Budget tax rises: what Which? experts say could be on the table

Budget due within a fortnight

The Chancellor is due to deliver a Budget speech within two weeks, and speculation is building over which taxes could rise to fund new government spending commitments. In a Which? Money podcast, tax expert Ruby Flanagan and Rathbones chartered financial planner Faye Church set out which areas of personal taxation are most likely to be affected, and which are not.

Personal allowance unlikely to rise

Speculation had grown that the income tax personal allowance, frozen for several years, could be raised to above £14,000. Flanagan said this was unlikely, despite reports that frustration over the frozen threshold came up repeatedly during a recent by-election campaign. She said raising the allowance would be “a really big step” given the pressure on public finances.

Manifesto pledges rule out some options

A manifesto commitment not to raise taxes on working people rules out increases to income tax, VAT and National Insurance, according to Church. That leaves frozen tax thresholds, Capital Gains Tax, inheritance tax and property taxes as the areas most likely to be used to raise revenue instead.

Capital Gains Tax rates under discussion

Capital Gains Tax is currently charged at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on profits from selling property or other assets. Flanagan said there had long been suggestions that these rates could be equalised with income tax, meaning basic-rate taxpayers would pay 20% and higher-rate taxpayers 45%. One of the government’s own allies has called for changes to Capital Gains Tax. However, Flanagan referenced a Financial Times report suggesting this change has been ruled out, meaning the Budget may proceed without clarity on the issue.

£35 billion funding gap identified

The Institute for Fiscal Studies this week said the Chancellor needs to find around £35 billion extra to meet current spending plans, according to Flanagan. This is a larger sum than was expected earlier in the summer, reducing the room for manoeuvre ahead of the Budget. Flanagan said it remains unclear whether this gap will be closed through tax rises, adding that the government is “walking a tightrope”.

Households fear multiple small changes

Church said clients at Rathbones are increasingly worried not about a single large tax change but about several smaller adjustments across income, assets, pensions, property and inheritance tax landing at once. She described this as a concern over “death by a thousand cuts”, with uncertainty over pensions, Capital Gains Tax and inheritance tax complicating long-term financial planning for more affluent households, some of whom are planning 10, 20 or 30 years ahead.

What happens next

No formal tax changes have been confirmed, and both experts stressed that households currently have little clarity on what the Budget will contain. The speech is expected within the next fortnight, at which point any changes to thresholds, Capital Gains Tax, inheritance tax or property taxes will be set out in full.