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The Autumn Budget is just around the corner, and our Tolley experts have been analysing every hint and headline to make their bold predictions on what changes could be coming.
From tax reforms to policy shifts, they outline what professionals should be watching for, and what the impact could be for businesses, advisers, and individuals.
Budget 2025 and pensions tax
David Everett
Partner at Lane, Clark and Peacock
For a Chancellor looking to raise tax, the UK’s pension taxation system would seem to provide a number of opportunities, but none are without difficulties, particularly as the need is to increase Government revenue over a short period – ie to 2029/30 when the Chancellor’s fiscal rules currently bind.
The tax-free lump sum has been frozen since the abolition of the Lifetime Allowance in April 2024 (at £268,275 with higher frozen limits for some) and although it would be possible to set lower frozen limits at this Budget, the Government would have to dispense with the protections that are customary when pensions tax limits are reduced if it is to raise significant revenue in the near term. It is the fear that it might do just that, perhaps reducing the limit to £100,000, which is driving some of those close to retirement who have built up substantial pensions savings to consider taking a large tax-free lump sum whilst they can.
Those who make personal contributions to their pensions currently receive income tax relief at their marginal rate, which makes saving into a pension particularly tax-efficient for those on higher incomes. The Government might wish to limit the relief that those on higher incomes currently enjoy through making personal contributions, perhaps through the introduction of a flat rate of income tax relief applicable to all. This could raise large sums but would introduce distortions if when pensions come to be paid they continue to be taxed at the individual’s marginal rate.
Employer contributions to pension schemes don’t attract national insurance contributions, unlike personal contributions which must be made from pay after NICs have been deducted. This differential treatment has encouraged pensions salary sacrifice schemes to develop in which the employee gives up salary equivalent to the personal contribution they would have made and the employer makes an equivalent contribution on their behalf, with NIC savings arising. The Government may wish to limit or even remove such NIC savings. HMRC research published in May 2025 might provide some of the evidence base for this.
Although strictly not a pensions tax issue, NICs are not payable on employment income received in the tax year following the individual reaching State Pension Age. This exemption could be removed, but it would raise relatively modest sums and potentially even less once any behavioural changes are taken into account. If the Chancellor has older people specifically in mind for greater taxation it is more likely that she could raise income tax rates whilst reducing employee NIC rates, with the result that those who pay income tax in retirement have to pay more.
Returning to pensions tax matters, uncertainty continues on how payments made to employers out of the surplus in defined benefit schemes should be taxed and it is possible that the Finance Bill that follows the Budget will put the matter beyond doubt.
The Bill should deliver clarity on which death benefits are caught and which are not in relation to the Government’s plans to bring unused pension funds within the IHT net for deaths after 5 April 2027. However, we are likely to have to wait some while before finding out precisely how the process of assessing and paying IHT arising on unused pension funds is to work.
Finally, we are expecting the Government to legislate in the early New Year for some further fixes to the 2024 Lifetime Allowance abolition law.
IHT
Malcolm Gunn
Director, M B Gunn & Co Ltd
It is probably true to say that the inheritance tax changes last year were entirely unexpected and caused considerable alarm. There have been strong representations made for some easing of the provisions but so far without any success.
The new restriction on agricultural relief must surely be a mistake. Insisting on the break up of large farms every generation makes no economic sense. It was claimed that the relief is unsustainable but given the minimal amount of tax raised by inheritance tax compared to the total national finances that contention seems doubtful. Unfortunately there does not seem to be much hope of this proposal being softened to any extent. We might have hoped that the £1 million limit on 100% relief could be raised to something higher to stop the ongoing furore but the draft legislation on technical notes published on 21 July 2025 persist with the provisions as originally announced. But why is this £1m allowance not transferable between spouses, as with the nil rate band and the residence nil rate band? The Government’s response has been that this carries ‘an Exchequer cost’, which seems an inadequate reason given that taxpayers will instead have to ensure that they individually use the allowance. It is certainly regrettable that our tax system has gone into reverse to the position prior to 1992 when relief was previously at the rate 50% relief, in continuation of a similar relief under Capital Transfer Tax and Estate Duty.
It also seems that there is a firm intention to bring pensions into charge to IHT and there is no hope of any relaxation of this. The argument made is that pensions should not be used as a means to pass funds on tax-free, an argument which fails to acknowledge the income tax charges which apply on withdrawing the funds. Far from pensions being tax free on death after 2027 they will become the worst form of transferring funds on death with potentially ruinous tax liabilities. To add insult to injury, no business or agricultural reliefs will be available within pension funds, meaning that taxpayers have no alternative escape routes available.
