The wealth management and financial advice industries are preparing for anticipated tax hikes and relief changes ahead of the Autumn Budget this afternoon, with Prime Minister, Kier Starmer, stating that the “harsh light of fiscal reality” is set to be revealed.

The Labour government has long been warning that it will be making “tough decisions” to plug the ‘black hole’ in public finances in the Budget.

In the build-up to the announcement of these tough decisions, Starmer has repeated his assertion that the “broader shoulders” will need to carry a “higher burden” on tax.

Capital gains tax

One area that has seen widespread speculation is capital gains tax (CGT), with potential reforms including equalising CGT rates with income tax, raising CGT on share sales, and changes to CGT at-death rules.

“Having ruled out increases to some other taxes, CGT might appear like an obvious place for the government to make changes and generate more tax revenue,” said AJ Bell pensions and savings expert, Charlene Young.

“However, it may not be the cash cow that many think it is. The government’s own figures show that a big increase in CGT rates could backfire and actually lead to lost revenue for the government.

“CGT being wiped out on death also creates an incentive in some cases to hold onto assets so they are taxed as part of the estate under IHT, potentially paying less or no tax. But if the government scrapped this tax break, there would likely need to be some allowance made to account for inflation. Otherwise, people who have owned investments for a very long time would be severely punished.”

Young noted that one option for the government was to raise the rate of CGT for higher rate taxpayers back to 28 per cent from April 2025, which she argued would be relatively simple to implement and puts it back to the higher rate introduced in 2010.

“It would also be a logical second step to the changes already in progress,” Young continued.

“Private equity fund managers receive a share of the funds’ profits as carried interest in a personal capacity. Carried interest is taxed under the CGT regime at 28 per cent, rather than as salary income, but the government has already set the wheels in motion to treat and tax it as income, despite calls that it could dent the competitiveness of the UK private equity industry.

“An alternative would be to get rid of some of the CGT tax breaks for businesses, where business owners selling their company benefit from a lower rate of CGT.

“Raising this rate from 10 per cent up to 20 per cent to equalise it with standard CGT rates is estimated to generate £710m for the government by 2027/28 – but it’s clearly not a move that will be popular with entrepreneurs.”

Evelyn Partners financial planning partner, Gary Smith, stated that while there had been expectations of a substantial CGT rate increase across the board, it looked like the Chancellor, Rachel Reeves, may have “rowed back a bit”, with rumours suggesting an increase only to shares, and that any rate increase will likely fall short of an alignment with income tax rates.

Smith noted that many investors had already been taking action ahead of an expected increase to CGT rates and, if Reeves announced a rate rise to come in from April 2025, thousands more will be prompted to realise an “avalanche” of gains in the five months in between.

“Taxing inflationary gains – as occurs currently - is widely regarded as punitive, so it seems sensible that any CGT rate increase should come with an adjustment for inflation, either through an indexation allowance or by taper relief, before being taxed,” he continued.

“Finally, there is the possibility that the CGT at death uplift rule will be reformed, meaning that beneficiaries inherit assets not at the value at death, but at the value the deceased first purchased them at, with the CGT liability that entails. That could be significant hike on the taxation of assets at death.

“Higher CGT rates should focus everyone’s mind firstly on the importance of tax wrappers like ISAs and pension, which protect investments from tax on both capital gains and dividends, and secondly on the use of annual tax-exempt allowances.”

Inheritance tax reliefs

With inheritance tax (IHT) already having one of the UK’s highest tax rates, the industry is not anticipating any changes to the headline rate, although speculation continues around changes to IHT reliefs and allowances.

The taxation of pension pots at death, and business and agricultural property reliefs, look like they are “firmly in the crosshairs” at the Budget, according to Evelyn Partners head of estate planning, Ian Dyall, who also predicted that gifting rules could be tightened up.

“It’s quite possible - and even, reading the runes, quite probable - that the Budget will reform the favourable tax treatment of pension pots at death,” Dyall stated.

“This could take the form of the full fund being subject to IHT or just the excess over the current death benefit limit of £1,073,100.

“Bringing defined contribution pension pots into someone’s taxable estate seems to be very much on the cards, as it can be portrayed as fixing an IHT ‘loophole’ and will have little impact on economic incentives.”

Dyall noted that, if business and agricultural property reliefs were cut, family-owned small and medium-sized businesses could get caught up in measures intended to target the wealthiest families.

Furthermore, he said that while it should be possible to exclude AIM shares from business relief without removing the relief altogether, it should be examined for the unintended consequences it could have for the AIM market and encouraging funding for smaller UK companies.

AJ Bell investment analyst, Dan Coatsworth, added that abolishing tax relief on owning certain AIM-quoted shares could be high up on the list of ‘easy wins’ for the Chancellor.

However, Coatsworth warned that scrapping tax relief on AIM stocks could backfire: “Principally, it goes against the government’s efforts to support UK business growth,” he said.

“Without the tax benefit, investors might rethink why they are holding certain AIM stocks, leading to a sell-off in small caps just at the point where investors are starting to show more interest in the UK market.”

