Chancellor John Healey is preparing his inaugural budget announcement next week, with tax policy expected to dominate discussions. During its election campaign, the Labour government committed to maintaining existing rates for income tax, national insurance, and value-added tax, narrowing the focus of pre-budget speculation to alternative taxation mechanisms.
Inheritance tax has drawn particular attention as revenue from the levy reached record levels. Collections totaled £8.5bn in the 2025-26 tax year, with projections reaching £9.5bn this year and £14.5bn by 2030-31. Currently, approximately 5% of estates—roughly 30,000 annually—pay the tax. However, rising property values combined with frozen allowances and recent regulatory changes affecting pensions have increased concerns among households that do not consider themselves wealthy. While the standard rate is 40% on assets exceeding the £325,000 threshold, various allowances and spousal exemptions reduce effective rates. Government data indicates the average effective rate across all paying estates was 13% in 2023-24. Beginning April 2027, previously exempt pension assets will be factored into calculations, potentially affecting approximately 49,000 estates.
Capital gains tax has become increasingly significant for government revenues, surging nearly 80% to £24.3bn in 2025-26 from £13.7bn the previous year. This increase reflects both regulatory changes and reductions to the annual tax-free allowance, which fell from £12,300 to £3,000. Consequently, the number of taxpayers paying CGT reached an all-time high of 584,000 in 2024-25, up 45% from the prior year. However, HMRC reports that less than 1% of CGT taxpayers generated nearly half of total revenues, with gains exceeding £5m. Current tax rates stand at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers following a rate increase implemented in the previous budget.
Additionally, a new residential property surcharge will take effect April 2028. Owners of properties in England valued at £2m or more will face a supplementary council tax charge, with annual payments ranging from £2,500 to £7,500 depending on property valuation. The government estimates fewer than 1% of residential properties will be affected, generating approximately £400m annually.
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