What tax changes could be announced at the Budget?

The Autumn Budget is days away, with rumours swirling about what tax changes the chancellor could announce.

John Healey is faced with rising government debt that has breached £3 trillion and borrowing, as measured by the difference between total public sector spending and income, reaching £24.5 billion in September, according to the Office for National Statistics (ONS).

Meanwhile, Big Four accounting firm EY is estimating Healey’s fiscal headroom has been reduced to £11.3 billion, down from £23.6 billion in March.

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Research by think tank the Institute for Fiscal Studies (IFS) suggests he needs to raise £35 billion to avoid cuts to government budgets and fund higher defence spending, either through tax rises or benefit cuts.

The government has already shut down rumours of some planned changes, including rises to capital gains tax (CGT) rates. Some other announcements could be on the cards next week though.

In any case, be wary of acting on any speculation in the build up to the Budget.

Isabella Galliers-Pratt, senior investment director at Rathbones, said: “The temptation is to react to every Budget rumour, but successful investing is rarely about predicting the next tax announcement.

“Tax rules will evolve as governments respond to economic and fiscal realities, but the foundations of good financial planning remain remarkably consistent: make full use of available allowances, maintain a diversified portfolio and keep your focus on long-term goals rather than short-term speculation.”

Could income tax rise in the Budget?

There have been calls to scrap employers’ National Insurance payments for all workers under 25, but the government has rejected this idea, the Financial Times reports.

However, amendments could be made to the income tax regime.

In 2025, while he was Mayor of Greater Manchester, prime minister Andy Burnham said there was a case for increasing the additional income tax rate from 45% to 50%. That said, he has since recommitted to the Labour manifesto pledge to not raise income tax.

In July this year, Burnham also said there would be no immediate commitment to changing the tax-free personal allowance, which is currently £12,570, but added it could be considered at the Budget.

Dale Vince, Labour donor and green energy entrepreneur, reportedly put in a Budget submission to the government last month, calling on ministers to raise the threshold by £3,000 to £15,570. This is something the chancellor and prime minister may consider.

How income tax is applied on the state pension is another topic set to feature in next week’s Budget.

The current full new state pension is worth £12,547 per year and falls under the personal allowance, but under the triple lock system, this figure will rise to around £13,036 from April 2027, breaching the personal allowance threshold.

In September, pensions minister Torsten Bell reiterated the commitment, made in the 2025 Budget, that pensioners whose sole income is the state pension won’t have to pay income tax on the payment if they exceed the personal allowance from next April.

He said the chancellor would set out further details “on how that commitment will be delivered” at the Budget.

Could capital gains tax and inheritance tax change?

The chancellor and prime minister were reportedly looking at raising CGT rates and bringing them closer to income tax rates.

Both Wes Streeting, now defence minister, and Louise Haigh, the current first secretary of state, have called for a hike to the rates this year.

However, The Times reports the chancellor has shelved the plans over fears any rise could deter investment in the UK and dampen economic growth.

This doesn’t mean other aspects of CGT won’t be explored in the Budget though.

The chancellor could look at reducing the CGT annual allowance, which is currently £3,000 per tax year. It’s unlikely the government will do this though as it is keen to encourage retail investing in the UK.

Healey could also look at making CGT payable upon death, although implementing this could be complex, according to Sarah Coles, head of personal finance at investment platform AJ Bell.

She said: “It would mean that rather than gains resetting on death, estates could face a horrible tax bill.

“Those who hoarded assets to get around the current tax rules could face enormous bills at the worst possible time. And those who were planning to do so would need a complete rethink.

“It would also raise serious questions of how CGT and inheritance tax (IHT) interact.”

With unused pensions set to form part of people’s estates for IHT purposes from April 2027 and IHT receipts rising, the chancellor could look at increasing the IHT tax-free allowances as well, according to Rachael Griffin, tax and financial planning expert at wealth management firm Quilter.

She said: “We can only hope the government takes another look at the gifting rules.

“Increasing the gifting allowances would give people greater scope to pass money down during their lifetime as more wealth is potentially dragged into the inheritance tax net.

“That may be wishful thinking, but the existing gifting allowances look increasingly out of step with the scale of the changes coming down the track.”

Could pensions change in the Budget?

Burnham has already committed to scrapping the triple lock from April 2030, and further changes to the mechanism are highly unlikely to be announced in the Budget.

However, the chancellor could target pensions in other ways.

Andy Oury, owner partner of legal and accounting firm Oury Clark, said Healey could look at lowering the current 25% tax-free lump sum or amend how much tax relief is applied on the higher rate.

Meanwhile, the government has already confirmed it will make it easier for terminally ill people to draw on their pensions early. Further details are likely to be confirmed in the Budget.

Under current rules, if there is medical evidence that you are expected to live for less than a year, you can usually draw out your entire pension. People under 75 who expect to die within a year can sometimes withdraw their whole pension as a tax-free lump sum.

However, under new rules, people will be able to withdraw their pension if their death can reasonably be expected within 12 months.

Torsten Bell, pensions minister, said: “When someone is facing a terminal illness, they shouldn’t have to go through red tape to get at their own pension savings.

"That's why we're making the rules clearer and more consistent, so that people can access their own money when they need it the most.”

Could changes for family businesses be on the cards?

Healey has reportedly drawn up plans to charge income tax to business owners handing their company down to family members.

Currently, transfers attract CGT, which is charged at a lower rate, so charging income tax instead could increase the bill for business owners looking to pass firms onto the next generation.

KPMG, one of the big four accounting firms, told The Telegraph, which reported the rumours, it had “significant concerns” the plans risked “discouraging intergenerational transfers of ownership”.

What would you like to see in the 2026 Autumn Budget? Get in touch by emailing editor@moneyweek.com and you may feature in our Budget coverage.