A more likely prediction is that the nil rate band will remain unchanged on a permanent basis, as with IHT generally allowances. There is a statutory indexation provision for uplift each year by reference to CPI (IHTA s 8), and this has been routinely ignored since 2009. But dragging more estates into the tax, including small ones where just a flat in the south east of England now quite often gives rise to liability on death, hardly seems fitting for a fair and compassionate society. The draft legislation on the business and agricultural £1 million allowance includes an indexation provision to apply from 2030/31. Are we seriously supposed to believe that this will ever take effect?
Another change which according to some reports has been under consideration is an extension of the 7 year rule to 10 years, meaning that lifetime gifts made before death will be aggregated with the death estate if they were made up to 10 years previously. This will hopefully be ruled out on grounds of impracticality. In my experience executors find it very challenging to identify any gifts made in the existing 7 year time frame, and identifying gifts made up to 10 years previously will normally be too difficult.
Since draft legislation for the IHT reforms announced in last year’s Budget has been published and this includes some further minor changes to the IHT provisions, we can at least hope that no further damaging changes to IHT reliefs will materialise this year.
VAT and Indirect Taxes
Andrew Clarke
Director | Deloitte LLP
The Chancellor Rachel Reeves delivers her Autumn Budget on 26th November 2025, one of the most eagerly awaited Budgets for many years. We asked Andrew Clarke, one of our team of expert writers, to provide his thoughts on what we may expect from a VAT and indirect tax perspective.
Absent any formal government announcements, predicting the content of any Budget is always a tricky task – even after the Chancellor’s speech on 4th November which set the scene of the challenges facing the government.
So, what can we expect in the Budget from a VAT and indirect taxes perspective?
Despite the potential wriggle-room following on from the Chancellor’s speech, an increase to the standard VAT rate would still appear unlikely: given the focus on getting inflation down, and that VAT is perceived as a regressive tax and disproportionately impacts those on lower incomes, there may be alternative ways to generate significant amounts of revenue for the Exchequer.
It is possible that there may be some peripheral changes to the VAT rate for certain goods and services. A reduction to the VAT rate from 5% to 0% for domestic heating, whilst not raising revenue, would align to the cost-of-living agenda. However, it is perhaps questionable whether there will be more wholesale changes to the VAT rates for many other goods or services. Whilst an overhaul is well overdue, especially in respect of the VAT rates applicable to food given the archaic rules which no longer reflect today’s consumptions habits, increasing VAT on food items is politically a challenge, as the “pasty tax” fallout highlighted.
It is possible that the government may look at the VAT registration threshold. The UK threshold of £90,000 is very high in comparison with the majority of other developed countries, and evidence suggests that it does stifle growth for businesses near the threshold. However, whilst any reduction in the threshold could be based on sound economic principles and increase revenue, it would lead to an additional administrative cost for HMRC and potentially be perceived as an attack on small business.
Lastly, in respect of other VAT developments, it is possible we will see responses to HMRC’s consultations on the potential expansion of the zero-rating for business donations of goods to charities and E-invoicing, although these would perhaps take the form of further consultations rather than implemented policy given there are still intricacies in terms of exactly how both of these measures will work in practice.
In respect of other indirect taxes, there has been recent media speculation on the long-term solution to how the government replaces fuel duty revenue. There has not been an increase in the rate of fuel duty since 2011/12, and the “temporary” 5p cut was extended a further 12 months and is due to expire on 22 March 2026, so this position may remain unchanged. We may see proposals for taxing electric vehicle motorists – a per mile charge being one possible solution.
From a customs perspective, the abolition of the £135 low value customs duty relief utilised by overseas retailers is a distinct possibility. Not only would this be welcomed by UK retailers who perceive that this relief presents an unfair competitive advantage for overseas business, but it also will align the UK with the direction of travel that we have seen in the US and with the proposals from the EU.
Finally, we are likely to see some movement further to HMRC’s previous consultation on the tax treatment of remote gambling, with the government looking to replace the current three-tier structure, in addition to other potential tax rises in this area.
OMB
Rob Durrant-Walker | CTA (Fellow)
Rob Durrant-Walker UK Tax Consulting Ltd
I expect overall tax increases, with there being little headroom for major cuts against the long-term state of public finances. People want services, but don’t want to pay more tax; something’s got to give (and long term UK government borrowing costs aren’t looking good).
Farming: I do expect to see some walk-back of the BPR/APR changes, perhaps a higher threshold for the 100% relief, and/or something along the lines of the NFU’s proposed exemption with clawback. The McCain Farmdex report suggests that only 14% of British farmers say that they made 10% or more profit in the past year, and 35% of farmers were reporting a loss or breaking even. The cash to fund IHT even with IHT instalments available is a hard ask for many farms. I don’t ever remember one taxpayer group having so much widespread support against a tax hit than farmers have received in the last year, so government would have to be pretty deaf on this one not to tone it down or target better.
