Chancellor Rachel Reeves unveiled the Government's departmental funding plans in today's Spending Review, sparking immediate speculation about potential tax increases to fund the spending commitments.
Financial analysts are warning that taxpayers will likely bear the cost of the announced measures through various tax change but the Treasury has already ruled out multiple levies from being targeted.
Reeves has pledged not to touch income tax, worker National Insurance, VAT and corporation tax. According to Schroders' senior economist George Brown, "tax rises appear increasingly inevitable to fund the additional spending pledges".
However, a HMRC raid is likely not to be announced until later October/early November; resulting a five-month wait for taxpayers. There are multiple tax-generating levers the Treasury could theoretically pull, but which one will the Chancellor take advantage of?
Tax rises from Rachel Reeves are "inevitable", economists warn
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Pensions
The Government has already signalled its appetite for revenue-raising measures, having brought unused pension assets into the inheritance tax net from April 2027. Today's announcement has intensified discussions about which taxes might be targeted next, with pension relief, inheritance rules, capital gains and income tax thresholds all under scrutiny.
HMRC's recent consultation on salary sacrifice arrangements has fuelled speculation that the Government might introduce caps on the amount people can use to avoid higher marginal tax rates.
Jason Hollands, managing director of Evelyn Partners believes the Chancellor is unlikely to resurrect the pensions lifetime allowance, citing complications with NHS pensions that led to doctors taking early retirement. Instead, he suggests Reeves may target tax-free cash withdrawals, potentially reducing the cap from £268,275 to £100,000.
"While this is a possibility, I would urge people not to jump the gun on taking their tax-free cash now if they don't need to, as nothing may happen on this front," Hollands said. He added that precedent suggests any such move would likely include transitional arrangements for those already eligible for higher amounts.
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Inheritance
Reeves has already restricted tax-free inheritance, having capped Business Relief and Agricultural Relief while halving relief on Aim shares in the Autumn Budget.
Advisers report that families are increasingly using lifetime gifts to mitigate these changes, particularly the £3,000 annual gifting allowance and unlimited small gifts of up to £250 per person.
Hollands suggests the Chancellor might overhaul the entire gifting regime to prevent families reducing their inheritance tax bills through substantial gifts.
"The now-defunct Office of Tax Simplification came up with a set of such proposals in 2019, which could provide a blueprint or starting point," he said. He believes reforms could involve replacing current allowances with a single lifetime gifting allowance or extending the seven-year rule to ten years.
Capital gains
The Chancellor increased capital gains tax rates (CGT) in last year's Budget, raising them from 10 to 18 per cent for basic rate taxpayers and from 20 to 24 per cent for higher-rate taxpayers.
"This increase was less than many had expected," said Pete Fairchild, national head of private clients at Crowe.
He noted that some lobbying groups continue calling for CGT alignment with income tax rates, suggesting further increases or broader reform could be on the Government's agenda.
"Some predict an annual four per cent rise will occur that will see the main CGT rate aligned with the 40 per cent income tax higher rate over Labour's current term in government," Fairchild added.
Hollands thinks another rate increase is unlikely so soon but suggests "a more radical measure would be to change the way capital gains are treated on death".
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Analysts are warning the public that more tax rises from HMRC are on the horizon
PATax allowances
The freeze on income tax thresholds since 2021 has created what experts describe as a significant stealth tax raid, generating substantial revenue for the Treasury.
With the basic rate threshold frozen at £12,570 and the higher rate threshold at £50,270, more earners are being dragged into higher tax brackets as wages rise with inflation. Recent HMRC figures reveal the number of higher-rate taxpayers jumped 15 per cent between 2021/22 and 2022/23.
"The pain would gradually build over time, but people would not see an immediate impact on their monthly payslips and such a measure would technically not breach the pledge to increase tax rates," Hollands said.
He suggested the Chancellor might also reduce the additional rate threshold from £125,140 to £100,000.
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