There is currently a lot of media speculation about tax rises later in 2025, with at least two respected institutions floating the idea over the summer.
The Institute for Fiscal Studies (IFS) has argued that both Labour and the Conservatives are “Living in a dream world” about tax and spending, with (then) Director Paul Johnson stating that he feared that, by the Autumn, Chancellor Reeves would “need to raise taxes again”.
The left-leaning think tank, NIESR (The National Institute of Economic and Social Research), has echoed similar sentiments. Unless the Chancellor changes her self-imposed fiscal rules, “A moderate but sustained increase in taxes” will be required soon.
How has the UK economy arrived here, and what are the Chancellor’s options? Moreover, what could potential tax changes have on your financial plan? Let’s examine this together.
How We Got Here
In October 2024, Rachel Reeves stood up in Parliament to deliver her first Autumn Statement as Chancellor. She argued that the UK faced a £22bn “black hole” in its public finances, left by the previous Conservative government.
To try and correct this, she announced £44bn in tax rises – including increases to capital gains tax (CGT), changes to agricultural property relief (APR) and business relief (BR), and bringing unused pension pots into the inheritance tax (IHT) net by April 2027.
However, a series of factors converged in the months that followed, leading to a deterioration in the UK’s public finances. One major factor was trade uncertainty following the election of US President Trump in November 2024, climaxing in April 2025 when “Liberation Day” introduced a series of high tarias across the world.
Other commentators stressed the impact of Britain’s fleeing wealth elite, many of whom seemed to be moving abroad (e.g. to Dubai) to escape higher taxes and diminishing Treasury revenues. Others have pointed to falling CGT receipts in 2024-25 (£13.1bn) compared to the previous tax year (£16.9bn), suggesting that higher taxes on investments were leading more people to simply hold onto them for longer (CGT applies on crystallisation – e.g. selling shares).
The UK economy has also stalled in the second quarter of 2025, and borrowing costs have soared for the government. It is no exaggeration to say that the UK economy is not in a delicate position. Indeed, some experts even argue that we could soon face a 1970s-style IMF bailout situation, when the UK was forced to borrow billions and accept major public spending cuts.
What Could Happen
It would be foolish to speak in certainties. However, nobody can deny the enormous pressure the UK is under. Despite trying to plug a £22bn black hole last October, the country could be facing a £50bn black hole in 2025, according to some economic forecasts.
The Labour Party promised not to raise taxes on “working people” in its manifesto leading up to its general election win in 2024 – i.e. VAT, income tax and National Insurance (NI). However, one former member of the Monetary Policy Committee, Willem Buiter, believes Chancellor Reeves may be forced to break this pledge.
NIESR has argued for a rise of 5p in the pound on the basic and higher rates of income tax. For some in the Labour Party, such as Lord Kinnock, another option is to introduce some kind of tax on wealth – e.g. targeting people with assets above £10m. Inheritance tax (IHT) is also under the spotlight, with the idea of a possible “lifetime cap” on tax-free gifts floating around.
Preparation & Invitation
We can be fairly confident of two things right now. Firstly, the Chancellor has limited options for cutting spending – as the recent dilution of the government’s Welfare Bill shows. Secondly, the government cannot raise borrowing much further without breaking its fiscal rules (doing so may lead to panic in the bond markets).
As such, it is reasonable to expect tax rises later in the year. However, uncertainty over what form they might take (and how far they might go) should guide readers back towards the time-honoured principles of financial planning – e.g. diversification, in-built resilience, protection and contingency planning.
For instance, having too much of your wealth tied up in one asset, company or market might be risky. If the government decides to target that area with a tax rise, your wealth could be aaected disproportionately. To mitigate this, consider speaking with a financial adviser about how to best diversify your holdings.
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Please note:
The information contained in this article is for general guidance only and does not constitute personal financial or tax advice. Tax planning advice is not regulated by the Financial Conduct Authority (FCA). The tax treatment of investments and financial strategies depends on individual circumstances and may change in the future. Investments can go down as well as up, and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. Readers are strongly encouraged to seek independent financial and tax advice before making any decisions.