I don’t see a general wealth tax as practical. Practicalities of establishing share values etc make this a low likelihood. More likely is an additional tax on the sale of high value single residential properties, such as a “mansion tax” on sale regardless of how they are owned. Further, the rates of annual tax on high value enveloped residential properties (ie those within ATED) start to look relatively minor when considering the spread of values up to the highest value ATED properties. With the majority of these properties in just two wealthy London boroughs, Labour won’t lose many voters if they choose to put ATED rates up. Neither the mansion tax nor an increased ATED rate would pass such higher costs onto the wide number of those amongst the disenfranchised renting generation.
I bring out the usual suspects - with great confidence of getting a conviction - on Fiscal, and Drag. That is, the freezing of personal allowances and rate bands beyond the existing freeze to 2027/28, and the continued freeze of the Inheritance Tax nil rate band, which has been stuck at £325,000 since 2009. Still only around 4.6% of estates pay IHT (HMRC), with an average rate equivalent to 13%.
As the 2024 Budget increased national insurance costs for business owners on paying their employees then I forecast no changes to corporation tax main rates or bands (within a few years they had already reversed from a proposed reduction to 17%, to a top rate of 25% in 2023). No change to the VAT registration threshold either.
That means that some of the heat is off the OMB sector, and I note that for income tax the 20:40:45 percent rate bands have been fairly stable for a long time (the exception being the starting point of the 45% band being brought down from £150,000 to £125,140 in April 2023). There are more whispers of an increase in one or more of the rates than I have heard for a while, and as governments tend to get the bad news out of the way early on in their tenure then this might be the time to get a significant tax raise across the board and reduce pressure later on for further increases on minority taxpayer groups or businesses. While an increase to the basic rate alone will be hard to politically justify (even though higher rate taxpayers also pay basic rate tax first), this might come with a small NI offset. Notably, 1p on the basic rate may raise four times as much revenue as 1p on the higher rate (University of Oxford).
Corporation Tax
Nick Wright FCA CTA
Head of Corporate Tax
Jerroms Miller
As Chancellor Rachel Reeves prepares to deliver the Autumn Budget on 26 November, corporation tax finds itself in a precarious position. With the OBR forecasting £99bn to be raised from corporation tax in 2025/26, representing around 9% of the total tax take, and Labour's manifesto pledges ruling out increases to income tax, National Insurance, and VAT, the question naturally arises: could corporation tax rates be the target for revenue-raising measures?
The maths is certainly compelling. The IFS estimates that a 1% increase in corporation tax could raise approximately £4.1bn. However, implementing such an increase faces numerous significant obstacles.
First, any rate rise risks deterring investment into the UK at a time when encouraging economic growth is central to the government's agenda. The Chancellor has repeatedly emphasised making the economy work for "working people" through investment and reform, higher corporate tax rates would undermine this objective.
Second, Labour's Corporate Tax Roadmap, published in October 2024, explicitly committed to maintaining the current 25% main rate of corporation tax for the lifetime of this Parliament. Breaking this promise so soon would severely damage business confidence and contradict the roadmap's core purpose - providing stability and certainty to encourage investment.
Also, businesses are already absorbing significant cost increases from the previous Budget, most notably the rise in employer National Insurance contributions to 15%, which took effect in April 2025. Additional corporate tax burdens could push many businesses to breaking point.
Rather than increasing headline rates, the government may explore more nuanced approaches to raising corporate tax revenue. These might include:
The most effective strategy for increasing corporation tax revenue may be a little counterintuitive, which is to encourage greater profitability through enhanced reliefs and incentives rather than higher rates.
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) represent promising areas for expansion. Currently, SEIS allows companies to raise up to £250,000, while EIS permits £5m (or £10m for knowledge-intensive companies). Increasing these limits or expanding eligibility criteria would help early-stage companies access additional investment, potentially driving faster growth and, ultimately, higher tax revenues.
The roadmap has already confirmed that the current regime for capital allowances and R&D tax relief will be maintained. However, improvements to the advance clearance process for major investments could provide additional certainty and encourage larger-scale projects.
While corporation tax may appear an obvious revenue target, the smart money suggests the Chancellor will resist headline rate increases. It seems more reasonable to expect a combination of enhanced compliance measures, possible bank sector adjustments, and continued emphasis on growth-oriented reliefs designed to expand the tax base through economic growth rather than squeeze existing businesses harder.
Employment Tax
Ian Goodwin
Employment Tax Partner
Forvis Mazars
The Autumn Budget 2025 is expected to bring significant changes to employment tax, reflecting the growing political and media focus on taxation.
