Autumn Budget: inheritance tax and other possible changes

Chancellor Rachel Reeves has a huge challenge on her hands trying to balance the nation’s books and will be looking at all possible ways to raise extra tax revenue in this year’s Autumn Budget.

The 2024 Budget included a raft of changes, such as applying inheritance tax (IHT)  to unspent pensions and reducing tax relief on AIM shares. There has already been much speculation about tax changes we may see in 2025. Savers should remember that making changes to financial plans on the back of speculation could be very costly in the long-term and avoid making snap decisions.

Here we round up what those changes could be and how they would impact you.

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Inheritance tax

Speculation around IHT changes has focused so far on gifting allowances. It recently emerged that the government is considering implementing a lifetime cap on the amount you can pass onto your heirs IHT-free in the upcoming Autumn Budget, according to speculation.

Currently, the amount you can pass on inheritance tax-free via gifts is essentially unlimited, provided the person lives another seven years after making the gift.

However, with a lifetime cap on the value of gifts, the situation would be very different.

If the government imposed a £100,000 lifetime cap on the value of gifts that someone can pass on before they die, assuming you hit the £100,000 limit by using up gifting allowances and then gifted another £200,000, then your heirs would pay 40% IHT on the £200,000, so £80,000.

If the cap was £200,000 and you gifted £300,000 in total (using up the full allowance), then your heirs would pay 40% IHT on £100,000, so £40,000.

If a punitive cap of just £50,000 was introduced then, in this situation, the heirs would pay IHT of £100,000 on gifts totalling £300,000. 

Again, it’s important to note, that currently this is pure speculation. Rushing into decisions or making hasty changes based on rumours could be really damaging to people’s finances.

ISAs

Earlier this year the government was expected to announce a cut in the amount savers can hold in tax-free cash ISAs. Currently you can save up to £20,000 per year in either a cash ISA or stocks and shares ISA or split between the two.

Policymakers were planning to limit the cash element of that to encourage more of us to invest.

Plans were temporarily shelved over the summer, but the Treasury could well use the Autumn Budget as an opportunity to revive them.

Property taxes

There are rumours the Chancellor could look to overhaul property taxes - potentially even replacing stamp duty and council tax with a new annual tax on homes worth more than a certain amount. 

Such changes would disproportionately hit those in places such as London and the South East, where property values are particularly high.

Another way to raise extra revenues from property taxes would be to introduce new, higher council tax bands.

It has been suggested that capital gains tax (CGT) could be introduced on people's main homes if they sell for more than a set amount. Currently, CGT is only applied when you sell an additional property, not your main home. 

Again, for the moment, this is pure speculation. 

National Insurance on landlords

Landlords have faced a pelting of tax increases in recent years and this year’s Autumn Budget could continue the theme. 

According to some reports, the government may use the Autumn Budget to start charging National Insurance (NI) on rental income. 

NI is currently paid by employees earning more than £12,570 a year and by self-employed people making a profit of more than £12,570 a year. Earnings from buy-to-let properties are largely exempt from NI contributions. 

The rates for employees are 8% on earnings over £12,570, and 2% on earnings over £50,270, while for the self-employed the numbers are 6% and 2% respectively. It's unclear currently, if the policy were implemented, whether landlords would pay the same rates as employees or the self-employed. 

According to the Office for National Statistics (ONS), landlords earned £27 billion of net property income in 2022-23. An 8% NI levy on that would have generated c£2.2 billion.

Income tax

In its election campaign, Labour promised not to raise the three main working taxes – income tax, employees’ National Insurance contributions, and VAT. 

However, given the squeezed nature of state finances, it is possible the party could row back on this. 

Alternatively, the government could implement a “stealth increase” by extending the freeze on income tax thresholds. As salaries generally increase each year, freezing thresholds for longer means more people find themselves falling into higher rate tax brackets.

Last year, the government said it would end the freeze on income tax and National Insurance thresholds in 2028 - but this decision could be reversed to plug the hole in state finances.

According to The National Institute of Economic and Social Research (NIESR), extending the freeze beyond 2028 could raise an additional £8.2 billion in tax revenue.

Tax on lawyers and accountants

Rumours have emerged that the government could make changes in the Autumn Budget that would result in some lawyers, accountants and doctors paying more tax. 

The changes would impact people working under Limited Liability Partnerships (LLPs). These structures mean they are treated as self-employed for tax purposes and not subject to employers' National Insurance.

According to speculation, there could be a new tax charge on LLPs which would be slightly lower than the 15% rate of employers' National Insurance.
 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in an ISA or SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.