UK Budget 2025 Predictions: What Tax Changes Could Be Coming?

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From income tax freezes and wealth taxes to business rates, pensions, and VAT reforms…hold on to your purses!

This article covers:

·       UK Budget 2025 predictions

·       Potential tax rises in income, property, and pensions

·       Business rate and VAT reform

·       What the 2025 Budget means for individuals and companies

As the UK approaches its 2025 Budget, the economic picture is looking far less optimistic than the Chancellor had hoped a year ago. Growth has stalled, tax receipts are below target, and spending cuts have proved difficult to deliver.

To meet her “non-negotiable” fiscal rules, the Chancellor will almost certainly need to raise taxes — a politically sensitive but increasingly unavoidable move. While some critics point to rising National Insurance Contributions (NIC) and minimum wage costs as self-inflicted wounds, others argue that global trade turbulence — particularly U.S. tariff policies — has also dragged on UK performance.

So, what could be in store when the Budget is announced later this year? Here’s a detailed look at the most likely areas for change.

Personal Taxation

Frozen Income Tax and Inheritance Tax Thresholds

The government’s freeze on income tax bands and allowances is quietly pulling more people into higher tax brackets as wages rise. Similarly, inheritance tax (IHT) thresholds remain unchanged despite surging property values.

Extending the freeze until 2030 would be a subtle but highly lucrative way to raise billions without technically increasing rates — a stealth tax in all but name.

Likelihood: High

Wealth Tax

Talk of a “wealth tax” resurfaces regularly, especially under Labour. However, such a tax has proven difficult to implement elsewhere, often leading to wealthy individuals relocating.

Given the administrative burden and political risk, this remains unlikely.

Likelihood: Low

Property and Housing Taxes

Property continues to be an attractive target for revenue. Possible measures include new council tax bands for high-value homes, a revaluation exercise, or even a mansion tax on homes over £500,000.

There’s also speculation that the Capital Gains Tax (CGT) exemption for main residences could be capped for properties above a certain value — potentially between £500,000 and £1.5 million.

Likelihood: High

National Insurance on Rental Income

The Treasury is reportedly considering bringing rental income for private landlords into the NIC net. Currently, only earned income is subject to NIC, but aligning the two could raise substantial revenue.

With landlords soon required to file quarterly digital returns under Making Tax Digital, it would also be easy for HMRC to administer.

Likelihood: Medium

VAT on Luxury Goods

A “luxury VAT” on high-end purchases — such as yachts, private aircraft, fine art, or exclusive club memberships — could serve as a politically palatable form of wealth taxation. The challenge lies in defining what counts as “luxury.”

Likelihood: Low

Private Jet Taxation

Expect changes to Air Passenger Duty (APD) for private jets. The government has already proposed moving all such flights to the highest APD band, with a potential increase in the top rate (currently £1,141 for long-haul).

Likelihood: Medium

Investment and Savings Incentives

The Prime Minister has spoken about “rewarding working people who save and invest,” hinting at potential tweaks to ISA and dividend tax rules.

The £20,000 ISA limit will likely stay, but a new allowance focused on small business investment may emerge. Aligning dividend tax with income tax rates could also resurface as a “simplification” measure.

Likelihood: Medium

Pension Tax Relief

Pension tax relief costs the Treasury roughly £45–50 billion annually, making it an ongoing target for reform. Reducing relief for higher earners or introducing a small annual levy on pension fund values could generate significant income with minimal resistance.

A 0.25% annual charge on pension pots, collected by fund managers, is one idea gaining traction.

Likelihood: High

NIC for Partnerships and Older Workers

Extending employer-style NIC to partnership profits or introducing a new NIC rate for post-retirement workers could technically boost revenue, but both would likely spark political backlash.

Likelihood: Low

Capital Gains Tax Adjustments

Incremental increases in CGT rates are often used to raise revenue without major market disruption. Expect medium, staged adjustments thought theirs a real change they'll go fo a single large hike - in for a pernny in for a pound!!!

