Discover what the Autumn Budget could mean for workers and pensioners
The National Institute of Economic and Social Research (NIESR) has issued a stark warning. If no action is taken, the government is likely to miss its fiscal rule, which requires that day-to-day spending is covered by tax receipts of a significant £41.2 billion by 2029-30. To stay on track, Chancellor Rachel Reeves will need to implement further tax increases.
This raises important questions about the policies being considered and who might face the greatest financial impact.
Could freezing tax thresholds tighten your finances?
Freezing Income Tax thresholds has become one of the most effective, yet hidden, methods of collecting tax. The previous government pledged in the Spring Budget that these would extend to 2028, the basic rate threshold reaffirming that promise.
Maintaining this freeze until 2030 would exacerbate ‘fiscal drag’, a process in which wage increases push average earners into a higher tax bracket without a real rise in income, thereby increasing tax revenues for the government.
Will pension tax perks come under scrutiny?
For decades, the public have benefited from generous tax incentives on pensions, including Income Tax and National Insurance to promote long-term retirement savings. However, these benefits are under review.
The government may reintroduce a cap on tax-free pension contributions or lower the Annual Allowance, which is currently £60,000. Such changes would primarily affect higher earners, though middle-income savers could also be drawn into the net if allowances are frozen for an extended period.
Are National Insurance changes on rental income coming?
Beyond Income Tax, landlords may also come under scrutiny. While they already pay Income Tax on rental profits, this does not include National Insurance contribution or VAT on rental income. Revenue could introduce new taxes on property earnings or change the rules for rental income entirely.
This could raise tax liabilities for small landlords and potentially lead to rent increases. Renters might then bear the financial burden as landlords attempt to manage those extra costs.
Is the National Insurance threshold safe?
Although Labour’s current manifesto commits to maintaining National Insurance at present levels, fiscal pressures may eventually force a review. The current threshold for Class 1 National Insurance, which starts from £12,570, may be frozen. This would again draw more low-to-middle income earners into paying higher contributions.
Will Rachel Reeves rethink VAT, Inheritance Tax, or other levies?
Reeves could also focus on increasing revenue by adjusting existing taxes or removing tax reliefs. VAT might rise, though politically this could prove controversial.
Inheritance Tax could also be amended. The current tax-free allowance of £325,000 (or £500,000 when including the home allowance) might be revised for a populist redistribution. Meanwhile, exemptions could decrease for agricultural assets or gifts made outside the seven-year rule, potentially increasing liabilities for families aiming to pass down wealth.
Do you need to evaluate your options to help secure your financial future?
Understanding these potential changes is essential for financial preparation. If you are unsure how these policies might impact you, please contact us to discuss your circumstances.
This article does not constitute tax, legal, or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may change in the future. For guidance, seek professional advice.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investment and any income from it can go down as well as up, which would have an impact on the level of pension benefits available.
The Financial Conduct Authority does not regulate estate planning, tax advice, or trusts.