The Chancellor’s Sisyphean task: what can we expect in the Autumn Budget 2025?
A wealth tax looks unlikely, but we could see further changes to CGT and IHT.
As we look ahead to the Autumn Budget, one cannot help but recall the Greek myth of Sisyphus – condemned to eternally roll a boulder uphill, only for it to tumble back each time he neared the summit. In many ways, the Chancellor faces a similarly relentless challenge: seeking ever more tax revenue to fill the nation’s coffers, having deliberately set aside the heaviest fiscal levers – income tax, VAT, and employee national insurance. With these options off the table, the task of closing the tax gap falls to a shrinking pool of sources, making each Budget cycle a careful and ultimately Herculean balancing act.
Following the last Budget, in October 2024, the Chancellor stated that it was a “one-off Budget” and “not a Budget that [they] would need to repeat,” yet the proverbial boulder appears to be firmly back at the foot of the hill with the predicted fiscal shortfall forecast to be £20 billion by the time of the next Budget.
The uniqueness of this specific situation is highlighted by the stark difference between what should happen, and what likely will happen. It does not draw too deeply upon economic theory to state that when spending consistently outstrips tax revenue, and by such a margin, both sides of the equation usually need to be addressed to balance the books. Combine the government’s proposed cuts to benefits and spending, which would have made a substantial dent in the cost-side of the problem, with some percentage point adjustments to the main tax levers, and you broadly have a blueprint of what should happen to produce the desired outcome, with the minimal amount of long-term damage to the economy.
However, we witnessed a humbling row back on the benefit changes, and the big tax levers are off the table. We now face the scenario where the Chancellor is likely to take aim at the high-earning population, who are still coming to terms with the tax increases set out in the last Budget. Broad shoulders or not, the expectation is that this coming Budget will be another politically motivated affair.
Economically, it does not make sense to keep squeezing the same cohort for yet more revenue when there appears to be no clear plan on how to tackle the root of the problem. Capital is flighty at the best of times and, as evidenced by the behaviour of the non-dom population, they need to be careful how hard they squeeze.
A wealth tax?
To a hesitant sigh of relief, we saw the Business Secretary state that the introduction of a wealth tax would be “daft.” He is correct. These policies, when introduced elsewhere have broadly failed to produce any meaningful revenue and require investment in the infrastructure required to run them. We suspect there is limited appetite to create an HS2 equivalent in the tax system, irrespective of your belief in, or otherwise, for wealth redistribution. The Chancellor has not categorically ruled out a wealth tax – and why would she when she has so little room for manoeuvre months before the Budget - but we do not believe that a wealth tax is something that clients need to be concerned by, at least for now.
On the assumption a wealth tax is not practical or sensible, an exit tax could be seen as the answer to capture those wealthy individuals running for foreign hills to reduce their tax liabilities. The counter argument is that such an approach could discourage foreign entrepreneurship in the UK. However, there is always a counterbalance – an opposite effect to consider – and "which would be worse" is no doubt being discussed in Number 11 in the run up to the Budget.
What about capital gains tax?
Capital gains tax (CGT) was targeted in the last Budget, although not by as much as many had forecast. This would therefore seem be a candidate for further increases. However, indicative figures from HMRC showed capital gains tax receipts fell year-on-year to the end of the 2023/24 tax year. A classic “Laffer Curve” response one might argue*, but the implications go further. Some decided to actively take gains to rebase assets ahead of the last Budget, so the potential for the loss of tax revenue to deepen further is very real, especially as capital gains tax can be viewed as voluntary for many. Don’t sell the asset = don’t pay the tax.
However, there is a real risk of the capital gains tax exemption on death being removed. While it is argued by some that this is a generous relief compared to many other jurisdictions, this is only the case when there is not such a hefty estate tax on death to replace it. Given the limited cards in the Chancellor’s hand, it is difficult to envisage a scenario where removal of this exemption has not been discussed at length.
* The Laffer Curve is an economic theory suggesting there is an optimal tax rate to maximise government revenue. If tax rates are too low, revenue will be limited; if too high, they discourage work and investment, reducing revenue. It was famously sketched by economist Arthur Laffer on a napkin in 1974 during a meeting with US government officials.
Higher property taxes
Similarly, the government may consider removing or limiting the capital gains tax exemption that applies when selling the main home. In the US, for example, a married couple benefits from a $500,000 exemption, with the prevailing rates applied on amounts above this.
Coupled with the removal of the CGT uplift on death, this could encourage people to downsize sooner and free up larger housing for growing families, and in turn making more homes available for those starting out on the housing ladder (leaning heavily into a policy to expand home ownership in the UK). These changes could potentially generate additional revenue from two sources – capital gains tax and stamp duty land tax.
Further changes to inheritance tax
Turning to inheritance tax (IHT), the seven-year gift rule could easily be extended to a lengthier period, making it harder to distribute wealth during lifetime. In contrast to introducing a new tax framework for a wealth tax, simply changing a number from 7 to, say, 10 in the legislation (to over-simplify) would seem incredibly easy to achieve. However, this does not deliver immediate revenue, so the OBR would need to forecast the impact if the change arises.
The exemption for gifts from surplus income, which are immediately exempt from inheritance tax without any required survival period, seems overly generous and ripe for reform given the current environment. The positive tax impact of the change is hard to forecast as a donor could simply stop gifting, deferring the tax to much later (IHT on death). The loss of this relief should be considered as a real prospect in the coming budget.
Breaking free of the Sisyphean struggle
All the taxes discussed here are small contributors to national income. Capital gains tax and inheritance tax raised a combined £22 billion in 2023/24, compared to £277 billion from income tax. The UK has no mechanism to impose Trump-style tariffs to generate immediate revenue, so it is hard to see how a staunch defence of the manifesto promise ”to not increase taxes on working people” can be maintained without causing greater long-term harm to the UK economy and those that drive its growth. After all, if a foreign entrepreneur can come to the UK to establish successful boulder-pushing businesses, creating jobs and paying tax along the way, without fear of being demonised and punitively taxed, we might just create an environment where the economy grows sufficiently for the existing tax levers to generate the much-needed increase in revenue.
Approved by Best Practice IFA Group on 24/10/2025.
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