By Tom Walker, partner at Wellers, looks ahead to The Budget
With the Autumn Budget just around the corner, the swirl of rumours has been hard to ignore. Income tax rises, a possible mansion tax, and further pension reform have all dominated recent headlines. For many people, though, one question sits above all the speculation: how will this affect me?
My aim here is to cut through the noise. Based on current briefings, economic context, and the patterns we highlighted in our recent analysis, I’ve set out what I believe we’re most likely to see on Wednesday and the areas you may want to keep an eye on.
Mansion tax
One of the most discussed possibilities is a mansion tax applied to properties valued above £1.5m. The suggestion is a 1% annual charge, which would leave someone with a £2m home facing a potential yearly bill of £20,000.
In order to do this, around 2.4m homes in Council Tax bands F, G and H would have to be revalued. These valuations are decades old, so any reform would be a big undertaking and will take time to roll out. Even if the Budget sets this idea in motion, changes would most likely come in stages rather than all at once.
Rental profits
Another possibility is extending National Insurance to rental profits. If introduced, this would add another layer of cost for landlords and could trigger two knock-on effects: higher rents for tenants and a continued acceleration in landlords deciding to exit the market.
This would build on existing trends we’ve already seen, the rental sector shrinking and the financial pressures on landlords increasing.
Capital Gains Tax on main residences
The potential introduction of Capital Gains Tax on main residences above £1.5m would mark one of the most significant changes in this year’s Budget. Rough estimates suggest that 120,000 homeowners could be hit with a tax bill of around £200,000.
For anyone whose property value sits close to the threshold, you might start to consider how any plans to move or home improvements might affect future valuations.
There is also speculation that Stamp Duty Land Tax could be replaced with a form of seller’s tax, and that Principal Private Residence relief could be restricted to homes valued under £500,000. Any combination of these would likely reduce housing mobility and disproportionately impact southern regions, where property values tend to be higher.
Income Tax
There have been talks of extending the freeze on personal tax thresholds beyond 2028. This would mean that a taxpayer earning £100,000 today could pay around £7,000 more than they would have if thresholds had kept pace with inflation. This would then result in fiscal drag, where taxpayers may be pushed into higher income tax bands due to assumed wage growth over time. If you’re a high earner or business owner, you may want to keep an eye on how close you are to the next tax band.
There is also talk of increasing all income tax rates by 2%. This may be paired with a 2% reduction in employee NICs, which could soften the impact for employees but would offer no relief to pensioners, landlords or the self-employed. Those groups would feel the increase more sharply.
Further still, an ‘employment-style’ National Insurance charge for LLP members remains on the table. While only moderately likely, it would be extremely challenging to implement within a single fiscal year and could increase costs for professional firms overnight.
Pension lump sum withdrawals
Currently, individuals can withdraw up to 25% of their pension pot tax-free from age 55, capped at £268,275. A reduction of this tax-free limit to £100,000 is said to have been discussed.
For anyone with a larger pension pot or plans for a significant withdrawal, you may need to review the timing of your retirement plans to decide whether acting earlier makes sense.
Pension tax relief
Pension tax relief could also be simplified so that everyone receives a flat 30%, rather than higher earners receiving more generous relief. If this happens, anyone on higher incomes may want to maximise contributions while the current system is still available.
Pension Salary Sacrifice Schemes
Salary sacrifice schemes, widely used to reduce NI liability, currently have no cap. A new limit of £2,000 would mean salary amounts above this threshold become subject to NI at 8% (under £50,270) or 2% (above that level).
Anyone relying on salary sacrifice as a core part of their long-term retirement planning should monitor this closely, as it could significantly alter expected savings projections.
Inheritance Tax
Inheritance Tax could be tightened too. Two ideas being discussed are increasing the period for gifts to be counted from 7 years to 10, and introducing a £100,000 lifetime cap on gifts made before death. These changes would affect anyone planning to help children or grandchildren with property deposits or financial support.
Cash ISA allowance
There is speculation that the annual cash ISA allowance may fall to £10,000. A new ‘British ISA’ could be introduced alongside it, giving an extra £5,000 allowance for investing in UK-listed shares. If you usually use your full ISA allowance, you may need to think about how you spread contributions in the future.
Pay-Per-Mile Tax for EV Drivers
As more people switch to electric cars, the government is exploring new ways to replace lost fuel duty. A pay-per-mile system could mean that someone driving around 8,000 miles a year pays roughly £435 in tax. If you own an electric vehicle, it’s worth reviewing your typical mileage to avoid nasty surprises later.
An exit tax
Finally, an ‘exit tax’ could apply to people leaving the UK while holding assets that have risen in value. A tax of around 20% on those unrealised gains has been discussed. This would be a major change for business owners or shareholders considering relocation.
Final thoughts
As always, the picture will only become clear once the Chancellor delivers the full statement. If even a handful of these measures are announced, it could be one of the most far-reaching Budgets in years. Once the details are confirmed, Wellers will provide a complete breakdown, and I’ll be analysing which of these predictions become reality.
