Ahead of her inaugural autumn budget, chancellor Rachel Reeves is facing intense scrutiny over Labour’s tax policies, having promised during the election campaign not to increase taxes on "working people." The party vowed not to raise VAT, income tax, or National Insurance (NI) contributions for employees, but speculation is mounting over potential tax changes in other areas.
While the party has promised not to increase VAT, income tax, or employee National Insurance (NI) contributions, there are concerns about how Reeves will address the £22bn budget deficit, potentially through tax hikes in other areas.
Reeves told ministers that filling the "£22bn black hole inheritance from the previous government" would only be enough "to keep public services standing still". The chancellor is drawing up plans to find £40bn to avoid real-terms cuts to departments, as first reported in the Financial Times.
Reeves has warned there would be "difficult decisions on spending, welfare, and tax" to come in her budget.
Here’s a roundup of what UK households should be on the lookout for, and how this could affect them.
While employee National Insurance contributions are set to be protected, Labour has not ruled out increasing payments made by employers. Currently at 13.8% on earnings above £175 per week, an increase of just 2% could generate approximately £18bn. Alternatively, imposing NI on employers’ pension contributions could raise £9bn to £12bn, according to the Resolution Foundation.
Business groups have warned that higher employer NI could hinder job creation and make hiring more challenging, with economists suggesting that workers might ultimately bear the brunt of increased costs.
Seb Maley, CEO of tax advisory firm Qdos, noted, “If the cost of hiring rises, businesses will need somehow to shoulder this. The smallest businesses will be hit the hardest.”
Inheritance tax, which is set at 40% on estates valued over £325,000, is also under the spotlight. There are growing expectations that the budget could include changes to exemptions that affect how much inheritance tax people pay, potentially increasing the burden on larger estates.
Rachael Griffin, tax expert at Quilter, said: "IHT has been ripe for reform and simplification for years, as it is full of impenetrable and irrelevant details that need to be reviewed. Policymakers should tackle IHT reform seriously instead of using it as a political tool and revenue generator."
Read more: How the UK's capital gains tax compares with other countries
The current £325,000 threshold, frozen until 2028, has drawn more taxpayers into the IHT net. Griffin said: "If Labour's reforms are perceived as a hasty tax grab, they are likely to receive significant backlash."
Cracking down on loopholes in the inheritance tax regime could add another £1bn-£2bn to the tally.
Another area of speculation is capital gains tax (CGT), which is levied on the profit from selling assets such as second homes or investments. Higher earners currently pay 24% on additional property and 20% on other assets. While some reports have suggested an increase in CGT rates, the prime minister has appeared to downplay rumours of a significant rise to as much as 39%.
According to reports in The Times, the rate charged for higher-rate taxpayers selling a second home would remain at 24%, but the 20% tax when selling shares or other valuable assets is likely to rise by “several percentage points”.
It’s unclear whether the rate paid by basic-rate taxpayers, which is currently 10%, would also be in line for an increase.
Sarah Coles, personal finance columnist at Yahoo Finance UK and head of personal finance at Hargreaves Lansdown, said: "We don't want to see an arbitrary upping of the headline capital gains tax rate, which could simply put people off investment, and stop them from selling current assets."
Read more: Nearly half of business owners would look to exit UK if budget delivers tax hikes
A five percentage point increase could see higher earners pay £4,250 on a £20,000 return, up from £3,400.
CGT raises around £15bn a year, according to the IFS. The chancellor could raise up to £14bn by bringing the rates into line with income tax bands, but she could opt for a narrower set of changes to raise about £8bn.
Labour has confirmed plans to introduce VAT on private school fees from January 2025. This could push average fees up by 20%, raising £1.6bn annually. The government also plans to close a loophole allowing parents to pre-pay fees before VAT kicks in.
There are several ways the chancellor could raise funds through pension tax changes. One option could be reducing the tax-free lump sum that individuals can withdraw from their pension pots.
Introducing a flat rate of tax relief has been considered, but recent reports suggest this may now be unlikely.
Read more: Record number of millionaires to leave UK amid tax increase fears
From age 55, you can usually take up to 25% of your pension money without needing to pay tax. This is called the Pension Commencement Lump Sum (PCLS).
However, the tax-free lump sum is subject to a maximum allowance, set at £268,275 by the last government. This usually means that if people have built up big pensions, any money they take out above the allowance would be liable to tax.
Cutting the tax-free amount to £100,000, down from £268,275 could raise around £2bn.
Another possibility is cutting the tax relief available to employers making contributions into employee pensions. Currently, basic-rate taxpayers receive 20% tax relief on contributions, while higher-rate taxpayers benefit from relief at 40% or 45%.
The chancellor is said to have decided to scrap plans to introduce a flat rate of upfront tax relief on pensions amid concerns about the impact this would have on public sector workers.
Stamp Duty Land Tax has also emerged as a point of interest. In 2022, the threshold at which people start paying stamp duty was raised from £125,000 to £250,000, with first-time buyers enjoying an increase to £450,000. These thresholds, however, are set to expire in March 2025, and Labour has yet to commit to extending them.
If not extended, landlords will soon have to pay up to £14,766 in stamp duty on an average home sale, which amounts to the largest bill on record, according to analysis by Hamptons estate agents.
Predictions from Hamptons show that a tax bill for a landlord purchasing a £309,572 home in April — which is when stamp duty tax relief expires — will be £14,776.
This record bill will be £2,500 more than if the landlord had completed the transaction a month earlier in March 2025 and will be £253 more than when stamp duty bills last hit a record high in August 2022.
The prime minister said those who earn extra income from property and investments are not covered by Labour’s manifesto pledge to protect “working people” from paying more.
Labour has signalled its intention to crack down on the controversial non-domicile (non-dom) tax status, which allows UK residents to avoid tax on overseas income. While former chancellor Jeremy Hunt had announced plans to reform non-dom status, Labour may look to toughen those measures.
Read more: Reeves to raise capital gains tax on shares in budget, reports say
The Office for Budget Responsibility (OBR) forecast that scrapping the tax break for wealthy foreigners could raise about £3.2bn a year. However, there are concerns that such changes could generate less revenue than expected.
Fuel duty, which has remained frozen for over a decade and was cut by 5p in March 2022 amid soaring prices, may also come under review. Some motoring groups argue the cut was not fully passed on to consumers, and there is speculation it could be reversed.
This could raise £1.8bn annually by 2029.
Labour plans to cap corporation tax at 25% for the rest of the parliamentary term, maintaining the lowest rate in the G7.
Although Labour has ruled out an increase in income tax rates, extending the freeze on tax thresholds beyond 2028 is a possible move. This move would bring more people into higher tax brackets as wages rise, a measure that could generate £7bn.
Labour has no plans to raise council tax rates, but changes to council tax discounts, including the 25% single-person discount, may be considered. Reports have also suggested that Labour might overhaul the council tax band system, possibly introducing a flat rate based on a property’s value.
Labour is expected to maintain the state pension’s rise under the triple lock, likely increasing it by 4%, which would add around £470 a year for pensioners. However, the chancellor may face difficult decisions on benefits, with inflation-driven increases set to be smaller than last year.
Reeves has indicated that the government will press ahead with welfare reforms to cut £3bn from the benefits bill by tightening work capability assessments, a move that could affect hundreds of thousands of claimants.
Chancellor Rachel Reeves will deliver her autumn statement on 30 October.
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