From ISAs to pensions: Full list of tax changes Rachel Reeves could make as second Budget date confirmed

Her inaugural Budget in October 2024 delivered £36billion a year of tax rises, including controversial moves such as bringing pensions into inheritance tax, increasing capital gains tax (CGT) rates, curbing inheritance tax relief for farmers and hiking National Insurance costs for employers.

With Government borrowing rising and limited room to manoeuvre, experts say further tough decisions are likely.

Rachel Vahey, AJ Bell's head of public policy said: "After a turbulent first year in power, it will be focused on stabilising an economy troubled by multiple setbacks and U-turns, putting the Government under increasing pressure amid plummeting approval ratings."

She added: "The announcement effectively fires the starting gun for the OBR (Office for Budget Responsibility) to complete its assessment of the UK’s financial health, given government plans for taxation and spending.

"But the current reading of the economy doesn’t make for good news. Although growth received a slight boost last month, it remains relatively weak. Whereas long-term borrowing is rising fast."

ISA reform on the table

One of the most anticipated areas of reform is ISAs.

Tom Selby, director of public policy at AJ Bell, explained the Government wants to get more people investing for the future instead of leaving their savings in cash. But so far, there’s been little detail on how this will happen, apart from rumours earlier this year that the Cash ISA allowance could be cut – a plan that was quickly dropped.

Mr Selby said: "Combining Cash ISAs and Stocks and Shares ISAs into a single main ISA product would be the obvious starting point. The current structure, which requires people to choose between a cash product or an investing product, is illogical and behavioural research commissioned by AJ Bell supports our contention this risks acting as a barrier to people moving into long-term investing."

Pensions and the case for a 'Pensions Tax Lock'

Every Budget sparks speculation about changes to pensions, such as tax-free cash or tax relief. Mr Selby explained that before the last Budget this speculation went into overdrive, with many people rushing to take their tax-free cash or increase contributions because they worried those benefits might be scrapped.

He added: "Rather than letting this speculation run wild again, the chancellor should back those who do the right thing and save for retirement by committing to a ‘Pensions Tax Lock’ a pledge not to change tax relief or tax-free cash, at least for the rest of this Parliament."

Inheritance tax raids

Inheritance tax could also face another squeeze.

The Government has already announced IHT raids on farmers and pensions, so another attack at the Budget would represent "an unwelcome hat-trick for anyone prioritising passing wealth onto their loved ones when they die."

Mr Selby said: "If Rachel Reeves wants to target inheritances again, the simplest way to do this would be to either reduce IHT thresholds or extend the ‘seven-year rule’ that applies to lifetime gifts."

Capital gains tax changes

Capital gains tax (CGT) is also firmly in the Chancellor’s sights, according to AJ Bell’s head of investment analysis Laith Khalaf.

He warned that "Rachel Reeves may have unfinished business with capital gains tax (CGT). Having pushed rates up a bit in the last Budget, the chancellor may be tempted to engage in a more full-blooded attack on asset gains to drive some much-needed revenue for the Exchequer."

Mr Khalaf added that talk of aligning CGT rates with income tax has been circulating for some time.

He said: "Equalising capital gains tax rates with income rates has been widely touted for a while, and may lead the OBR to forecast a few extra quid coming into the Treasury as asset prices rise."

Frozen tax thresholds

Threshold freezes have already dragged millions into higher tax bands and the Chancellor may decide to extend them.

Currently tax thresholds are frozen until 2028, but rumours have stated the chancellor could choose to extend the freeze to make her sums add up. Khalaf said: "This would be a reverse ferret of mammoth proportions."

Wealth and property taxes

With the public finances under strain, wealth and property taxes are also being talked about as possible options for the Chancellor.

Mr Khalaf noted that "as things have looked increasingly tight on the fiscal side of things, partly a result of Labour U-turns on winter fuel allowance and welfare spending, the idea of a wealth tax has reared its head, and has been given some oxygen by former Labour leader Neil Kinnock."

Although such a tax would only touch the very wealthiest households, Khalaf warned it would be politically sensitive.

He said: "While it would only likely affect a small group of people, a wealth tax would likely be a controversial measure, not least because those caught up by it probably wield a disproportionate amount of influence as well as money."

On property tax, Mr Khalaf warned: "A ‘mansion tax’, for instance, would likely be hugely unpopular even if it is set at a high enough level to preclude most taxpayers from paying it.

Ever since capital gains tax was introduced, gains on the home you live in have been exempt. The tax-free nature of your primary residence is deeply embedded in the psyche of homeowners."

Sin taxes and bank levies

Other options being floated include so-called sin taxes and extra levies on banks.

AJ Bell head of financial analysis Danni Hewson said: "There are very few mooted tax increases that are likely to go down as well with the public as an increase in gambling duties, especially if the cash raised were committed to helping alleviate child poverty."

She also noted speculation about higher taxes on banks, saying: "In the hunt for extra cash it is no surprise the Treasury are looking at a wide range of options and the Government will likely feel that asking banks to contribute more is a measure that exhausts little or no political capital."

At less than a year into her time as Chancellor, Reeves is under pressure to stabilise the economy, raise revenue and keep voters on side.

With so many areas under review, the November 26 Budget is set to be a defining moment for households and businesses alike.