Likelihood: High

Inheritance Tax for Non-Doms

The abolition of “non-dom” status in April 2025 will make worldwide assets taxable after ten years of UK residence. There's an argument to prevent an exodus of wealthy residents, with the government softening or delaying full implementation. The goverment neeeds to wake up - they've already gone, being replaced by the Americans.

Likelihood: Medium

Inheritance Tax Gift Reform

Current IHT gift exemptions could be streamlined — perhaps merging smaller allowances and revising the seven-year rule for tax-free gifts. Such changes wouldn’t raise huge sums immediately, but would increase long-term receipts.

Likelihood: Medium

Fuel Duty

Fuel duty has been frozen since 2011, despite the temporary 5p cut in 2022. If inflation continues to fall and fuel prices stabilise, the Chancellor might finally approve a modest increase.

Likelihood: Low

VAT on Domestic Energy

A reduction in VAT on domestic energy — from 5% to 0% — could help reduce inflation, but would cost around £1.75 billion per year. Any such cut would likely need to be offset elsewhere.

Likelihood: Medium

‘Sin Taxes’

Increases on gambling, alcohol, tobacco, and sugary products remain politically safe options. With reforms to the gambling levy already underway, expect the Chancellor to lean on these for additional revenue.

Likelihood: High

Business Taxation

Bank Surcharge

Banks currently pay an extra 3% surcharge on top of the 25% corporation tax rate. A small rise — or new taxes on bank deposits held with the Bank of England — could bring in billions.

Likelihood: Medium

Business Rates

The government is likely to keep business rate reforms moving slowly, increasing costs for large warehouses and online retailers while maintaining limited relief for high street premises.

Likelihood: Medium

Electric Vehicle Salary Sacrifice

Salary sacrifice schemes for EVs could be targeted next, following recent restrictions on employee car ownership schemes that sidestepped benefit-in-kind rules.

Likelihood: Medium

Low-Value Imports

The current £135 duty-free import threshold for low-value consignments could be reduced or scrapped, following similar moves by the U.S. and EU. This would help UK retailers compete more fairly with overseas sellers.

Likelihood: High

Landfill Tax

The government plans to phase out reduced landfill tax rates by 2030 to encourage recycling, though the construction sector warns it could push up costs. Delays or phased rollouts seem probable.

Likelihood: Medium

VAT Registration Threshold

With the UK’s £90,000 VAT threshold among the highest in the world, reducing it could improve compliance but burden small firms. Such a move seems unlikely until e-invoicing is widespread.

Likelihood: Low

E-Invoicing for VAT

Expect progress toward mandatory e-invoicing, allowing HMRC to receive real-time VAT data and reduce fraud — a move mirroring EU reforms.

Likelihood: Medium

Technical and Administrative Updates

Transfer Pricing

HMRC is preparing to align UK transfer pricing rules more closely with OECD standards, simplifying reporting and boosting transparency.

Likelihood: High

Carbon Border Adjustment Mechanism

The UK’s version of a Carbon Border Adjustment Mechanism (CBAM) — designed to tax imports with high carbon footprints — is expected to launch in 2027.

Likelihood: High

Energy Profits Levy

A flexible replacement for the current Energy Profits Levy on oil and gas producers may be unveiled, potentially kicking in during periods of exceptionally high prices.

Likelihood: Medium

Advance Tax Clearances

Expect reforms to the advance clearance process for R&D and major investment projects, improving certainty and reducing fraud — a move likely to be well-received by business groups.

Likelihood: High

Simplification and Calendar-Year Alignment

The government is working to align tax reporting for foreign income with the calendar year, simplifying administration for those with overseas assets. Other changes may streamline tax appeals and disputes across direct and indirect taxes.

Likelihood: High

Charity VAT Reform

Charities may benefit from long-awaited changes aligning VAT treatment of donated goods, ensuring consistent rules whether items are sold in shops or used directly by the charity.

Likelihood: Medium

Final Thoughts

The 2025 Budget is shaping up to be one of the most consequential in recent memory. With little room for further spending cuts and a firm commitment to fiscal discipline, targeted tax rises are the most realistic path forward.

Expect a Budget focused on a degree of stealth revenue measures — freezing thresholds, trimming reliefs, and taxing assets. For most this wont feel like a softening of measures.