Autumn Budget 2025: Tax Predictions

Business taxation

The 2024 Autumn Budget resulted in onerous tax changes for businesses. In particular, the increase in the rate of employer National Insurance Contributions (NIC) from 13.8% to 15%, which was introduced from April 2025, has predictably hit businesses hard and we understand it has resulted in fewer jobs and suppressed salaries for employees. However, given the economic context currently facing the beleaguered Chancellor, it seems unlikely this year’s Budget will include much to ameliorate the tax burden on businesses, despite the government’s stated intention to support business growth.

Business-related tax changes which could be introduced at the 2025 Autumn Budget include the following.

• Capital gains tax (CGT) – The government raised the main rates of CGT at the 2024 Autumn Budget (from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers). From 6 April 2025, the CGT rate applicable to carried interest also increased (from 28% to 32%), pending the introduction of a new carried tax regime from April 2026.
  
  The government may be considering further increases in the CGT rates at the 2025 Autumn Budget, potentially to align them more closely with income tax rates. However, this appears to be less of a concern than last year, when (anecdotally) more taxpayers than this year were entering into unconditional contracts for the disposal of assets ahead of the Budget, in an attempt to secure  pre-Budget CGT treatment.

• Stamp duty land tax (SDLT) – The government is rumoured to be considering abolishing residential SDLT, perhaps replacing it with a property tax on sellers or an annual levy on higher value residential property (for example homes over £500k). While this could potentially help to get the residential property market moving, it would be a radical departure from the current system. The government would need to carefully plan any new regime in consultation with stakeholders, including the introduction of transitional provisions to relieve those who have previously paid SDLT on the purchase of their homes. Conversely, the government may impose SDLT on transfers of shares in property-rich companies.

• Business rates – The government has previously confirmed it will provide a further update at the Budget on its plans to reform the business rates system, including confirming the permanently lower tax rates for retail, hospitality and leisure (RHL) properties with rateable values below £500,000 from April 2026 (intended to support high street businesses), and the rate for the high value multiplier to fund this.

• VAT changes – The government is rumoured to be considering reducing the VAT registration threshold from £90,000, perhaps to £30,000. This would increase tax revenue by bringing many more small businesses within the scope of VAT. Arguably, the change would encourage growth by reducing the “bunching” effect of small businesses deliberately keeping taxable supplies below the VAT registration threshold. However, for smaller businesses, which are already disproportionately impacted by increasing costs, the change would result in an increased administrative burden and potentially reduced profitability. It may also push up prices, exacerbating inflation which is still currently above the Bank of England’s 2% target.

• Pensions tax – The government is thought to be considering various pensions-related tax changes, including potentially moving to a flat rate of pensions tax relief for all taxpayers. (A flat rate of, for example, 25-30%, would reduce tax relief for higher earners and further incentivise pensions saving for lower earners.) The potential changes could also include removing or capping the employer and/or employee NIC exemption(s) for salary sacrifice pension contributions, and/or capping the amount of an employee’s salary that may be sacrificed. This may increase the tax burden on employers and disincentivise businesses from paying into employee pension pots, potentially storing up trouble for the future by reducing workers’ retirement savings.

On a positive note, the government is expected to honour its commitments (included in the Corporate Tax Roadmap published alongside the 2024 Autumn Budget) to cap the headline rate of corporation tax at 25% and retain capital allowances full expensing and the £1m Annual Investment Allowance, providing a degree of stability and certainty for businesses.

The government also appears to have decided against rumoured plans to impose employer NIC on the profit shares of members of limited liability partnerships (LLPs), which would have affected many partners in  accountancy, law and medical general practitioner (GP) firms, as well as numerous asset management firms. This change may have resulted in these businesses being restructured, thereby potentially actually reducing the overall tax take from LLPs.

Individual taxation

Much of the Budget speculation this year has focused on potential announcements affecting individuals.

The government now appears to have ruled out the much discussed possibility of increasing the basic rate of income tax for the first time in 50 years, thereby controversially breaking Labour’s election manifesto promise not to increase taxes on “working people” by increasing “National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”.

However, a likely revenue-raising option for the government would be to extend the freeze on the income tax and NIC thresholds (which the government confirmed at the 2024 Autumn Budget would rise in line with inflation from April 2028). This may be more politically palatable than increasing headline rates, but it would still significantly squeeze individual taxpayers through the effect of stealth tax rises.

Other changes to individual taxation (some of which overlap with business-related taxation) which the government is rumoured to be considering include:

• imposing NIC on rental income;
• increasing inheritance tax receipts by imposing a lifetime gifting cap and/or increasing the 7 year rule (for example to 10 years);
• reducing the annual cash ISA allowance from £20k (for example to £10k or even £4k);
• further reducing the dividend allowance (currently £500);
• imposing a mileage-based tax (for example 3p per mile) on electric vehicles, to replace lost fuel duty revenue;
• introducing new council tax bands;
• creating a new wealth tax, for example a 2% annual levy on assets above £10 million; and
• creating an exit tax charge (for example 20%) on unrealised gains on business assets for individuals who leave the UK and change tax residence.

Notably, the potential changes above all expand the tax base, reduce allowances, or otherwise increase tax revenue. Given the UK’s current gloomy economic circumstances, significant tax giveaways for individuals are generally not expected in this year’s Budget.

There has been some speculation that the government could reduce or even remove VAT on domestic energy bills, to ease inflation and mitigate cost of living pressures, but this may be unlikely given how expensive this would be for the public coffers. However, the government may choose to support smaller companies and their employees by raising the Enterprise Management Incentives (EMI) limits, enabling eligible companies to scale up their use of EMI to attract, retain and incentivise talent.

Conclusion

This will be a particularly challenging Budget for the Chancellor, who must carefully balance the need for tax rises to address the UK’s fiscal shortfall against the ongoing cost of living pressures on individuals and the persistent financial difficulties facing businesses, which have been exacerbated by the increase in employer NIC since April 2025.

It is difficult to see how any of the tax changes purportedly being considered by the Chancellor will materially support the government’s stated aim of encouraging UK economic growth. However, it is possible that businesses may escape the Budget relatively unscathed, with individuals bearing the brunt of an increased tax burden. Nevertheless, some potential changes, including a reduction in the employer NIC exemption for salary sacrifice pension contributions, could have a detrimental impact on businesses.