Last year’s Budget brought significant changes for Britain’s UHNWs, as Reeves announced £40 billion in tax rises – the largest increase since 1993 – introducing sweeping reforms to inheritance and capital gains taxes, and confirming that non-dom status would be abolished from April 2025.
At the time, Reeves pledged that a Labour government would not introduce further tax hikes. However, speaking on BBC Radio 4’s Today programme last month, she appeared to backtrack on that commitment, saying: ‘I think everyone can see that the world has changed over the past year, and we’re not immune to that change.’
[See also: Meet Mr Wealth Tax: Arun Advani, the academic shaping Labour policy]
With a £30 billion shortfall in the public finances, the Institute for Fiscal Studies (IFS) warned in an October 13 report that the Chancellor is ‘likely to raise taxes in the forthcoming Budget.’
Related
Ahead of the November 26 statement – which is widely expected to include major revisions to LLPs, inheritance tax (IHT), income tax and capital gains tax (CGT) – experts are warning of the far-reaching financial and personal consequences these measures could have for HNW and UHNW individuals.
Robert Brodrick, a partner in the private client team at Payne Hicks Beach, says that, ‘as is often the case before a Budget, there has been huge speculation – and this is prompting many clients to ask what, if anything, they should be doing.’
He adds: ‘The main thing, however difficult, is not to panic but to take a long-term view. My advice is to bring forward the things you were already planning to do – so, if you were considering a lifetime gift, do it before the Budget – but don’t make knee-jerk decisions, as those are often the ones you live to regret.’
What should UHNWs expect from Budget 2025?
- Lifetime cap on inheritance tax
- Changes to real estate tax
- Revisions to capital gains tax and exit tax
- VAT threshold changes
- Income tax rises
Lifetime cap on inheritance tax
Last year’s Budget already introduced significant changes to inheritance tax, including the so-called tractor tax. From April 2026, inherited agricultural assets worth more than £1 million – previously fully exempt – will now be taxed at 20 per cent, half the standard IHT rate. The government also confirmed that from 6 April 2027, defined contribution pensions will be included in taxable estates, meaning inherited pensions will no longer be shielded from IHT.
Content from our partners
Looking ahead to this year’s Budget, speculation is mounting over further measures. The Treasury is reportedly considering a lifetime cap on the total value of gifts that can be passed on tax-free before death – a move designed to limit how much people can reduce their IHT bills. There is also discussion about extending the seven-year rule – which currently allows gifts made more than seven years before death to escape tax – to ten years.
Such a change would have a major impact on estate-planning strategies, as gifts would take longer to fall outside an individual’s taxable estate.
‘For many clients, IHT isn’t just a tax – it’s a question of how much of their life’s work they’ll actually pass on,’ says Robbie Hewitt, wealth planner at Brown Shipley. ‘Even small shifts in exemptions can have an outsized emotional impact.’
[See also: Inheritance tax explained: How does it work and who is affected?]
Not only that, but tighter inheritance tax rules ‘are likely to accelerate offshore planning,’ predicts tax specialist Oriana Morrison, speaking to Spear’s.
For Julia Rosenbloom, a tax partner at law firm Shakespeare Martineau, ‘there’s also rumours of the introduction of a “gift tax” for particularly generous gifts, as well as a cap on how much can be gifted tax-free.’
How likely are inheritance tax changes in the Budget 2025 – and how can UHNWs prepare?
For Rosenbloom, ‘while it’s impossible to know exactly what will happen ahead of the Budget, those looking to make gifts might consider doing so ahead of 26th November or risk being caught out.’ She believes there is a ‘7/10 likelihood’ that those changes will be introduced.
Charlie Tee and Christopher Groves from Withers, tell Spear’s they believe the likelihood that those changes will be implemented is closer to ‘4/10’, but they still think ‘if people are minded to make gifts of assets currently, there is certainly merit in completing these before the Budget if possible.’
Changes to real estate tax
Reports suggest that the Chancellor is weighing the introduction of a so-called mansion tax on properties valued above £2 million. Under the proposal, homeowners would face a 1 per cent annual levy on the portion of their property’s value exceeding the £2 million threshold.
[See also: New regime, new taxes?]
There is also speculation that higher rates could apply to super-prime and second homes.
The Treasury is understood to be exploring reforms to stamp duty (SDLT), including the possible replacement of the current one-off payment with an annual property levy on homes valued above £500,000.
How likely are changes to real estate tax in the Budget 2025 – and how can UHNWs prepare?
Commenting on the potential impact, Morrison warns that ‘a mansion tax or higher stamp duty could freeze top-end property activity overnight.’
Tee and Groves tell Spear’s that ‘some form of wealth tax appears likely and a real estate tax seems to be the easiest to implement, perhaps as an extension to Council Tax or the restriction on private residence relief.’ However, they also believe that ‘given the nature of real estate taxes, it will be very hard to plan for these.’
Rosenbloom notes that ‘landlords, tenants, buyers and sellers are all waiting with bated breath meaning the housing market is largely stagnant as people wait and see before investing or selling. For her, such reforms ‘may mean more people will consider downsizing, leaving a surplus of high value properties on the housing market with no buyers.’
She adds that an annual charge could be a difficult one for HMRC to administer and could create substantial cash flow difficulties for the homeowners. ‘As an alternative, the government may just opt to restrict main residence relief, which exempts sellers from capital gains tax when selling their primary home. This will likely only target higher rate and additional rate taxpayers and/or those whose house is above a certain value.’
