The Budget is a month away: What could be on the chopping block

Reports suggest that Chancellor Rachel Reeves faces a growing ‘black hole’ in public finances in the tens of billions, leading to mounting questions around which tax raising measures could be announced in her second Budget next month. With four weeks to go until the chancellor takes to the despatch box on 26 November, we've analysed some of the options on the table.

Pensions tax relief and tax-free cash

Rachel Reeves’ first Budget was preceded by feverish speculation over whether tax relief on pension contributions or tax-free cash entitlements could be in the firing line. Last year, the government allowed these rumours to fester, resulting in a significant increase in the number of savers accessing their lump sum in the months leading up to the Budget.

A similar story holds true this year, showing that savers remain concerned about a cut to tax-free cash.

In reality, cutting tax-free cash would be hugely unpopular and raise trivial sums for the Treasury, so a tax grab feels unlikely. Likewise, moving the goalposts overnight is almost unthinkable, so any change would almost certainly come with protections, perhaps similar to those put in place with previous cuts to the pension lifetime allowance. Nonetheless, concerns have clearly developed in the absence of a clear commitment from the government and the chancellor should use the Budget as an opportunity to show this government is committed to pension tax stability.

ISA reform

Rumours the Cash ISA allowance will be cut have been brewing for months, with most now expecting the chancellor to wield her Budget axe in a bid to encourage more people to invest for the long term. While this is the right policy goal for both individuals and the wider UK economy, reducing the Cash ISA allowance is the wrong way to achieve it.

Tinkering with the Cash ISA allowance would add further complexity to the ISA landscape, and would be unlikely to deliver a meaningful shift in investing behaviour. Research by AJ Bell earlier this year found that just one-in-five would move to investing in the UK stock market if the Cash ISA allowance was reduced.

State pension reform

The £150 billion and growing cost of providing the state pension will always be a tempting target. There are two obvious ways the government could reduce state pension spending – ditching the triple lock or accelerating planned increases in the state pension age. However, both would come with a hefty political price, particularly in light of the opprobrium the government faced over winter fuel payments.

A review of the state pension age is currently underway, with the call for evidence ending on 24 October. This could pave the way for a faster increase in the state pension age to 68, currently pencilled in for the mid-2040s, and even further rises beyond that age.

The triple lock was noticeably absent from the terms of reference of that review and Prime Minister Keir Starmer has repeatedly pledged to keep it in place for the rest of this Parliament. However, at some point politicians will need to establish what the policy is aiming to achieve and set a trajectory to, at the very least, remove the 2.5% underpin.

Income tax

Reeves has pledged to stick to her manifesto promises and not increase national insurance, income tax or VAT for working people. But as rumours abound that the Office for Budget Responsibility (OBR) is about to lower its productivity forecasts even further, Reeves’ hand may now be forced.

Reports suggest that the chancellor is considering an increase in income tax by 1p across the board. For someone earning £35,000 a year, roughly the average income of a UK adult, an extra 1p on income tax would see their annual bill rise from £4,486 to £4,710 – an increase well in excess of £200.

Another option put forward is raising income tax but cut the main rate of employee national insurance by the same amount. That would raise tax rates for pensioners, landlords, savers and perhaps those with dividend income too, while offsetting the impact on workers.

Any change would be in addition to the almost ‘nailed on’ expectation that Reeves will extend the current freeze on tax thresholds beyond April 2028 for another two years. Over 8.3 million people are now paying higher or additional rate tax, up over 45% since the start of the freeze in 2021.

National insurance

One of the government’s key election pledges was not to increase national insurance contributions, but at the last Budget Rachel Reeves found a way around that pledge by insisting it only meant employee contributions.

One way would be to change the tax system by imposing a new charge on those using limited liability partnerships (LLPs) – a designation which means they are taxed as if they are self-employed.

Though this measure is unlikely to bring in the big numbers that other changes to NI would, taxing some doctors, accountants and venture capital funds would place the burden on predominantly higher earners, or those with the ‘broadest shoulders’, as the chancellor has suggested during various media rounds. Rachel Reeves has been warned that this risks alienating another tranche of doctors at a time the government is fighting to bring down NHS waiting lists, and also could have a knock-on to the amount of capital available to invest in UK start-ups and scale-ups – innovative businesses that are vital for economic growth.

But there is another group which could find themselves facing the prospect of paying NI, and that’s pensioners. No national insurance is levied on any pension income and even those who continue to earn a salary after they reach state pension age are not subject to the tax, no matter how much they earn.

Pensions salary sacrifice

Thousands of employers currently use pensions salary sacrifice as a way of efficiently paying pension contributions but cutting down on both employer and employee national insurance costs.

Because of these tax and NI advantages, pension salary sacrifice has frequently come under scrutiny, as the government searches for opportunities to reduce reliefs and boost revenue.

