Budget 2025: Beware of the rumours

As Chancellor Rachel Reeves prepares to unveil her second Budget next month, there’s plenty of speculation about what could be announced. Yet experience shows us that making decisions based on unfounded rumours can often lead to unintended consequences.

In light of the uncertainty, we have taken a look at some of the key themes coming up in the media. As before, we would always advise waiting to see what does happen in the Budget on 26 November before making any key financial decisions.

At a glance

• It’s widely anticipated we’ll see some tax hikes in the Autumn Budget on 26 November, as Rachel Reeves looks for ways to meet spending commitments and address fiscal challenges.
• There has been speculation around a range of areas where tax could be changed or increased. These include: property, inheritance tax gifting rules, pensions, and potential reform to ISAs.
• However, many of these rumours around possible tax changes will fail to become reality, underlining the importance of taking a considered view before making financial decisions.

Budget 2025 rumour: pensions reform

There seems to be speculation before every Budget that the Chancellor will tinker with pensions, and this time is no different.

Last year saw rumours that the ability to take a 25% tax-free cash sum from pensions could be restricted. This didn't happen. However, the rumour has surfaced again ahead of this Budget. 

Some pension savers may be tempted to take their 25% tax-free sum before the Budget in case there is a move to cut it. Such is the frenzy around this issue that HMRC has issued a warning saying it’s not possible to reverse a tax-free pension cash withdrawal. For example, if someone has a £200,000 pension pot and takes £50,000 as tax-free cash just before the Budget, they cannot use a 30-day cooling-off period to try and unwind the tax-free withdrawal if the government doesn’t end up changing the rules.

Changes to pensions tax relief could also be on the table. Given its relatively high cost (particularly for 40% and 45% taxpayers), it could be a potential lever for the Treasury to raise money. Cutting the relief – or moving to a flat rate – would likely be criticised for undermining confidence in pensions though (something that St. James's Place has warned about publicly.

Budget 2025 rumour: an overhaul of property taxes

There has been mounting speculation over the past few months that Labour may reform property taxes.

This could include replacing stamp duty with a property tax. Media outlets reported in August that the Treasury was considering introducing a national tax paid by owner-occupiers on properties worth more than £500,000 when they sell their home.

More recently, it was reported that the Chancellor is apparently mulling over a proposal to spread stamp duty payments across several years, in an effort to boost the housing market.

Other rumours include scrapping council tax (although there is also speculation that new, higher council tax bands could be created), applying capital gains tax to the sale of main homes above a certain value, and targeting landlords by applying National Insurance to rental income.

If the famous Budget red box contains any of these proposals, they could affect people with expensive homes (and therefore have a disproportionate impact on homeowners in high-value regions like London and the South East) and buy-to-let landlords.

Budget 2025 rumour: ISAs and inheritance tax

Plans to cut the cash ISA allowance were shelved in July following a backlash. However, Labour refused to completely rule out changes in the future and this week rumours have once again resurfaced about a possible reduction.  

At the time, building societies argued that a cut in the cash ISA allowance could affect their ability to lend money to house buyers (who typically save cash deposits). Yet the government wants to encourage more people to invest, rather than leave their money sitting in savings accounts. It is therefore possible we could see changes to ISAs to help achieve this goal.  

There is speculation that the government may also look at the inheritance tax (IHT) gifting rules to raise revenue. The chancellor could extend the period donors must live after making a substantial gift before it falls outside their estate for IHT purposes from seven years to 10 years.

There have also been rumours the government could impose a lifetime cap on the value of gifts people can make that are IHT-free.

Budget 2024: what did and didn’t happen?

The rumours and speculation about what Reeves might announce on 26 November may be no guide to what actually happens.

Here are some of the key predictions made before the 2024 Budget and an update on what did and did not happen.

• Changes to pension tax relief – Cutting tax relief, and possibly replacing it with a flat rate relief, was mooted in the run-up to last year’s Budget. NO CHANGE
• Reduce pension tax-free cash – The frenzied speculation that the 25% pensions tax-free cash would be cut in the Budget caused pension savers to withdraw their tax-free cash in unprecedented volumes. A total of £18.08 billion of tax-free lump sums was withdrawn in the 2024/25 financial year, a 61% increase on the £11.25 billion extracted a year prior. NO CHANGE
• Inheritance tax (IHT) on pension savings – The BBC reported that the government was looking to increase the amount of money it raises via IHT. There was speculation this could mean pensions be brought into the IHT net – and this turned out to be true. CHANGE
• Tighten up the IHT gifting rules – Rumours that the seven-year gifting rule would become the 10-year gifting rule, a lifetime cap on gifting, and a crackdown on the “unlimited gifts from income” exemption all turned out to be false. NO CHANGE
• Increase Capital Gains Tax (CGT) – Speculation that the Chancellor would increase CGT turned out to be correct. Basic-rate CGT on profits from selling shares rose from 10% to 18%, with the higher rate rising from 20% to 24%. CHANGE

Don’t try and predict the future

It’s hard to predict the future, but it’s highly likely that some of the current Budget rumours won’t actually happen. A relevant question to consider might be: how would you feel if you took an action, based on speculation of a change, which then didn’t come to pass and you found yourself in a more disadvantageous position? It is always worth trying to remain calm amid the Budget speculation and avoid making knee-jerk decisions. 

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