General tax rise predictions

Our tax lawyers explore the potential changes to general taxation anticipated in the 2025 Autumn Budget, and what these could mean for businesses and individuals.

Income tax and National Insurance

Predictions

We expect this Budget to include the potential abolition of higher rate (or the introduction of caps on up-front) income tax relief for pension contributions, the introduction of NICs on private landlords’ property rental income and increases to the financial caps governing Enterprise Management Incentive options.

Implications

Pensions 

With the announcement in the 2024 Autumn Budget that inherited pensions would fall within the inheritance tax net from 2027, clients are already beginning to view their pensions differently, in some cases intending to draw down their pensions and use them as a source of income or to make gifts from 2027, rather than leaving them untouched to pass down to children on death. 

Reduction of the tax-free lump sum allowance (currently £268,275), abolishing higher rate/capping up-front income tax relief on pension contributions (a very valuable relief but which is costly to provide), reducing the annual pension contribution allowance from its current £60,000 or reintroducing the lifetime allowance have all been mooted, and could serve to change behaviour in relation to pensions further in the future. 

We wouldn’t be at all surprised to see some changes announced in this area. Whilst they would appeal to the government’s traditional voting base, these sorts of measures would generally be detrimental to long term private pension saving at a time when the state pension is under pressure from funding commitments, so the government needs to be careful not to cut off its nose to spite its face. 

National Insurance contributions (NICs)

Although the feared introduction of an equivalent to employer NICs on partnership profits (currently partners in partnerships are subject only to Class 2 and Class 4 NICs, at much lower rates than apply to employment income) seems to have now been ruled out, the rumour that the rental income of private landlords will be brought within the scope of NICs remains. This would inevitably throw up questions around implementation, thresholds and means of declaration, although the collection of data would be much easier once Making Tax Digital is phased in from the start of the next tax year.

If this were to come in, one presumably unintended consequence is likely to be increased rents to still achieve desired rental yields, which would not be popular with voters and would impact public spending (and therefore tax revenues) in other areas.

Enterprise management incentives (EMIs)

The financial caps that limit the value of shares that can be granted under tax-advantaged EMI options to any eligible employee, and which restrict the size of company whose shares can be used for EMI options, must surely be due for an upwards review. 

The £250,000 value threshold per employee has been in place for well over a decade, and the £30m gross asset test (which applies to the individual company or, if it’s a parent company, to the group as a whole) has existed since the EMI legislation was enacted back in 2003. EMIs are a hugely useful tool for recruiting and retaining top talent in a way which aims to replicate the tax treatment of a direct shareholding, but without the practical challenges of introducing minority shareholders. 

Increasing the thresholds (or relaxing any of the numerous other statutory conditions that must be met for the EMI tax benefits to be available) would expand the number of companies and employees who can access these benefits.

Given that companies often use EMI options when they don’t have the cash to pay large bonuses or offer significant salary increases, this could be a welcome change at a time when many businesses are feeling the pinch and may well be hit by tax rises in other areas. 

Capital gains tax (CGT)

Predictions

We anticipate potentially small increases in CGT rates and the abolition of BADR.

Implications

Rates

Much of the activity before last year’s Budget was as a result of an expectation that capital gains tax rates would increase dramatically, perhaps to fall in line with income tax. In fact, the increases were more modest than expected with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. In light of this, it seems there would still be room for a small increase (particularly to the higher rate), although that may not have the desired increase in revenue that the Chancellor needs, if recent figures showing the slump in CGT receipts are anything to go by. 

A change in the capital gains tax rate could take effect from midnight on Budget day (as was the case in last year’s Budget) or from 6 April (with the intention of encouraging transactions in the window prior to the increased rates). Again, where disposals are planned or in train, individuals will want to complete these in advance of 26 November 2025 to bank the current rates, reliefs and allowances. 

If small rate changes are pre-announced that’s unlikely to have a material impact on M&A activity. In contrast, a pre-announced change to align CGT rates with income tax (albeit that seems unlikely), could result in a surge in corporate transactions in the short-term, but could potentially backfire in the longer term if it drives behavioural shifts which slow the M&A market down. 

BADR

Whilst the last Budget tinkered with the BADR rates without too much backlash, the government might decide to do away with it completely this year. It’s value to the individual taxpayer has been significantly eroded over the years, with it now only offering a maximum potential £100,000 saving, but its removal would be another kick in the teeth for business owners already facing the BPR changes to IHT. 

Inheritance tax (IHT)

Predictions

We expect to see no changes to business property relief and agricultural property relief, however there could be modifications to lifetime gifting rules.

Implications for high-net-worth private clients

Angela Eagle (Farming Minister) dashed the hopes of many when she quashed the rumour that the 100% inheritance tax relief cap for business and agricultural assets of £1m announced in the last Budget could be increased to £5m. It seems this measure is here to stay and will have encouraged farmers, landowners and business owners alike to consider lifetime gifting.

• In the run up to this Budget, there has been speculation that lifetime gifting itself could be restricted, either by imposing a lifetime cap (as in the US), or increasing the tail for gifts to remain on the inheritance tax clock from seven to 10 years, or removing the gifting out of surplus income exemption (such gifts not being subject to the general seven-year rule).
• If any of these measures were to be implemented, it is likely that this would be from Budget day, so where lifetime gifting is already planned or in train, the gifts should be completed prior to 26 November to take advantage of current rules.