What can we expect in the Autumn Budget?

With the government’s long-awaited Spending Review known, speculation is now rising over what tax changes might appear in the Autumn Budget to fund these broader investment plans.

Many are anticipating potential changes to ISA limits and pensions, while there are also rumours that the Chancellor could tinker further with inheritance tax (IHT) and capital gains tax (CGT) rules.

The Spending Review sets out longer-term departmental budgets for the remainder of the Parliament. In contrast, the Autumn Budget is an annual fiscal event, where the Chancellor reveals tax, borrowing and spending plans for the year ahead, to ensure there is sufficient money to meet these departmental commitments. These may be further refined in the Spring Statement, particularly if underlying economic conditions have changed.

Last October, Rachel Reeves’ first Budget delivered a record £40bn of tax rises. At the time, she said she was not looking to repeat this. But with the global economy still looking fragile, UK growth remaining anaemic and the Spending Review committing significant additional sums to defence and the NHS, many expect the Chancellor will be looking for new ways to raise revenue this year. 

So what could be in the famous red box this autumn?

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ISA changes

In the Spring Statement, the government confirmed it would undertake a thorough review of Individual Savings Accounts (ISAs) — leading to widespread speculation that the overall limit could be cut, or significantly curtailed for cash ISAs.

Currently, all adults can save up to £20,000 a year into tax-efficient ISAs, either through a stocks and shares ISA, a cash ISA, or a combination of both.

Announcing this review, Reeves said it would look at whether the system is “getting the balance right” between cash and equities (shares). The government has made no bones about its desire to encourage more people to invest, rather than leave their money sitting in savings accounts. It hopes this will deliver better returns for savers while also boosting economic growth.

After announcing the review, Reeves later confirmed that the government is not planning to reduce the overall £20,000 ISA limit. However, she has remained tight-lipped about whether this could be restricted for cash savings.

• Read: How might the government change Cash ISAs?
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Restricting ‘salary sacrifice’ options

Many employees choose to ‘sacrifice’ part of their salary in exchange for higher contributions into their workplace pension. This can be tax-efficient for both the employee and the employer, as pension contributions — unlike salary payments — are not subject to income tax or National Insurance. This option has become more attractive for employers following this April’s increase in their NI rates.

But speculation is rife that this could be scaled back, following the publication of HMRC research into how employers might react should the rules be changed. Steve Webb, a pensions minister in the coalition government, said this research suggested changes to salary sacrifice were “firmly on the Treasury’s agenda”. However, it should also be noted that it was the previous government that commissioned this HMRC research.

There are a number of ways the government could limit salary sacrifice and recoup some of the tax revenue lost through these schemes. One option might be to cap the amount individuals can sacrifice — effectively targeting higher earners who are maximising these arrangements. However, the government could take a broader brush approach and remove the NI exemption, or both the NI and tax exemption, on all of these salary sacrifice payments.

Tax-free cash changes

Last year there were frenzied rumours the government might restrict the tax-free cash that can be taken from pensions, or reduce the higher rate tax relief on pension contributions. In the event neither happened, although pension providers reported afterwards that there had been a spike in people accessing pension funds in advance of the Budget, which may have had negative consequences for future financial planning. This highlights the dangers of making financial decisions on the back of speculation, without seeking advice or guidance on your options. 

To date this hasn’t reappeared in the rumour mill, but given the relatively high cost of tax relief on pensions (particularly for higher earners) it is always going to be a potential lever for Reeves to pull if she wants to raise money. 

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Capital Gains Tax (CGT)

The government hasn’t indicated it is actively reviewing CGT. But given its manifesto commitment not to raise income tax, National Insurance or VAT, it is inevitable it may turn to other taxes — such as CGT and inheritance tax (IHT) — if it needs to boost revenue.

The Chancellor did raise CGT rates at the last Budget — increasing the lower rate from 10% to 18% and the higher rate from 20% to 24%. These rates could be raised again, or Reeves may consider applying specific rates to certain asset classes, for example second properties. Alternatively, she could further reduce the annual exemption allowance — the amount investors can realise in gains before CGT is applied. However, this allowance has already been pared back to the bone in recent years: from £12,300 in 2022/23, to £6,000 in 2023/24, and now stands at just £3,000.

Inheritance tax (IHT)

The government introduced a number of IHT changes in the last Budget. The most high-profile is the plan to impose IHT on agricultural holdings from April 2026. But potentially affecting more people is the decision to include the unused value of pension funds within a person’s estate for IHT purposes — due to come into effect in 2027.

Given the complexity of IHT rules, particularly around the various gift allowances, there may be scope to simplify the regime with a view to raising additional revenue. For example, the Chancellor could extend the period donors must live after making a substantial gift before it falls outside their estate for IHT purposes. Currently this is seven years, but there has been suggestions in the past that the Chancellor could raise it to 10 years.

• Read: 5 tax hacks: How to make financial gifts without a big tax bill

The Chancellor may also choose to further extend the freeze on the nil-rate band beyond 2030. Currently, IHT is charged on estates worth more than £325,000 — although there are additional allowances covering the family home, which effectively allow married couples to pass on assets of up to £1 million to their children.

The £325,000 nil-rate band has been frozen since 2009, while the residence nil-rate band has remained unchanged since 2017. Keeping these thresholds level — or even reducing them — is likely to raise significant revenue, as more families find themselves liable for IHT due to rising property and asset values.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a SIPP or ISA 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.