on dividends as income,’ says Neil Wilson, UK investor strategist at Saxo.

PENSIONS

SALARY SACRIFICE PERKS SCALED BACK 

Some workplace pensions operate via salary sacrifice, where an employee foregoes part of their pay packet, and the employer pays the equivalent amount into their pension.

These schemes allow workers to take a supposed ‘pay cut’, but the money gets ploughed into their pension instead, and both they and their employer pay less National Insurance as a result.

Chancellor Rachel Reeves is reportedly looking at a £2,000 cap on how much staff can pay into pensions using salary sacrifice without having to pay National Insurance, which is 8 per cent on basic rate earnings, and 2 per cent above higher rate thresholds.

Workers who exceeded the cap would have to stump up more to end up with the same amount in their pensions.

Employers pay 15 per cent in NI so would take a bigger hit, sparking fears many would cut pension contributions back to the minimum required under auto enrolment or not increase salaries to offset the extra cost.

SLASHING THE TAX-FREE LUMP SUM 

Previously, Ms Reeves was said to be considering slashing the amount savers can take from their pension pot as a tax-free lump sum.

However, this is now thought to have been ruled out.  

You can currently take out up to 25 per cent of your retirement savings, up to a maximum of £268,275, once you reach age 55.

PROPERTY

CHANGES TO COUNCIL TAX

Several changes to council tax have been mooted for the Budget. 

At the moment, bills are set by each council and vary wildly. A Band D home in London’s affluent Wandsworth borough, where homes can sell for millions, pays £990. By comparison, a Band D home in Burnley, where the average house price is just £121,000, pays £2,464.

The Chancellor is said to be considering adopting a proposal by Tim Leunig, chief economist at centre-right leaning think-tank Onward, which would standardise council tax bills across the country. This would mean some owners of more valuable homes could be in for a big hike.

There has also been talk of a separate plan to revalue any property that is currently classed as Band F or above – one in ten homes in England.

Of these, it is thought that 300,000 of the most valuable properties across these three tax bands – F, G and H – would then be stung by an extra charge on top of their existing council tax bills.

It is likely that those above a certain value, for example £1.5 million or £2 million, would be charged.

However, the Treasury has offered no details on exactly which homes would be affected, leaving 2.4 million families with homes in the three bands facing uncertainty.

STAMP DUTY SWITCH-UP

Treasury officials are also studying plans to replace stamp duty with a new national property tax that’s paid annually, rather than all in one go when a home is bought. This could also hit owners of higher-value homes.

It is another proposal put forward by Leunig, who suggested in a report that this new tax should not be charged on homes worth less than £500,000.

The charge would be 0.54 per cent of the property’s value on homes between £500,000 and £1million, and 0.81 per cent above that.

Someone buying a £600,000 home would see an annual property tax of £540 while someone paying £1million would pay £2,700 a year.

Currently, stamp duty is £20,000 on a £600,000 home and £43,750 on £1million. The plan could benefit those who buy expensive homes and then move again within a few years, as their bills would be far less than the current stamp duty.

However, it could penalise owners of a ‘forever home’ who stay for decades, and those in the South of England, who live in expensive homes but may not have a lot of disposable income.

EXTRA TAX FOR LANDLORDS 

The Chancellor is said to be looking at charging landlords National Insurance on rental income. 

A basic rate tax-paying landlord with a £30,000 salary, earning £20,000 in rental profit a year, could see their annual tax bill on the rental income rise from £4,000 today to £5,600 under the plans.

MOTORING 

FUEL DUTY

The latest HMRC-published fuel duty tax figures show receipts for April 2025 to September 2025 at £12.2bn – £26m lower than the same period last year. 

The decline is largely attributed to the ongoing transition from diesel to electric and hybrid vehicles, which is only going to accelerate over the next 12 months and beyond.

With the Chancellor looking to balance the books, the ‘temporary’ 5p fuel duty cut – introduced in March 2022 by then-Chancellor Rishi Sunak in a bid to temper skyrocketing pump prices following the outbreak of the Ukraine War – could be seen as an easy target. Reeves is reported to be under increasing pressure to axe it.

Reeves opted to extend the 5p-a-litre cut in her previous Autumn Budget, despite calls from campaigners and some economists to hike the tax.

There is also the concern that the Chancellor could go a step further by abolishing the 15-year freeze on the duty, which has been unchanged at 57.95p (52.95p inclusive of the temporary 5p cut) since 2011.

PAY PER MILE TAXATION FOR EVS FROM 2028

Pay per mile taxation, also known as road pricing, is a term that’s been echoing around the walls of parliament for years as a solution to filling the £40bn-sized fiscal black hole that’s expected to be left in Treasury coffers as a consequence of the switch to electric cars.

While forcing the transition to EVs is key to the Government meeting its Net Zero targets – and the reason why sales of new petrol and diesel cars will be banned from the end of this decade – the billions lost in fuel duty and emissions-based vehicle excise duty (VED) is a monumental catch 22 that’s become an increasing cause of concern for the exchequer’s bean counters.

Which makes reports of Chancellor Rachel Reeves announcing a consultation for the introduction of pay-per-mile road pricing for EVs from 2028 in her Autumn Budget Statement somewhat unsurprising.

However, it could also be incredibly poorly timed. With public demand for battery-powered cars already fragile, manufacturers on the brink of fines for missing government-mandated EV sales targets, and the growth of the nation’s charging infrastructure slowing in 2025, the move risks bursting Britain’s brittle electric car bubble.