Smoke without fire? Budget 2025 predictions

The latter measures have most obviously affected family farms, but will also have a big impact on other intergenerational trading businesses that may not have been fully understood by all those owners as of yet.

I would love to see the reversal of these IHT measures, but I fear that is unlikely, although there have been some suggestions that the £1m limit on 100 per cent BPR/APR might be raised.

However, I’m convinced that we will see further changes aimed at making lifetime giving more difficult; the Government itself accepts that people can plan around their 2024 changes if they are likely to live for a further seven years.

We might see the so called “seven-year IHT clock” on gifts extended to 10 years, or otherwise we might see the removal or restriction of business holdover relief (allowing qualifying business assets to be gifted without capital gains tax) or even a full gift tax as practised by some countries. If we were to see the latter, then I would encourage the tax to be charged on the recipient rather than the donor.

Last year’s Budget also announced that pension funds would suffer IHT from April 2027. Whilst it feels unlikely that we will see a reversal of this, I would encourage the Government to revisit the practicalities of the current draft rules.

These would see the executors take personal liability for any IHT charged in respect of a pension fund, and with the risk that they might not be able to access the money, this might make the appointment of a professional executor almost impossible.

Aside from this, I think we can expect several changes aimed at raising revenues and balancing the books, as there seems to be no doubt that the Government needs more money. There have been plenty of rumours circulating, and it does feel as if the Government might have been floating different ideas to pre-judge public reaction.

First off, a further extension of the current freeze in tax thresholds seems like a dead cert. The current freeze runs until 2027/28, but adding another couple of years would help with the Government forecasts.

There have been a lot of rumours about NIC being extended to rental income, and about employer’s NIC being applied to the profits of professional partnerships. I suspect these could both be true, although for the latter some form of income tax relief will be necessary to ensure fairness with limited companies.

Recently the potential for a change with professional partnerships has developed a little further targeting particularly partners in law firms, GP’s and accountants. The stated aim is to equalise the tax treatment between the employed and self-employed, whether this is then the start of a wider project on that issue remains to be seen.

Less likely would be the extension of NIC to pension income; whether or not that might be fair, it seems difficult politically. Something that has been mentioned around this point is shifting the generation of tax from people currently working to pensioners, maybe via an increase in the rate of income tax that is offset by a reduction of the same amount in national insurance.

Rumours have also abounded about property taxes, with the potential replacement of Stamp Duty Land Tax on residential property purchases with an annual tax, and some form of top up tax on high value properties. The replacement of SDLT might be a sensible move, as it remains a blocker on mobility, and must hold the economy back to a degree. In recent days there has been a bit of a swirl around a ‘mansion tax’ (the top up tax on high value properties) imposing CGT on the most expensive homes.

Pensions changes are talked about every year; this is no exception, but it’s still hard to be certain what, if anything, will happen.

As ever, many taxpayers are rushing to draw their tax-free cash from their pension funds in case the limit is reduced, but we just don’t know. There are risks involved in withdrawing the cash, and HMRC has confirmed that taxpayers will not be able to use cooling off provisions to put the funds back in again.

A flat rate of tax relief that removes higher rate relief is always talked about, but it remains on the “very difficult” pile. The biggest problem is that to ensure fairness between defined benefit and defined contribution schemes, it would be necessary to tax the accrual of defined benefit schemes.

This could significantly increase tax costs for the members of defined benefit schemes, who are predominantly public sector workers. As such this feels unlikely, but we might see changes to the pensions annual allowance, and the removal of pension contributions via “salary sacrifice” also seems likely.

Road-pricing keeps seeming to be talked about, and I could see some sort of consultation being launched. I think that a clever road pricing scheme that reflected the time of day of travel could be an effective tool that could also relieve congestion, but it would be a huge project. Another suggestion is to ask electric vehicle drivers to pay their fair share of tax, including via a levy based on the weight of the car.

As ever, we won’t find out until the big day, when we will discover which rumours were true and where there was just smoke with no fire!

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