Budget 2025: What taxes could Rachel Reeves put up and what does it mean for you

With Labour having inherited the nation’s finances in a mess from the Tories, and a number of expensive policy U-turns, speculation has been rampant about whether Chancellor Rachel Reeves will have to raise taxes and cut spending again.

Now the date of the Budget has been confirmed as November 26, expect talk of possible measures to be included to reach fever pitch between now and then. But just what taxes is the Chancellor potentially considering, and what’s the impact likely to be ordinary people’s finances?

Income tax

One option seen as likely by experts is extending the freeze at which income tax and national insurance kicks in. By 2028/29, it is set to mean 4.2 million more people paying income tax, 3.5 million the higher rate of 40%, and another 600,000 the higher still 45% band.

Ms Reeves has said carrying on the freeze beyond April 2028 would “hurt working people” but PM Sir Keir Starmer has refused to rule out extending it.

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The Institute for Fiscal Studies (IFS) says pushing it back to the end of parliament would raise up to £10billion. But dragging even more people into paying tax - or the higher band - would be controversial. One reason for that is that the full state pension is forecast to exceed the £12,570 tax-free personal allowance within three years. Another option is raising the 45% rate to 50%.

Paul Johnson, until recently head of the IFS, also warned there was “real uncertainty” about how much it would raise.

Fuel duty

The levy on petrol and diesel used to rise in line with inflation, but was frozen in 2011.

Successive governments maintained the freeze, and the Tories announces a supposed temporary 5p cut in 2022 - that stayed. It is currently set at 52.95p per litre for both petrol and diesel, with VAT at 20% is then added.

Fuel duty is set to bring in £24.4billion for the Treasury this year, equivalent to £850 per household. But the Social Market Foundation estimates maintaining the freeze has deprived the exchequer of about £130billion.

The 5p cut is scheduled to end next March, but doing risks backfiring on the government, given the hit to ordinary drivers.

Wealth tax

Momentum for a wealth tax built over the summer, with prominent figures including ex-Labour leader Neil Kinnock throwing his weight behind the idea.

Campaigners suggest a 2% levy on assets over £10million could bring in billions for the Treasury to fix public services while only hitting the super-rich. Other options could include equalising capital gains tax rates with income tax.

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But Rachel Reeves has dismissed the idea of a wealth tax in the past, arguing the government has already “got the balance right in terms of how we tax those with the broadest shoulders”. And the Chancellor pointed to last year’s Budget with the decision to scrap the non-dom tax status for millionaires, a hike in taxes on private jets, and VAT on private school fees.

Property tax

There is speculation Rachel Reeves could introduce major changes to stamp duty and other property taxes during the Budget.

A report by the Guardian suggests stamp duty could be replaced with a new property tax, and that this would apply on the sale of homes worth more than £500,000. Stamp duty is currently paid on properties worth more than £125,000, or £300,000 if you’re a first-time buyer.

Another proposal reportedly under consideration is removing the capital gains tax exemption on primary residences above £1.5million, according to the Times. The report claims homeowners selling properties above this price would pay capital gains tax at 18% for basic-rate taxpayers and 24% for higher taxpayers. Another report from the Times claims landlords may have to start paying National Insurance on their rental earnings. Under current rules, you normally only pay National Insurance if being a landlord is your main job.

Inheritance tax

Inheritance tax is sometimes paid on the “estate” - this includes property, possessions and money - of someone who has died. It is only due on wealth transferred within seven years of death.

If the gift is given three to seven years before your death, then it is taxed on a sliding scale known as “taper relief” which starts at 32%.
However, a recent report from the Guardian claims the Chancellor is considering a possible cap on lifetime gifting. This cap would limit the amount of money or value of assets an individual can donate.

The Treasury is also said to be looking at potential changes to the “taper relief” for lifetime gifting. Inheritance tax is only due if the value of your estate is above £325,000.

In reality, very few families end up paying inheritance tax due to other allowances that are in place - for example, there is no inheritance tax to pay when an estate is left to your spouse or civil partner. Any unused inheritance tax allowance can also be passed on to your spouse. The standard rate of inheritance tax is 40%.

Bank surcharge

Banks could be in the Chancellor’s sights after raking in monster profits. Britain’s big four banks - Lloyds Banking Group, NatWest and Barclays - have collectively made £24billion in the space of just six months, and are on track to hit a record £48billion this year.

Former Tory Chancellor Jeremy Hunt cut a bank surcharge in his 2022 autumn Statement, from 8% to 3%. But think tank Positive Money is calling for a new surcharge of 38%, in line with the Energy Profits Levy on oil and gas companies. It claims such a windfall tax on Britain’s biggest banks could raise more than £11billion of much-needed money for the Treasury.

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The move could cover the cost of the welfare U-turn and scrapping two-child benefit cap, the think tank claims. It argued that lenders’ profits have been further boosted by the Bank of England paying higher interest rates on funds held at the central bank. Making these funds taxable could yield up to £3.3billion in revenue according to some estimates, without have an immediate impact on other taxpayers.

Increasing the surcharge would be relatively simple to do but the industry warns it could dent lending, just when the government needs the taps to keep flowing to help drive growth. More money in taxes, means less to lend out, which is a roadblock to growth, they say. What’s more, it is argued such a tax could be passed on to ordinary borrowers in the form of higher mortgage rates and lower savings rates.

Gambling taxes

Betting firms are nervous they could also be in line for a hit. Former Labour PM Gordon Brown has called for new taxes on gambling giants to tackle a child poverty crisis. Writing in the Mirror, he urged the Chancellor to “use the massively undertaxed profits of the gambling industry to lift 500,000 children out of poverty.”

Parts of the sector are certainly doing well, with Paddy Power owner Flutter forecasting its annual profits will surge by around 40% to £2.45billion. But the industry has come out all guns blazing, warning doing so would just drive punters into the arms of overseas gambling firms beyond the taxman’s reach, or even to underground betting outfits. Then there is the suggestion that gamblers could pay through worse odds.

Pensions

The government is keen for people to pay into a pay for their old age. One way it does so is offering tax relief on pension contributions. This means when you pay money you have earned into a pension, the income tax on that money is essentially returned via a government top-up, known as tax relief. It means your savings are usually boosted by 20% or more. But the cost of tax relief was put at £50billion in 2022/23.

Tinkering with it could be complex, and open the government to accusations it is deterring retirement savings just when most people need to do more.

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Accountancy and business advisory firm BDO says one answer might be a simple levy on pension fund values – a small percentage added to the annual charges that pension fund managers already make. It says: “A 0.25% fund levy would hardly be noticed by most pension savers and would be minimal compared to the tax relief they already get and tax free growth in their pension funds, while still collecting billions for the government.

“It could easily be collected by pension fund managers with no involvement of the taxpayer and minimal support from HMRC. And it might be possible to target the levy at those with higher pension values (combined for all their pensions).”

Customs duty

Low value consignments of goods brought into the UK (below the £135 ‘de minimis’ level) currently benefit from simplified customs reporting and are duty free.

BDO explained: “The US has recently suspended its own de minimis import exemption and the EU is also considering a similar move. The Government is already reviewing the UK limit, so it would be little surprise if this review is brought forward, and changes are implemented to support the UK based retailers competing with retailers based in China and other low-tax jurisdictions. Whether this would simply be a reduction in the value to a nominal level, or by abolishing this import relief altogether remains to be seen.”

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