Touching on gifting, Dyall argued that tightening up gifting rules, specifically the seven-year rule, was one “relatively easy” way for the government to make it more difficult for families to avoid paying IHT.

Finally on potential IHT reform, Dyall pointed to nil band rates (NRB), with the main and residential NRBs having been frozen at £325,000 and £175,000 respectively in recent years.

“If these are cut, more families of relatively modest wealth will become liable to IHT, which might not be the headline that the new government wants,” he stated.

“While the residential NRB provides a valuable extra relief to many families as house prices have risen, especially in the southeast of England, it is not available to those who don’t have children or who simply choose to leave their main residence to someone who isn’t a direct descendant – and has been criticised for this bias.

“The Chancellor might just get rid of the residential NRB altogether, with the possible sweetener of raising the main NRB by a token amount to something like £350,000 or £400,000 - although it’s not clear how much would be raised by this combination of steps.”

Pension tax

As with any recent pre-Budget speculation periods, pension tax has been touted as an area the government may wish to target to raise funds.

Most commentators have argued that the Chancellor is unlikely to fundamentally reform pensions tax relief by introducing a ‘flat rate’ of tax relief.

However, other reforms have been rumoured, such as removing or limiting the tax-free lump sum people can receive from their pension.

“Any move along these lines would be deeply unpopular and potentially hugely complicated too,” Selby warned.

“What’s more, neither reforms to pension tax relief nor paring back tax-free cash entitlements would likely deliver the substantial in-year savings the Treasury is looking for.

“The level of uncertainty created ahead of the Budget has real-world consequences, with both contributions and the number of people taking their tax-free cash rising in recent months. It is clearly not desirable that some savers feel forced to take decisions based on rumour and speculation rather than their long-term retirement goals.

“Given one of the key promises made by the new government was to deliver economic stability to Brits, Reeves should use her Budget to nip this issue in the bud by pledging not to make major changes to either pension tax relief or tax-free cash.

“This ‘Pensions Tax Lock’ would send a clear signal to savers that the goalposts won’t be moved and should give people more confidence to take decisions based on their long-term interests.”

Also commenting on the possibility of reform to the tax-free lump sum, Charles Russell Speechlys special counsel, Emily Campbell, said: “If the government plans to abolish or limit the tax-free lump sum, this raises questions about whether this should be done retrospectively, or whether a transitional protection is necessary.

“If done retrospectively, this could be seen as unfair to those who have invested on a regular basis, particularly if they will pay a higher rate of tax on their pensions when they retire. On the other hand, introducing a separate transitional protection could create an added layer of complexity, seeing as existing transitional protections remain in place for certain purposes, despite the abolition of the lifetime allowance.

“If transitional protections are implemented, timings will be key, especially if those protections require the cessation of contributions. The government must ensure that people have enough time to take advice and opt out of their schemes before the effective date.”

Another possible area of pensions tax that could be included in the Budget was a pensions ‘death tax’, with Selby stating that the tax treatment of pensions on death will be viewed by many as “low-hanging tax fruit ready to be picked”.

“Under existing rules, it is possible to pass on your retirement pot completely tax-free to your nominated beneficiaries if you die before age 75,” he continued.

“If you die after age 75, any inherited pension is taxed in the same way as income. Crucially, pensions usually don’t form part of people’s estate for IHT purposes.

“This is undoubtedly a generous set of rules and something which could easily be reviewed by the new government. However, as is often the case with pensions, applying any new tax on death – or bringing pensions into the IHT net – would come with substantial challenges.”

Employer national insurance contributions

Employer national insurance (NI) contributions appear to be firmly in the Chancellor’s crosshairs ahead of the Budget, with many anticipating Reeves to increase the NI rate for employers by 1 to 2 percentage points, and to lower the threshold at which employers start paying the tax.

“This NI contribution rise could be a significant cost to employers, and possibly their employees too, as the remuneration round for the 2025/26 tax year kicks off in the New Year,” said Evelyn Partners tax partner, Toby Tallon.

Meanwhile, AJ Bell director of public policy, Tom Selby, argued that NI relief on employer pension contributions could be an appealing target for the Chancellor.

“This relief currently costs around £17bn a year, according to the Institute for Fiscal Studies, and charging NI, even at a lower rate than the standard 13.8 per cent employers pay, would raise significant sums without breaking any of Labour’s key election pledges.

“Politically, this would also be less risky as it wouldn’t hit voters directly in the pocket – although there is a danger employers will scale back remuneration, including pensions, to meet this extra cost.

“If the government goes down this road, it will face a difficult balancing act deciding the level of tax that raises sufficient revenue without undermining its central objective of boosting economic growth.”

However, some believed that an NI charge on employers’ pension contributions was unlikely amid concerns about potential impact on the public sector.

“The one upside is that, because it looks like tax relief on pension contributions might escape unscathed and also that salary sacrifice schemes will remain beneficial to firms, then the one tactic to avoid this big marginal tax hit should remain viable – to increase pension contributions via salary sacrifice,” Smith stated.

“There is, however, the chance that the big increase in employer NI costs could lead some to review their overall remuneration packages, including the generosity of pension benefits.”

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