As the Chancellor prepares to deliver the Autumn Budget on 26 November 2025, speculation is mounting about how she will address the UK’s growing fiscal deficit. With headline tax rates, such as income tax, VAT, and National Insurance, expected to remain unchanged due to manifesto commitments, there are rumours that there will be further reforms to the capital gains tax (“CGT”) and inheritance tax (“IHT”) legislation. This article outlines some of the key proposals being discussed and what individuals might expect.
Capital Gains Tax
There have been some suggestions that CGT rates may be raised again after last year’s Budget increases to 18% (basic-rate) and 24% (higher-rate). These could be further aligned with income tax rates, especially for financial investments and second homes.
One of the most significant potential changes is the cap of £1.5 million on private residence relief (“PRR”) for homes above a certain threshold.
These changes are likely to target wealth accumulation in property and financial assets whilst sparing most middle-income households.
Income Tax
Even though the Government’s manifesto committed to not raising income tax rates there are signs that the Chancellor will extend the freeze on the personal allowance and higher-rate income tax thresholds currently 2028 to 2030. This freeze is anticipated to generate around £8 billion through “fiscal drag”.
Inheritance Tax
There is continued commentary that the Government will introduce a limit on lifetime gifts. Currently, you can make unlimited gifts to individuals in your lifetime and provided you survive seven years these do not incur an IHT liability. Alongside a cap on lifetime gifts there are also discussions that the seven-year period could be extended to 10-years or more.
As we discussed previously, the Government seems to be reviewing the taxation of property in the UK more closely and in this regarded there has been speculation they may look to reduce or even remove the residence nil-rate band (“RNRB”) which is currently £175,000. Broadly, the RNRB is an additional IHT allowance that can apply when someone leaves their main home to direct descendants. However, the RNRB tapers away for estates worth more than £2 million, reducing by £1 for every £2 above that threshold.
ISAs
ISAs, for a long time a cornerstone of tax-free saving for many individuals in the UK, are also under scrutiny. The current £20,000 annual limit may be cut, especially for cash ISAs, as the Government seeks to encourage more investment in equities.
There may also be an overhaul to Lifetime ISAs (“LISAs”) with reports suggesting a cap of £450,000 on property purchases and early withdrawal penalties. It has been reported that £102 million was raised in penalties last year for unauthorised withdrawals.
While no firm decisions have been announced savers should be prepared for changes.
Pensions
Pensions are expected to be a major target in the Budget. After the proposed changes announced last year bringing private pensions into the IHT regime from 6 April 2027, further reforms are expected.
The tax-free lump sum is currently capped at 25% of pension value (up to £268,275), there are proposals this benefit may be capped further. The lifetime allowance, which was removed in April 2023 could also be reinstated. The removal of the lifetime allowance allows an individual to continue contributing into their pension without facing extra tax charges.
The current £60,000 annual allowance may also be lowered, along with the adjusted income threshold for tapering, which could affect high earners. Finally, there are rumours that the government may remove the NI exemptions on salary sacrifice pension contributions, potentially raising £17 billion.
These changes could significantly impact retirement planning, especially for those relying on lump sums or employer contributions via salary sacrifice.
Final thoughts
While the Chancellor is constrained by political promises not to raise headline taxes, the pressure to close the fiscal gap means stealth taxes and targeted reforms are almost inevitable.
If you have any questions regarding any of the points raised above, please get in touch with your usual PEM adviser or contact us here.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key issues rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
