Budget 2025 - potential personal and business tax changes

Economists are predicting that to balance the government’s books and remain within fiscal rules, the Chancellor will need to increase taxes in the November Budget.

With the government remaining tight-lipped about potential changes, advanced preparation remains difficult. However, here are what might be some changes.

Personal taxes

Extending tax threshold freezes

The Chancellor can increase tax revenue by extending the existing freeze on income tax thresholds and personal tax allowances beyond 2028. As wages and pensions increase, more people will pay income tax at the lower, higher and additional rates. Raising billions without technically increasing tax rates; this is considered highly likely.

Also likely is a further freeze in the inheritance nil-rate bands. This would raise government income as increasing property prices push estate values above the threshold.

Property taxes

Indirect taxes on wealth are also expected. Potential changes to council tax, including re-evaluations and higher bands for some of the most expensive homes, would benefit local authorities and reduce the funding central government gives to councils.

The Chancellor may also change capital gains tax (CGT) rules for private homes. While most homeowners would remain exempt, establishing an exemption threshold for higher-value properties could raise significant sums.

Alternatively, the Chancellor may introduce a tax on the sale of high-value homes, with the income used to alleviate the impact of Stamp Duty on the housing market.

Pension tax relief changes

Tax relief on pension contributions is unlikely to be reduced, as it would deter workers from saving for their retirement, although there has been some talk about a a single rate of tax relief on pension contributions, of perhaps 30%. Also the introduction of a small, annual levy on pension fund values. Even at 0.25%, the levy could raise billions for the exchequer.

Sin taxes

Tax increases on gambling, alcohol, tobacco and other discouraged goods have become the norm in November budgets. This year, gambling companies are expecting to see tax rates increase; however, the needs of the hospitality sector may affect changes to alcohol duty.

Business taxes

Customs duty

Low-value consignments of goods imported into the UK (those below £135) are currently duty-free. The Government is reviewing this limit, and its reduction or abolition could be announced in the budget.

While this would increase costs for those importing low-value consignments, it would raise income for the government and support domestic retailers competing with overseas businesses.

Business rate changes

With higher business rates already in the pipeline for firms that use large or high-value premises, the Chancellor may also announce further increases for the warehouses of e-commerce businesses, as well as reduced discounts for smaller businesses, like high street stores and hospitality companies.

Banks surcharge

The 3% surcharge banks pay on top of the 25% main corporation tax rate may be increased if economic forecasts are positive. This would allow the Chancellor to increase revenue without affecting most other businesses.

Alternatively, the government could raise £3.3bn by taxing the substantial interest banks earn on money held with the Bank of England. At present, this is not taxed.

While these changes remain speculative at this stage, if you are concerned about how impending personal or business tax changes may affect you and would like to discuss your options, the experienced team at Wilkinson Woodward is here to help, so please get in touch.