UK Autumn Budget 2025: what tax measures can the UK expect?

Despite the chancellor, Rachel Reeves, saying after last year's Budget that "we will not be coming back with more tax increases", she recently acknowledged that "everyone can see in the last year the world has changed and we're not immune to that change".

The Office for Budget Responsibility is reviewing productivity numbers with an expected downgrade, creating what is rumoured to be an overall gap in the public finances of around £30bn, compounded by geopolitical instability, wars and tariffs. It is not surprising, therefore, that questions about whether the government can afford to keep its party's manifesto pledges not to increase the rates of income tax, national insurance or VAT are mounting.

The Budget is likely to include some quick, easy-to-implement changes but as only the second one in this Parliament, the chancellor does have time to consider tax reform which could reap rewards and support her growth agenda in the longer term.

Real estate taxes

One area that is a candidate for tax reform is real estate tax. Stamp duty land tax (SDLT) can be a disincentive for people to move, council tax is widely seen as disproportionally unfair and those with expensive homes can currently sell their principal residence tax-free.

Measures which have been reported as being considered by the government include:

• The introduction of new council tax bands or even the replacement of council tax with a new "local" property tax – calculated relative to the property value paid by owner and at a rate set by each local authority, with suggestions that this could be levied on values up to a cap of £500,000.
• The replacement of SDLT with a national property tax on high-value homes (potentially those worth over £500,000). The annual tax would be payable on owner-occupied property only after a sale, at a rate set by the government which would rise annually by inflation. It has been suggested that the replacement for SDLT would not be retrospective on properties on which SDLT had already been paid and it would not replace the higher rate SDLT payable on second homes.
• The introduction of a "mansion tax" – effectively the removal of the relief from capital gains tax (CGT) on disposal of a person's "principal private residence" where the home is valued over a certain threshold (rumoured to be £1.5m).
• The introduction of SDLT on the transfer of shares in property-rich companies. This would end the practice of high value commercial property being "enveloped" into a special purpose vehicle so that any purchase attracts stamp duty at 0.5% (on the value of the shares in the company) rather than SDLT (at higher rates) on the direct purchase of the property.

Personal taxes

National insurance

Last year's Budget made clear that Labour's manifesto pledge not to increase national insurance contributions (NICs) only referred to employee NICs (and not employer's NICs).

Two proposals currently being reported include:

• The introduction of employer NICs on partnership profits (currently partners in partnerships are subject only to Class 4 NICs). This change would affect professional partnerships such as lawyers and accountants, with suggestions of targeted relief for smaller partnerships. This follows a report from the Centre for the Analysis of Taxation highlighting that 98% of the revenue from the proposed reform would come from individuals in the top decile by total income. It found that equalising the NICs treatment of partnership income with employment income would reduce economic distortions and be better for growth.
• Applying NICs to rental profits. At present, NICs applies only to earned income, such as salaries and self-employed profits, with rental income treated as investment income and therefore not subject to NICs. This would have an impact on landlords but could also affect tenants (if the cost is passed onto them via increased rents) and the wider property market (if landlords decide to sell up, leading to fewer properties available to rent).

Income tax threshold

Despite the chancellor confirming in last year's Budget that the freeze on the personal allowance and higher-rate income tax threshold would be lifted from 2028-29, many expect this to be reconsidered.

It would be a simple way to raise a large amount annually (with more taxpayers being brought into paying tax, or into higher tax brackets, as wages rise due to inflation), while technically maintaining the manifesto pledge not to increase the rates of income tax.

Dividend income

Increasing higher rate tax paid on dividends and/or abolishing the £500 dividend allowance were both options suggested shortly before the Spring Statement, by former deputy prime minister Angela Rayner, and so could be back on the agenda.

Capital gains tax

CGT rates for the disposal of shares and other assets were increased in last year's Budget but could be increased again.

The chancellor could also further reduce (or abolish) the annual exempt amount or other reliefs (such as Business Asset Disposal Relief), although businesses and individuals alike will hope that the significant impact that such changes would have on employee shareholders and tax-advantaged share plans would be carefully considered and appropriate exemptions built in.

Other options that have been suggested for the government to consider include abolishing the favourable CGT uplift when assets are passed on upon death and introducing a CGT "exit tax" for individuals if they leave the UK permanently.

There has been precedent in previous budgets for changes to take effect from midnight on Budget day, supported by anti-forestalling provisions. Individuals may therefore want to complete asset disposals or structure their affairs in advance of the Budget to lock in the current CGT rates, reliefs and allowances.

Pensions

Pensions represent a significant area of tax relief, so are another potential target area. Options include reducing the £268,275 (tax free) lump-sum allowance, removing or restricting the option of salary sacrifice, capping up-front income tax relief on contributions, imposing employer's NICs on employer pension contributions, or even reinstating the £1mn pension lifetime allowance.

