This year has already brought a string of changes to various tax measures that have sparked concern for many. We’ve seen increased employer National Insurance Contributions (NICs), planned reductions in Inheritance Tax reliefs and a continued freeze in income tax thresholds, to name but a few. But what could be next, and what scope for change will manifesto commitments allow?
The Corporate Tax Roadmap
A roadmap for corporate tax was published on 30th October 2024, and was designed to provide businesses with certainty and confidence that the UK intends to maintain its competitive position among major economies. The commitments made in the roadmap make it difficult for changes to be made to a variety of areas, including corporation tax rates, capital allowances and research and development (R&D) tax reliefs. Despite HMRC’s assertion that R&D tax error and fraud equated to £1.2bn in 2021/2022, the Government still endorses research and development tax relief as having a vital role in its mission to boost economic growth.
The roadmap did not, however, prevent the increase to employer NICs, which took effect from 1 April 2025, and resulted in an increase in costs for any business employing staff. And despite it generating an estimated £25bn in additional annual revenue, it has led to employers such as John Lewis and Pret A Manager blaming the increase in employer NICs for increased losses.
Backlash against Inheritance Tax reforms
Given the response from farmers demonstrating in Westminster and across the UK against the announced introduction of a £1m combined cap on Agricultural Property Relief and Business Property Relief, from 6 April 2026 - a mass protest so widespread that a Wikipedia page is dedicated to 2024-2025 United Kingdom farmers’ protests - it would also seem difficult, and unlikely, that the Government would look to boost public finances from further eroding inheritance tax reliefs.
What could be next?
Regardless of the extent of the very recent changes highlighted, the Government continues to assert a need to raise revenue for public spending on infrastructure, security and the NHS, so which avenues are likely to be open to the Chancellor in November to achieve this?
Speculation is already mounting about changes to the tax treatment of pensions and pension contributions. There are a number of areas which could be subject to reform, including salary sacrifice arrangements (which currently reduce employer NI costs), the availability of a tax-free lump sum, and the level of tax-free pension contribution allowance. This is in addition to the change already taking effect from April 2027, which will see unused pension funds become part of the value of an estate for IHT purposes.
Another suggestion could be to look at changes to wealth taxes in line with other nations. Some countries have a broader wealth tax than the UK system, characterised by annual taxes on overall net wealth value and/or specific assets; however, challenges exist in such a regime around valuation, implementation and the impact on entrepreneurial investment, and it would seem unlikely that a wholly new tax concept could be introduced without wider consultation amongst professional bodies.
There has also been an ongoing debate in recent years about the possibility of equalising income tax and capital gains tax, which currently sit at disparate top rates of 45% and 24% (except for carried interest) respectively. This would arguably be easier to implement than other revenue-raising measures, and would require no new reporting mechanism which, given the complexity of the UK tax system, would be welcome to both advisers and individuals. The fact, however, that this issue has been discussed over a lengthy period, with stakeholders ranging from the Organisation of Economic Co-operation and Development (OECD), government departments and respected tax commentators providing opinion, suggests there are more policy issues with this than meet the eye.
At the time of writing, little has been officially released on what the Autumn Budget holds and we remain alert to any change whilst looking for certainty from the statement which will allow us to advise our clients.
