Six big changes to expect from Reeves’ Budget and how they’ll impact your finances

Chancellor Rachel Reeves has set the scene for tax rises in her autumn Budget on 26 November and everyone from homeowners to pension savers could be in her sights.

High inflation and an estimated £30bn fiscal shortfall are putting pressure on the government and ultimately the nation’s finances.

Reeves said in a speech in Downing Street earlier this month that “each of us must do our bit for the security of our country and the brightness of its future”.

This has been seen as a sign of tax rises to come, especially as the chancellor suggested that she had to “deal with the world as I find it, not the world as I might wish it to be”.

The rumour mill has been running for months and with just two weeks to go until the latest fiscal update, here are the key policy changes expected in the Budget and how they might impact your finances.

Labour’s main manifesto pledge when it came to power last year was that it wouldn’t raise national insurance (NI), income tax or VAT.

Reeves already raised employer NI contributions in her 2024 Budget and it is now expected that an income tax hike is coming.

There are rumours that the Treasury is considering an idea from the Resolution Foundation to increase income tax by 2p and reduce employees’ NI by the same amount, which the think tank says could raise £6bn and hit higher earners more than what Labour describes as “working people”.

But Sarah Coles, head of personal finance for Hargreaves Lansdown, said it would also hit self-employed people who pay income tax, but not employee NI.

She said: “They do pay NI, but a different class at a different rate, so they pay 6 per cent on profits over £12,570 up to £50,270 and 2 per cent on profits over £50,270. By only cutting NI for employed people, the system would put more of a burden on the self-employed.”

Commentators have also speculated that the chancellor could instead add 1p to the basic rate of tax, increasing it from 20 per cent to 21 per cent.

Laura Suter, director of personal finance at AJ Bell, said this would cost taxpayers up to £377 a year in extra tax, with anyone earning £50,270 or more facing the maximum hit.

She said: “While it’s possible income tax rates could be hiked across the board, higher and additional rate taxpayers already account for a disproportionate share of the income tax take. What’s more, increasingly aggressive rates risk discouraging people from taking promotions and progressing their career.

“An increase to the basic rate is easier to position as a shared burden since it affects almost all workers, as well as pensioners and some savers.”

Reeves already announced last year that pension savings will form part of an estate for inheritance tax calculations from 2027.

There is always speculation about restrictions on pension tax relief for higher earners but the latest rumours suggest the chancellor could reduce how much tax relief employees can get from contributing to their pension through salary sacrifice.

It has been suggested such a move means the average worker might be affected to the tune of £210 a year.

Antonia Medlicott, managing director of Investing Insiders, said: “The chancellor risks undermining trust in the system, which could deter people from saving or push higher earners into more risky products as they look for alternative ways to save tax.”

A mansion tax is popular among many Labour MPs and was a party policy under former leader Ed Miliband.

Reeves previously ruled out a mansion tax as shadow chancellor.

But there are now rumours that an effective mansion tax could be introduced by charging council tax on the sale of homes above £1.5m or even charging a 1 per cent annual levy on properties worth above £2m.

Just over 150,000 properties in England and Wales would fall into the £2m bracket today, according to Knight Frank calculations, mainly around London.

Many homebuyers will be hoping for changes to stamp duty, especially after the thresholds increased in April and pushed up the cost of buying a property.

Reeves will also be under pressure on property taxes after Tory leader Kemi Badenoch announced in her party conference speech that the Conservatives would scrap stamp duty if they were back in government.

That seems unlikely given the high levels of income the tax provides for the Treasury but there are rumours that stamp duty could be replaced with a new national property tax on home sales above £500,000, shifting the cost from buyers to sellers.

Rightmove figures show that just under a third of homes for sale in England are priced above £500,000 and would be subject to the proposed new annual property tax.

But this would again hit London hardest, where 59 per cent of listings have an asking price above £500,000 versus just 8 per cent in the northeast.

Johan Svanstrom, chief executive of Rightmove, suggests that shifting the burden of stamp duty onto a seller may be good for first-time buyers, although any savings may be offset by higher asking prices.

He added: “If the responsibility for property taxes shifts onto the sellers’ side, the government will need to really think through how this transition will be phased in to avoid slowing down the mass market. Those who have recently paid stamp duty as a buyer and would face paying property tax as a seller in the future would clearly be at a disadvantage.”

Reeves is also rumoured to be looking at replacing council tax with a new percentage charge on a property’s value annually – capped at a minimum of £800.

Landlords are already facing extra regulations from the Renters’ Rights Act and were hit with higher stamp duty charges in the previous Budget.

Another tax clampdown could be coming for landlords as the Treasury is now rumoured to be considering charging NI on rental income.

Ben Beadle, chief executive of the National Residential Landlords Association, said: “The private rented sector is a significant driver of labour and social mobility. It enables people to move for work, access higher education, and seize new opportunities – everything the government wants to promote as part of its growth agenda.

“Instead, landlords are facing yet more speculation about tax hikes that would hinder investment, reduce supply, and ultimately drive up rents.”

Reeves is keen to boost investment in the UK and in British stocks.

One way to do this could be to cut the cash ISA allowance to encourage more money to go into stocks and shares ISAs, although there is no guarantee that this would mean investing in British companies.

There are reports that a £12,000 cash ISA limit could be introduced, effectively cutting the allowance by almost half.

Sarah Coles, head of personal finance for Hargreaves Lansdown, said: “This would be miserable news for diligent savers. If they’re saving for the short term, cash is the right home for their money, so they would end up being forced to pay more tax through no fault of their own.

“If they have a longer time horizon and they’re still in cash, then the reason they’re not investing yet isn’t anything to do with tax.”

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Source: UK Politics - www.independent.co.uk