Chancellor John Healey is preparing his inaugural budget announcement, with taxation emerging as a central policy concern despite Labour’s pre-election pledges to avoid increasing income tax, national insurance, and VAT. The government is considering adjustments to various other tax regimes, with several levies facing heightened scrutiny in recent months.
Inheritance tax has become increasingly contentious as collections reach record levels. The government collected £8.5bn during the 2025-26 tax year, with projections indicating receipts will rise to £9.5bn this year and £14.5bn by 2030-31. Although roughly 5% of estates currently pay the tax—approximately 30,000 annually—rising property values and frozen allowances have raised concerns among middle-class families. A rule change effective from April 2027 will include certain pension assets in inheritance tax calculations for the first time, expected to affect approximately 49,000 estates and increase average bills by roughly £34,000.
Capital gains tax has become a significant revenue source following recent modifications to the tax structure. Collections surged nearly 80% to £24.3bn in 2025-26, compared with £13.7bn the previous year. This increase partly reflects reductions in the annual tax-free allowance, which fell from £12,300 to £3,000. The number of taxpayers paying capital gains tax reached an all-time high of 584,000 in 2024-25, though data indicates nearly half the tax collected came from fewer than 1% of taxpayers with gains exceeding £5m. Senior Labour figures have advocated for raising capital gains tax rates to align with income tax rates, though reports suggest the chancellor may decline this proposal.
A mansion tax on high-value residential properties is scheduled to take effect from April 2028. Property owners in England with homes valued at £2m or above will face an additional annual surcharge on top of existing council tax, ranging from £2,500 to £7,500 depending on property value. The government estimates the levy will affect fewer than 1% of residential properties and generate approximately £400m annually.
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