The “Cash Pay” Conundrum
Key areas of speculation include a potential 2p increase in the basic rate of income tax (2p or not 2p being the headline doing the rounds), which could be accompanied by a new higher rate (above 45%) for those seen as very high earners. This move could be viewed as a straightforward and uncomplicated way for the government to raise the revenue it says it needs, especially as millions of workers are subject to the basic rate of income tax. The prolonged freeze on tax and NIC thresholds would further the strategy to raise revenue, although it may prompt employees to seek higher wages and better reward structures.Another major area of concern is the anticipated rise in the National Living Wage (NLW) from £12.21 to approximately £12.70–£12.80 per hour with eligibility extended to all workers aged 18 and over (currently it is from age 21). This change will also increase employer costs related to NIC, the Apprenticeship Levy, and pension contributions for those receiving the NLW.
Employers may struggle to then raise wages for those earning above the NMW at the same rate, leading to an exacerbation of wage compression and necessitating a re-evaluation of reward strategies to support progression and retention.
Employers should also prepare for changes to the Apprenticeship Levy (the Growth and Skills Levy). Although stated in Parliament in July 2025 that the 0.5% charge on pay bills over £3 million will remain unchanged, there is speculation that this could be increased to generate revenue and align with pre-election promises (i.e. the Apprenticeship Levy was not mentioned as being protected in any Manifestos).
Wider Non-Cash Reward & Pension ConcernsNon-cash benefits and pensions are also under scrutiny. Professional bodies and business groups are advocating for updates to long-standing exemptions such as Staff Suggestion Schemes, Long Service Awards, Trivial Benefits, and Annual Function allowances. For instance, the £150 per head exemption for annual functions has remained unchanged since 2003. By increasing these exemption limits, it will enhance employee reward while also potentially stimulating spending in hospitality and retail sectors.
Expanding tax relief for health and wellbeing-related expenses could help reduce sick days and improve public health. Pension Salary Sacrifice may face new restrictions, with speculation suggesting that only the first £2,000 of sacrifice will remain exempt from NIC, placing additional financial pressure on businesses.
Furthermore, company car benefit-in-kind tax rates are set to rise through 2029/30, with electric vehicles potentially reaching a 9% rate by April 2029. The government may also consider a 'pay-per-mile' tax and reassess the favorable tax treatment of company vans, possibly introducing an 'Electric Scale Charge' similar to the private fuel scale charge.
Be Prepared!
These potential announcements will not only impact employees but will impact what employers are able to do in the short and long term, including how they invest in people, set pricing for their products and services and invest in innovation.
To navigate these potential changes, employers are advised to stress-test payroll costs under various budget scenarios, review PAYE, NMW, and benefits data in anticipation of stricter HMRC compliance, and revisit reward strategies, particularly those involving salary sacrifice and company car policies. Proactive planning and strategic adjustments will be essential to manage the evolving employment tax landscape effectively.
John Endacott
Partner
PKF Francis Clark
I will limit my predictions to commenting about inheritance tax (IHT).
It is unlikely that the Chancellor can raise significant sums from making changes to IHT and that has been a reason over recent decades for governments to steer clear of it. However, in the forthcoming Budget I think changes are possible for two reasons:
The detail of what might be changed is always difficult to predict (and possibly foolish). Some possibilities include:
The proposed reductions to APR and BPR that were announced in October 2024 did not land well with farmers and the popular press. It’s possible that in view of that the government decides to leave well alone. The alternative view is that the Chancellor could show that she has listened to those impacted and make some changes to ameliorate the impact of the original proposals whilst at the same time raising more IHT revenue. That is because from an ideological perspective, the October 2024 proposals are not very well targeted.
The criticisms from those who support the principle behind the policy is that the new rules as announced are still too generous to higher value death estates, are very favourable to those who have minority shareholdings or who own let farmland worth less than £1m and do not sufficiently protect mid-value family businesses.
Cen Tax put forward proposals to make changes to the proposed new rules and focusing on farms. The Cen Tax proposals were well presented from a tax lobbying perspective and Cen Tax is likely to get a favourable hearing from HM Treasury given its recent track record.
The Cen Tax ideas were:
What the above would do is to target the reliefs more clearly on smaller and medium sized businesses. Depending on the design and how much the 100% allowance is increased by then the changes could potentially also raise more revenue. This might at the same time enable a delay in the implementation date to April 2027 responding to concerns on the speed of the change in the tax policy for older farmers especially.
Another possibility for raising more revenue from inheritances would be to remove or limit the probate value revaluation for capital gains tax (CGT) on death. This is something that the Resolution Foundation (and others) have called for. To date the Chancellor has been greatly influenced by the Resolution Foundation and that was before its former head acquired a role in setting this Budget. Specifically, the CGT revaluation on death could be removed for assets where APR and BPR are claimed.
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