Pensions tax has seen a number of changes in recent years and the chancellor will need to weigh up any "quick wins" against a risk of loss of confidence in pension saving. For example, the members of defined contribution (DC) pension schemes in particular are likely to be affected by the planned introduction of inheritance tax on unused pension funds and certain death benefits from April 2027. With many already finding it difficult to save adequately for retirement, any disincentive to pension saving – real or perceived – could be harmful.

The Finance Bill, published after the Budget, is likely to include an updated draft of the legislation needed to introduce inheritance tax and pensions change from April 2027. Osborne Clarke responded to the technical consultation on the first draft, highlighting areas (including the carve out for death-in-service benefits) where additional clarity would be helpful.

Inheritance tax

The government may be considering the introduction of a lifetime cap on lifetime gifts that can be made free of tax, or extending the potentially exempt transfer (PET) period from seven years, possibly to 10.

Another suggestion has been to end inheritance tax relief on AIM shares, although the relief was only reduced from 100% to 50% earlier this year.

Stamp duty

It has been rumoured that the government may introduce a temporary stamp duty "holiday" (of perhaps two or three years) for investors on buying shares of newly-listed companies in the UK. Shares traded on the AIM market and certain other growth markets are already exempt from stamp duty (and stamp duty reserve tax).

In addition to encouraging growth in UK companies, which Ms Reeves has previously championed, this proposal may also help to level the playing field with overseas listings where there is often no equivalent tax to stamp duty (or stamp duty reserve tax) on the trading of non-UK shares.

Business tax

Banks

Banks currently pay both a corporation tax surcharge (3% on top of the main corporation rate of 25%) and the bank levy.

Raising the surcharge and/or levy would be straightforward, but the chancellor would need to weigh the prospect of additional taxation for the sector against ramifications for her growth agenda. She recently stated in her Mansion House speech that she has "placed financial services at the heart of this government’s growth mission".

VAT registration thresholds and rates

Labour's manifesto pledged not to increase VAT rates but there could be some tinkering with thresholds, reliefs and rates.

Views on the VAT registration threshold (which is currently £90,000) can be divided. Any decision will be a balancing act for the chancellor – some argue that a lower threshold would create fairer competition (and stop the bunching of businesses just below the threshold) and would raise much needed revenue, whereas others argue for a higher threshold to encourage small businesses to expand and promote growth and productivity.

In recent months there have also been a number of VAT tribunal decisions around the VAT treatment of different types of food, with rates differing depending on the classification of foods and so it is possible that some uniformity in that area may be suggested.

VAT on private hire vehicles

It is rumoured that the government will publish its response to its consultation into the VAT treatment of private hire vehicles to confirm that VAT should be charged on all private hire taxi journeys.

Increase gambling duties

The Institute for Public Policy Research has proposed the increase in gambling taxes – suggesting that gaming duty should be increased from 21% to 50%, machine gaming duty from 20% to 50%, and general betting duty from 15% to 25%. The sector also currently enjoys complete exemption from VAT.

With Rachel Reeves recently stating that gambling companies "should pay their fair share of taxes and we'll make sure that happens" it seems likely that some announcement will be made in the Budget.

Tax disputes

Building on the measures already announced at the Spring Statement and proposals included in the draft legislation published for inclusion in the next Finance Bill, there may be further announcements in relation to closing the "tax gap" (the difference between the amount of tax that should, in theory, be paid to HMRC and what is actually paid).

There may also be further clarity on proposals previously outlined – for example, at the Spring Statement, it was announced that HMRC would launch a new US-style reward scheme later in 2025 targeting "serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes".

Other measures expected

Aside from the rumours already circulating, there are also various consultations to which the government is yet to respond. There could be some announcements relating to:

• A review of the UK's Digital Services Tax amid pressure from the US administration, which has called the levy discriminatory against American technology firms.
• Progress on advance tax clearances for major projects and R&D tax relief advance clearances.
• International tax reform around diverted profits tax, transfer pricing and permanent establishments (a second round consultation having been launched earlier this year).
• Detailed legislation on the proposals to modernise stamp taxes on shares – the shape of the new single tax on securities to take effect from April 2027 is now known but the detail is required.
• The proposed design of a corporate redomiciliation regime to support companies seeking to relocate to the UK.
• The introduction of full expensing of plant and machinery expenditures to leased assets – which the government has said it will introduce when "fiscal conditions allow".
• Progress on improving and simplifying tax-advantaged all-employee share plans.
• The proposed introduction of a growth and skills levy to replace the apprenticeship levy.
• An update on Business Rates Transformation (with any reform likely to be phased over the course of this Parliament).

Osborne Clarke comment

The chancellor will deliver her Budget against a backdrop of worsening public finances and the likelihood of tax rises which, depending on where they are directed and their severity, can affect economic growth. The question in her second Budget is how wide ranging and deep those potential tax rises will be and how any that are announced fit into her plan for economic growth.