Inflation and borrowing costs have meant the government faces difficult choices between raising taxes or cutting public spending.
With the 2025 Spring Forecast approaching, higher taxes, frozen allowances, or reduced benefits may be on their way. Waiting until after the announcement to adjust could mean steeper tax bills and fewer options for reducing them.
Here’s what’s changing and how to protect your wealth before the Spring Forecast turns into another Budget Day!
Why The Growing Deficit Signals Tax Rises
The UK's national debt is at record highs, causing rising interest payments that make it more expensive to fund public services. The government now faces growing pressure to raise revenue to cover the increasing deficit.
Personal tax thresholds are frozen until 2028, gradually dragging more people into higher tax bands due to fiscal drag. However, this won’t bridge the gap, making further tax hikes in the Spring Forecast far more likely.
Which Taxes Could Be Affected?
All though the Spring Forecast is not meant to be a “Budget” it could soon turn into one, several tax areas are being reviewed for potential increases.
Income Tax and National Insurance Contributions (NICs)
The personal allowance remains frozen at £12,570, pushing more people into higher tax brackets as wages rise. This freeze continues until at least 2028, raising tax burdens without changing rates. While NICs have decreased, further reforms could negate these cuts. If the government needs more revenue, reversing NIC reductions or imposing new levies may be considered.
Capital Gains Tax (CGT)
The CGT exemption has already been cut from £12,300 to £3,000, affecting landlords, investors, and asset sellers. Higher-rate taxpayers may face further increases, with proposals to align CGT with income tax rates. If you’re one of those considering asset sales you should do so before further potential changes occur, increasing the tax you will pay further.
Inheritance Tax (IHT)
The IHT nil-rate band remains frozen at £325,000, pushing more estates above the threshold despite rising house prices. As a result, more families could face a 40% tax on inherited wealth. While there's speculation about scrapping IHT, it seems more likely that reliefs and exemptions will be tightened, prompting more urgent estate planning.
Corporation Tax and VAT
These are usually areas we do not comment on as they are not personal tax issues, but I feel a brief mention is warranted as they would increase the cost of living for all of us.
The corporation tax rate is 25%, the government could target high-profit companies with some changes to increase tax receipts.
VAT changes could be expanded to more goods and services or reducing exemptions, which again would increase costs for businesses and consumers.
What If Spending Cuts Are the Alternative?
If the government chooses to cut spending instead of raising taxes, reductions in state pensions, NHS funding, and business incentives could follow. This could mean slower pension increases, fewer public services, and fewer tax reliefs for businesses, affecting both households and economic growth.
While spending cuts might delay tax hikes, they often result in higher costs elsewhere—whether through longer wait times for services, reduced support, or other financial pressures.
Stay Ahead of Tax Changes Before They Hit
The uncertainty surrounding the Spring Forecast means you should take careful measures to protect your finances.
Use available allowances before potential changes take effect.
Maximise ISAs and pension contributions to protect investments from potential tax increases.
Plan for CGT and IHT changes—if you're considering selling assets or making financial gifts, doing so now could avoid future tax hikes.
With rising debt and fiscal pressure, tax increases or spending cuts or maybe a combination of both seem inevitable. Whether through higher tax bills or reduced public services, these changes will impact nearly everyone.
If your concerned about how these changes or any other tax matters? Our team here at Klarity Tax can help you plan ahead and take full advantage of available tax reliefs and strategies, safeguard your wealth as much as possible.
Comentarios