Graeme Hills, head of tax at Duncan & Toplis
With little over a month until the Autumn Budget lands, businesses across the UK are no doubt braced for difficult decisions.
Mounting fiscal pressure and strained public finances mean that further belt-tightening is an especially uncomfortable outlook. But it’s one that seems as inevitable as it is unappetising if the government seeks to plug stark gaps in revenue.
Last year’s already substantial financial black hole is now estimated by economists at Oxford Economics to have widened by a further 50%, with suggestions it may peak as high as £30 billion. So, is the Autumn Budget the decisive moment when stealth measures will simply cease to suffice and broader, more structural tax reform takes centre stage?
The rumours as we approach the announcement certainly seem to reflect that ambition. Among them are a few that business owners may wish to look out for, including: the concept of a new class of National Insurance contributions which would be taxed on rental income; “secondary” NIC-style contributions on partnership profits; the alignment of Capital Gains Tax with Income Tax, and an exit tax on unrealised gains for departing residents. Throw in changes to inheritance tax, higher levies on property wealth and possible duty hikes, and the scale of possible change is substantial.
Let’s explore what these changes could mean for you.
Equalising opportunities: NICs, partnerships and rental income
One proposal that seems to be gaining traction is a new NIC bracket that could be applied to rental income. If it comes to pass, this could effectively translate to treating landlords more like employees- from a taxation perspective, at least.
The idea is to level the playing field by equalising tax treatment across income sources, with a proposed investment allowance to protect smaller landlords. While generally viewed as fair in theory, some critics are warning of knock-on effects, which seem likely, such as landlords seeking to pass on higher costs to tenants via increased rental charges.
Similarly, a parallel change that could be proposed is the concept of secondary “partnership contributions” on partnership profits, akin to employer NICs, and in this case, such reliefs could mirror the employment allowance to shield smaller partnerships. This has so far drawn cautious support- especially in sectors such as general practice, where partnerships dominate in terms of volume – but the mechanics and thresholds will no doubt be hotly debated if the Chancellor’s red briefcase holds this particular reform.
Adjusting the microscope on Capital Gains Tax
Possibly among the more contentious set of proposals involves rejigging reliefs, which could culminate in aligning Capital Gains Tax rates with Income Tax, or strip taxations buffers such as the Business Asset Disposal Relief. To temper a potentially vociferous backlash to such an idea, an investment allowance that exempts “normal gains” (for example, modest returns relative to capital invested) could be a viable measure.
While, in theory, this idea could make gains accrued in this manner fairer for those paying income tax through standard means, it bears noting that the definition of “normal gains” will no doubt be fiercely contested, and the impact on the economy of such a hike could not be underestimated..
Also under the umbrella of gains is another idea: an exit tax on unrealised UK gains upon leaving the country, taxing only those gains accrued while resident in the UK. This is proving to be a popular concept as it aligns with policies already used by the US, Canada and Australia.
A wealth tax? Plus a premium on property values
Turning our attention to the property market, proposals in this sphere include a proportional property tax on high-value homes. This could be constituted of just 1% on residences between £2 million and £3 million, and 2% above that threshold.
The logic here is clear: wealth tied to land and property should be taxed more visibly. In this vein, should this rumour be true, it would likely be an incredibly popular idea – not quite the ‘wealth tax’ the public have been clamouring for, and a tax on simply holding assets rather than profiting from them is somewhat divergent from the current taxation system.
Another measure that would likely garner strong public support is a rumoured proposal of a 200% premium on council tax for second homes owned by non-UK residents. This is both politically palatable and easy to roll out from an administrative perspective, which could make this a firm favourite to be realised come 26 November.
These ideas all share a set theme and seem to speak to a broader narrative: shifting more of the revenue burden onto the wealthy, as well as land and property owners, rather than eroding wages and business profits, which typically are poorly received.
Fiscal drag and hidden taxes: The quiet revenue creep
Let’s not forget that, even amid these headline proposals gaining traction, one certainty remains silent: frozen income tax thresholds. While currently not set to thaw until 2028, extending it further is not beyond the realms of possibility.
Indeed, it could generate billions more over time, as wage inflation continues to shunt taxpayers into higher bands.
This is the classic stealth tax at play; there is no rate change and no actionable changes in the immediate term, but more tax is paid anyway. The risk, of course, is one of eroding incentives and tightening the squeeze on cashflows, especially for SMEs and owner-managers.
Heading into the unknown: A Budget unsettled by tense trade-offs
We know that not every idea floated by pundits will make the cut and, when they do, many will be heavily diluted to make them easier to action or more palatable for the public.
However, the direction is discernible: a tilt towards perceived fairness, taxing wealth and passive income more heavily, while preserving headline rates. The Chancellor’s constraints, such as manifesto promises and behavioural economics, will mean compromise is inevitable – but it will be interesting to see how such reforms are framed to remain favourable.
Yet even compromise is a form of change, and businesses that assume continuity will most definitely be caught off guard come November. Those who plan flexibly, on the other hand, may well turn Budget uncertainty into strategic clarity.
A pragmatic playbook for owner-managers: How to prepare now for potential tax changes post-November
In the shifting sands of tax reform, preparation remains the surest form of protection. Owner-managers should model how potential Budget changes might affect their profit extraction, capital gains and property holdings, assessing both visible and stealth tax exposures. Now’s the time to revisit business structures, review your available liquidity and consider whether to accelerate or defer disposals ahead of any rate alignment that may occur in the near future.
Above all, start these conversations early and with intent. At Duncan & Toplis, our tax specialists help clients anticipate, adapt and act with confidence, because in an era of fiscal drag and contested fairness, foresight is the best defence and preparation the strongest advantage.
