Will the Budget 2025 bring another tax rise?

Current economic headwinds

It is fair to say that the UK economy has been navigating a complex landscape recently, marked by a variety of significant economic and geopolitical challenges over the last few years.

With sluggish growth and rising debt, Chancellor Rachel Reeves risks losing her financial headroom before the Autumn Budget. This would leave her with little room for manoeuvre. Now that the Spending Review 2025 has been presented to Parliament, many expect tax increases in the Autumn Budget.

Where could the tax rises fall?

If the Chancellor maintains her pre-election pledge of a tax lock for working people, key taxes will remain unchanged. This includes no increases in income tax, employee national insurance contributions (NIC) or VAT. It follows that she would need to look elsewhere to raise revenue from businesses and individuals to fund any shortfall.

The government has already indicated in the Spending Review that council tax could rise by up to 5% annually to fund the police.

The leaked memo ahead of the Spring Statement, sheds some light on other changes the Chancellor might be considering:

• Impose stamp duty land tax on the transfer of shares in companies owning commercial properties
• Increase the rates of annual tax on enveloped dwellings (ATED)
• Remove business relief for inheritance tax for AIM listed shares
• Remove the £500 dividend allowance for income tax
• Aligning dividend income tax rates with the rates for non-savings income
• Reinstate the pensions lifetime allowance
• Freeze the additional rate income tax threshold beyond 2028
• Raise the bank surcharge to 5%

Whether any of these changes materialise remains to be seen. However it is clear they have been discussed by senior members of the government, therefore we can only assume they might be on the table.

It is possible the Chancellor could look to fuel duty to raise significant revenue by not committing to a further freeze. There is growing speculation that the government intends to significantly limit the benefits currently available through salary sacrifice arrangements.

Beyond tax increases, the government has allocated funding to HMRC to modernise data use and enhance digital tax services. It also plans to recruit 5,500 compliance staff and 2,400 debt management staff by the end of this parliament.

The government aims to tackle the ‘tax gap’ and forecasts it will raise £7.5 billion in additional tax revenue by 2029–30. We would therefore expect to see an increase in data-led compliance activity over the coming years.

Preparing for potential tax rises

While we often advise clients not to focus too much on speculation, some planning is worthwhile. We recommend taking time to assess how potential tax changes could affect any significant business or personal decisions you’re planning in the near future.

Put simply, if you are contemplating any significant business transactions or reorganisations, or family gifts, then you may want to get on with them sooner than later in order to secure completion ahead of the Budget 2025 at current tax rates.

Additionally, as the Budget approaches, the availability of advisers will become increasingly limited due to their existing commitments. Securing professional advice and support at the earliest opportunity helps you manage your interests effectively.

In conclusion, the UK’s economic landscape is challenging and evolving, and the forthcoming Budget 2025 may introduce significant tax changes. Staying informed, planning ahead, and seeking professional advice are crucial steps to navigate this period of uncertainty successfully.

At PKF Francis Clark, our tax specialists are here to help you navigate potential changes and plan proactively. Whether you’re a business owner or an individual seeking tailored advice, we offer expert guidance to ensure you’re prepared for whatever the Budget may bring.