Sarah Coles, head of personal finance, Hargreaves Lansdown: “Rachel Reeves has spent much of today fending off questions about tax rises. It’s not a matter of ‘if’ tax bills will rise after the Budget. That’s a given. The question is which taxes will rise and by how much. The need for extra funding is abundantly clear. The shortfall is reportedly around £30 billion. Rachel Reeves’ conference speech emphasised the government commitment to economic responsibility, which means it can't shrug this off, and it needs to take steps to balance the books.
It will have been hoping that kick-starting growth would close the gap, but that hasn’t materialised yet. Meanwhile, the cost of borrowing has rocketed, adding to the problem. With spending cuts proving difficult, tax rises are looking more likely. Reeves has said that the world had changed since she ruled out another tax-raising Budget this year, which seems to show more taxes are on the cards.
Commitments to working people in the conference speech indicate no appetite for breaking manifesto promises on income tax, National Insurance or VAT. However, that leaves an awful lot open to question. On Monday, attention turned to the possibility that the freeze on income tax thresholds could be extended – which Reeves said she couldn’t rule out. However, over the past few weeks, everything has been in the frame from capital gains tax to stamp duty.
Even if the government was to do absolutely nothing, tax rises are also baked in. Some were set in train years ago, whereas others will always come as the natural consequence of rising prices, and the rising values of stocks, bonds and house prices. However, you don’t need to sit back and watch this happen, because there are steps you can take to protect yourself from tax blows delivered by any Budget.
There’s likely to be a shortfall in government funding
A £30 billion shortfall has reportedly opened up in the government finances. The cost of borrowing has kept rising, and on the back of the Bank of England decision to hold rates at 4%, the yield on 30-year gilts reached a 27-year high. The higher these yields are, the more expensive it is for the government to borrow, and the more money it needs to raise.
It doesn’t necessarily need this money from new taxes. Technically it could come from more economic growth boosting the tax take within the existing system. The problem is that this isn’t happening either. GDP growth in the first two quarters of 2025 was 0.7% and 0.3%. These figures are better than expected, but they’re not enough to close the gap.
Cutting spending is tricky in this environment
It could choose to close some of the gap through spending cuts, but that hasn’t been straightforward for the government either. Changes to the Winter Fuel Payment and Universal Credit have both faced huge challenges politically.
The government is likely to turn to tax policy to help close the gap
Tax speculation has been rife, and while nobody should be making any financial decisions based on rumours, it has shone a light on the options open to a taxman keen to squeeze more money from us. Anything from capital gains tax to stamp duty and inheritance tax to another freeze on income tax have been up for debate. In every case, there are several possible tweaks that could generate more income for the government. None of them would be welcome, some could have horrible unintended consequences, but it goes to show that the tax options are far from exhausted.
It’s already baked in
Even if the government did nothing at all, taxes would rise. Most notably, frozen income tax and National Insurance thresholds are set to stay in place until 2028 – with speculation that could be extended. It means that every pay rise we get in the interim will mean paying more tax, and risks pushing people over a threshold into a whole new world of extra taxes.
Becoming a higher rate taxpayer, for example, doesn’t just mean paying more tax on your wages, there’s also a smaller savings allowance and a higher rate of tax on interest, a higher capital gains tax rate and a higher dividend tax rate. Since 2021/22, when thresholds were frozen, the number of basic rate taxpayers has increased by 3 million, the number of higher rate taxpayers is up 2.65 million, and the number of additional rate taxpayers has more than doubled. By 2028, those figures are going to be even higher.
It would be the natural consequence of stocks, bonds and house prices rising - and higher inflation
Even if all that happened was that the value of investments kept pace with inflation, there would be more tax to pay. People would make bigger capital gains, and with a vastly reduced allowance of £3,000, if they were investing outside of a pension or ISA, it would mean a bigger tax bill. Meanwhile, rising stocks, bonds and house prices add to the value of people’s estates, so the fact that the nil rate bands have been frozen until 2030 means more estates will face inheritance tax.
Higher inflation, meanwhile, means prices are rising more quickly, so taxes based on a percentage of what we spend will automatically rise too – including VAT, fuel duty and alcohol taxes.
Seven ways to protect yourself
If you plan to make more pension or SIPP contributions in the current tax year, you could consider doing so ahead of the Budget, to take advantage of the system as it stands. You can carry forward any unused annual pensions allowance from the previous three tax years – as long as it doesn’t add up to more than your income this year.
If you’re making income from savings interest, you can use a cash ISA to protect as much as possible from tax.
Take advantage of stocks and shares ISA allowances – where your investments are protected from dividend tax and capital gains tax.
If you already have investments outside an ISA, you can move them inside using this year’s allowance – through the Bed & ISA process. If you have investments outside an ISA and have already used your allowance for this tax year, you should consider realising up to £3,000 of gains, so you take advantage of this year’s CGT allowance.
Plan as a couple. If you’re married or in a civil partnership and your partner pays a lower rate of tax, you can transfer income-producing assets into their name, so you both take advantage of your ISAs and tax allowances, and then the rest is taxed at their marginal rate rather than yours.
Don’t forget your children. In the current tax year, you can save or invest £9,000 in a Junior ISA for any qualifying child, and all interest, dividends or capital gains are tax free.
Consider whether a Venture Capital Trust or Enterprise Investment Scheme meet your needs. These aren’t right for everyone, because they are very high risk so should only be considered as a small part of a large and diverse portfolio. However, if you use these schemes, you can get 30% income tax relief on the amount you invest – which will reduce your overall tax bill.”
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