‘Those in the process of selling should aim to push that process through ahead of the Budget at the end of the month.’
[See also: “Buy-to-leave”: The new property trend among London’s departing non-doms]
Revisions to capital gains tax and exit tax
Speculation has been mounting about aligning Capital Gains Tax (CGT) with income tax, with reports suggesting the government may introduce new rate changes or adjust allowances in 2025. Having already raised CGT bands from 10 to 18 per cent and 20 to 24 per cent, the Chancellor could either increase them again, apply new rates to assets such as second homes, or reduce the annual exemption further.
‘When it comes to CGT, last year’s Budget saw a same-day increase in rates,’ notes Hewitt.
How likely are revisions to capital gains tax and exit tax in the Budget 2025 – and how can UHNWs prepare?
‘While the rise was anticipated, it did not go as far as some had expected, so the Chancellor could indeed revisit this,’ he adds. ‘Recent reporting has hinted that rates might increase by a few percentage points. Clients may therefore wish to review their portfolios and discuss with their advisers whether any action is appropriate in light of current rates and their personal circumstances.’
Some experts also believe the focus will shift toward measures designed to generate quick fiscal returns rather than support long-term economic policy. According to tax adviser David Lesperance of Lesperance & Associates, ‘Given the electoral reality of Labour’s loss of popular support, the Chancellor cannot afford to look at long-term pragmatic solutions,’ he tells Spear’s.
[See also: Exit tax explained: advice for UHNWs ahead of Budget 2025]
‘Rather, short-term revenue generators – even if they cause significant economic harm in the distant future – are the tax tools she is likely to reach for in her Budget,’ he says.
‘Therefore, my money is on the exit tax horse in the Budget derby. Few Labour voters are likely to experience major liquidity events that would prompt them to leave the UK, and an Exit Tax can be politically palatable to Labour supporters on the “they made the money while they were enjoying the benefits of the UK” argument.’
Rosenbloom says that in anticipation of a likely introduction of exit tax, individuals who are considering leaving shouldn’t make that decision hastily.
‘While it might be tempting, there are so many factors and variables that rushing to exit prior to the Budget […] is unlikely to be a good idea.’ She adds that ‘the UK has a strict statutory residence test and anyone leaving the UK hastily at this point could very well find they do not lose UK tax status until next tax year anyway, which means they might not get the result they expect.’
However, Tee and Groves, who believe changes to CGT are ‘unlikely’, explain that (U)HNWs concerned about exit tax ‘could look to leave the UK in the next few weeks and try to benefit from split year treatment so as to have a non-resident part of the year (in which the Budget falls), but will have to move quickly now to do this.’
VAT threshold changes
Potential changes to VAT in the upcoming Budget could include raising the registration threshold to £100,000, lowering it, extending VAT to previously exempt services such as ride-sharing, or applying higher rates to certain goods and services – potentially up to 25 per cent, according to experts.
[See also: The real story behind private banking exodus and school VAT woes deepen]
However, ‘even modest changes to VAT or CGT rates risk signalling that the UK is no longer a stable base for global talent and capital,’ warns Morrison.
For her, such changes could mean that ‘growth across the sector will not only slow, but be completely eroded.’
How likely are changes to VAT threshold in the Budget 2025 – and how can UHNWs prepare?
‘With the national debt skyrocketing, it’s likely the government will have to increase one of the heavy hitters – income tax, VAT or national insurance – to raise the funds they need,’ explains Rosenbloom.
However, with the Chancellor’s emphasis on tackling inflation, ‘it’s not likely to be VAT,’ she says, ‘and it’s far more likely she’ll make further increases to employer’s national insurance contributions, perhaps recategorising self-employed individuals as “employees” for these purposes.’
Income tax rises
According to The Guardian, Reeves is reportedly considering raising income tax, with options ranging from a modest increase to the basic rate to higher rates for top earners.
Officials are understood to be weighing how to generate sufficient revenue while limiting the impact on households, while adhering to the principle that those with the ‘broadest shoulders’ should contribute the most.
The IFS report noted that ‘a new tax on income, hypothecated to a particular spending stream, may be a more politically attractive way to raise revenue from a large tax base, but would add unnecessary complexity to the system.’ It also cautioned that ‘hypothecation would either be unjustifiably restrictive – tying spending on a particular item to a specific revenue stream – or economically meaningless, in the sense that the amount raised bore no direct relation to the amount spent.’
How likely are income tax rises in the Budget 2025 – and how can UHNWs prepare?
Income tax is ‘the tax that actually raises money,’ say Tee and Groves, making it ‘the most likely to be increased so long as Rachel Reeves thinks she can sell it to voters, its just a question of how much and at what level.’
Rosenbloom shares their opinion, explaining that ‘with Labour’s manifesto promise not to increase income tax, undoubtedly an increase is not a decision the Chancellor will take lightly, but this is looking increasingly likely.’
She adds: ‘The government may seek to limit political damage by referring to their ongoing desire to protect “working people”, and increasing income tax only for those that fall into higher rate and additional rate tax bands. [They] need to be careful they don’t insult the intelligence of the British people, as well as their bank balances. To imply that higher earners are not “working people” would be absurd, as would be any suggestion that all higher rate taxpayers are living a life of luxury. The government would be better off being honest and accepting the criticism for what is looking increasingly like an upcoming U-turn.’