But any changes are likely to go down very badly with employers. HMRC-commissioned research earlier this year presented employers with different scenarios for reforming pensions salary sacrifice. Employers reacted negatively to all of them, saying that removing reliefs would wipe away the financial benefits of salary sacrifice, and lead to lower pension savings and workers’ morale.

Stamp duty exemption on UK shares

Reports suggest the government is considering making new UK stock listings exempt from stamp duty for their first three years on the market.

Investors currently pay 0.5% stamp duty on UK share purchases, which runs counter to Rachel Reeves’ aim to revive the UK stock market and encourage new listings. Granting an exemption on newly listed companies would reduce a barrier to investing in the UK and potentially attract a broader pool of investors. It would also encourage more companies to list.

However, the chancellor could be bolder and widen the exemption from stamp duty to all UK shares, as it’s a tax which explicitly deters investment in UK companies at a time when government policy is aimed at doing precisely the opposite.

If removing stamp duty on all UK shares isn’t palatable for a Treasury scrabbling around for every penny it can find, then it could consider a diluted version of this policy. For instance, removing stamp duty on shares within an ISA would cost somewhere in the region of £120 million, according to an estimate based on stamp duty paid by AJ Bell customers. This is a relatively small sum in government spending terms but would help to funnel more money into UK-listed companies by reducing the penalty the government bizarrely places on domestic stock investment.

Inheritance tax

Reeves made sweeping changes to inheritance tax at her inaugural Budget, with pension savers and farmers being hit by the country’s most-hated tax.

But reports suggest the Treasury is considering tweaking the controversial inheritance tax (IHT) reforms for farmers, by increasing the tax threshold from £1 million to £5 million, which could result in smaller farms escaping the tax.

Unfortunately any hopes of a U-turn for pension savers is unlikely. The impact of this policy is already being felt. Many advisers are working with their clients to mitigate IHT by gifting money from their pension to loved ones, in anticipation of pensions being subject to the tax from April 2027.

Reeves’ attention could be caught by the current rules on gifting, and she may change the rules on tapering relief, pushing the seven-year period out to ten or even 12 years.

Mansion tax

There have been rumours the chancellor may look to levy an annual tax on high value properties, or charge the owner’s capital gains tax (CGT) upon sale. Clearly the wealthiest would be hardest hit by CGT on high-value properties. But there would likely be a knock-on effect for middle income families because anyone with a big tax liability may opt to sit tight in their property, causing a log jam in the housing ladder below them.

It’s far from certain that such tax changes will take place, but if they do, much will depend on the precise threshold at which CGT becomes payable. Even if such a ‘mansion tax’ is set at a high level, it would naturally cause people on middle incomes to worry it was just the thin end of the wedge, and the next time the government needs a bit of money they could just lower the threshold. Homeowners would also need to keep records of the costs of improvements they made to properties in order to offset them against any capital gains tax.

Capital gains tax

Rachel Reeves may have unfinished business with capital gains tax (CGT). Having pushed rates up a bit in the last Budget, the chancellor may be tempted to engage in a more full-blooded attack on asset gains to drive some much-needed revenue for the Exchequer. Equalising capital gains tax rates with income tax rates has been widely touted for a while, and may lead the OBR to forecast a few extra quid coming into the Treasury as asset prices rise.

By announcing the tax ahead of its implementation, the chancellor can almost certainly boost short-term tax receipts as investors crystallise gains before higher rates of tax come in. However, there is some doubt over whether raising capital gains tax is good for tax revenues in the long term. Higher rates of CGT will encourage more people to shift money to vehicles where they don’t pay it, like ISAs, gilts, and primary residences. It also discourages entrepreneurship and investment in productive assets, something which cuts across the chancellor’s plans to boost economic growth.

Wealth tax

As things have looked increasingly tight on the fiscal side of things, partly a result of Labour U-turns on the winter fuel allowance and welfare spending, the idea of a wealth tax has reared its head and been given some oxygen. On the face of it a wealth tax is an appealing idea. Research by AJ Bell suggests that introducing a wealth tax has considerable net support, with over two-fifths (44%) of Brits saying they’d be in favour of a ‘wealth tax’ of some form being announced at the Budget*. But as ever, the devil lies in the detail.

Part of the problem rests in which assets to include. Family homes, pensions and private businesses aren’t always easy to value, and can’t easily be turned into cash to pay taxes. However, excluding certain assets from a wealth tax clearly creates a loophole and a strong incentive to store wealth in anything that’s not subject to the tax. A wealth tax may also be counter-productive by encouraging rich individuals to relocate elsewhere, taking their tax revenues with them. With a large portion of the tax falling on a small number of extremely wealthy individuals, it only takes a few tax whales to head for the horizon to deny the taxman a feast of blubber.

Questions of fairness also arise. Wealth that’s been accumulated may well have been already subjected to income tax, capital gains tax, inheritance tax, or a combination of all three, so adding a wealth tax creates a state of at least double taxation.

*Based on a nationally and politically representative survey of 2,050 UK adults, carried out by Opinium on behalf of AJ Bell between 23 and 24 October 2025.