10 things to look out for in the Autumn Budget

The government has already cut universal winter fuel payments for pensioners and confirmed that VAT will be added to private school fees from January. But more pain is expected in the Autumn Budget on Wednesday (30 October) with the Chancellor, Rachel Reeves, looking to plug the £22bn ‘black hole’ in the nation’s finances.

Prior to the election, Labour ruled out raising Income Tax, National Insurance, or VAT, giving them limited room for manoeuvre. The government has also ruled out a direct ‘wealth tax’ — but its assertion that “those with the broadest shoulders should bear the heaviest burden” might indicate it will target the wealthy through other means, be it investments, savings, or property. Some possible contenders are listed below:

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1. Changes to Income Tax thresholds

Unless the Chancellor breaks manifesto promises, the main rates of Income Tax will remain the same. But as this is by far the biggest generator of tax receipts in the UK, Reeves may be tempted to look at other ways to squeeze some extra revenue here.

Income Tax bands have been frozen since 2021 and are due to remain at current levels until 2028. Reeves could extend this further. This stealth tax, known as ‘fiscal drag’, is an effective way of bringing in additional revenue, as inflationary wage increases mean more people move into these higher tax bands. Alternatively, she could go further and reduce thresholds. Currently, the tax-free personal allowance threshold stands at £12,570. Higher-rate tax (40%) kicks in when earnings exceed £50,271, with additional rate tax (45%) on earnings over £125,140. Any changes are likely to be at the upper end of this scale.

2. Employers paying more National Insurance

Previous chancellors have got around manifesto promises not to raise Income Tax by simply increasing the rate at which people pay National Insurance (NI) contributions — which for most employees feels like a tax rise, given this is also deducted directly from salaries. Before the election Labour specifically ruled out an NI hike. But it has since emerged that this pledge only covers individual workers - be they employees or self-employed. Ministers have refused to rule out raising the rate at which employers pay NI on their staff's wages, which currently stands at 13.8%. There has also been speculation that the government could require employers to start paying NI on the pension contributions they make for workers - which could potentially generate around £17bn. This wouldn't affect employees take-home pay, but it could see some employers scale back pension contributions and it may make salary sacrifice schemes less viable. Ultimately, if employers see a significant rise in their NI bill there's likely to be less in the pot for future pay rises.

• Read more on how Labour might change employers' NI contributions

3. Abolishing higher-rate tax relief on pensions

This would certainly generate significant sums for the Chancellor, although it would provoke howls of outrage from many savers. Currently, tax relief on pension contributions costs the Treasury around £44bn a year, a disproportionate amount of which goes to higher-rate taxpayers.

Introducing a single rate of tax relief — say at around 30% — could be positioned as a more equitable redistribution, incentivising those on lower and middle incomes to save more for their retirement, while coincidentally also saving significant sums for the government. However, this would also penalise high earners in the public sector with generous final salary pension schemes, including senior teachers, doctors, and consultants in the NHS. The government might steer clear of such reforms to avoid the risk of further industrial action with public sector unions.

• Read more on how Labour might change pensions

4. Cutting pension tax-free cash

There are a number of other ways the government could raise further revenue from pension savers. One is to limit the amount of money people take as tax-free cash. This is currently set at 25% of your pension pot. But with the lifetime allowance on pensions being abolished, a new ‘maximum’ has come in, at £268,275 — which equates to 25% of the old lifetime allowance. This could be reduced further. Given the average 55-64-year-old has a pension of just £107,300, the Chancellor could argue this would only impact the wealthiest of savers.

• Read more on your options for taking tax-free cash

5. Bringing pensions into Inheritance Tax (IHT)

Alternatively, the Chancellor could include pensions when calculating the value of an estate for IHT purposes. These are currently exempt, which has created the situation where people are often advised to utilise other savings and investments, such as ISAs, because it is more tax-efficient to leave pensions to heirs. Given the primary purpose of tax relief on pensions is to encourage people to build retirement savings, this can seem like an anomalous loophole Reeves may seek to close.

• Read more on how Labour might change IHT

6. More estates caught by IHT

There may be other changes to Inheritance Tax aside from this pensions loophole. Rather than simply raising the 40% rate at which this is charged, Reeves may change the rules so more estates get caught by this tax. This might include a further freeze on the nil-rate bands or even lowering them. Alternatively, she could change the rules around gift-giving, so people have to live far longer after giving significant assets away before these are excluded from their estate for IHT purposes. There's also speculation that AIM shares could lose their inheritance tax break.

• Read more on how Labour might change IHT
• Read more on how Labour might change the IHT break on AIM shares

7. Changes to Capital Gains Tax (CGT)

The CGT threshold has been reduced significantly in recent years, and many expect Reeves to cut it further. However, she could also raise the CGT rate. Currently, there are four rates: higher-rate taxpayers pay 24% on residential property (excluding the primary residence) and 20% on other assets. For basic-rate taxpayers, this reduces to 18% on residential property and 10% on other assets. Given the higher-rate property tax was 28% in spring this year, there is clearly potential for Reeves to put this back up — and possibly move other thresholds in line too.

• Read more on how Labour might change CGT

8. Increases to Stamp Duty

Property prices are starting to rise again, and the Chancellor may be eyeing up grabbing a larger share of this revenue. Since 2022, there has been a temporary reduction in Stamp Duty Land Tax, paid when purchasing a property. This is due to end in March 2025.

This reduction meant no Stamp Duty was paid on the first £250,000 of the purchase price; after March, this is due to reduce to just £125,000. There is also currently an extended Stamp Duty-free threshold for first-time buyers. Reeves is unlikely to extend this temporary reprieve and could use the planned changes as an opportunity for further hikes. These are more likely to be targeted further up the property ladder. Currently, Stamp Duty rises steeply: from 5% (between £250,000 to £925,000), to 10% (between £925,001 and £1.5m), then 12% on values above that. Buyers will also pay a further 3 percentage points on these rates if the purchase is an ‘additional’ property to the main family home — which could be another target area.

9. ISA changes

Pensions aren’t the only tax-efficient way to accumulate savings. Many people make the most of the annual £20,000 ISA allowance. The Chancellor may reduce this, as relatively few people maximise this each year, and the limit has increased over the past decade. Alternatively, Reeves may seek to limit the maximum people can save, perhaps introducing a £100,000 lifetime limit. Critics might argue, though, that this potentially penalises growth on these funds — and seems counter to moves that recently abolished a similar Lifetime Allowance on pensions.

• Read more on how Labour might change ISAs

10. Taxing dividends

Currently, investors can earn £500 in dividends each year without paying tax. This applies to investors who hold shares outside of pensions and ISAs, as well as to those company directors who pay themselves in dividends alongside a salary. There may be arguments to remove this exemption, particularly as it is only the wealthiest investors who are likely to have direct shareholdings outside an ISA. It’s also worth pointing out that the Conservative government hammered this allowance in recent years. In 2017, it stood at £5,000 but has been whittled down by successive Tory chancellors. Reeves may gamble that there will be relatively little political flak for abolishing it altogether.

Read more on how Labour might change the dividend tax

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 SIPP will not normally 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.