Chancellor John Healey will deliver his first budget on 28 October, the Guardian reported on Friday. Labour promised in its election manifesto not to increase income tax, national insurance or VAT, so speculation has centred on other levies.
Inheritance tax raised £8.5bn in the 2025-26 tax year, up from £8.2bn the year before. The Office for Budget Responsibility predicts £9.5bn will be raised this year and £14.5bn by 2030-31. About 5% of estates pay IHT, roughly 30,000 a year. The standard rate is 40% on assets above the £325,000 tax-free allowance, but additional allowances remove or reduce the bill for most families. A couple can leave up to £1m to children or grandchildren without attracting the tax.
Government figures show the average effective tax rate across all estates paying IHT in 2023-24 was 13%. On estates worth between £1m and £1.5m where IHT was due, the average bill was £151,000, or 12% of the total value. From April 2027, money left unspent in a defined contribution pension after death will be included in the calculation for the first time. The government estimates 10,500 estates will have to pay IHT where previously they would not, and 38,500 estates will face a bigger bill. The average IHT bill is expected to increase by about £34,000 when pension assets are included.
Capital gains tax raised £24.3bn in 2025-26, up nearly 80% from £13.7bn the previous year. The annual tax-free allowance was cut from £12,300 until 2022-23 to £6,000, then to £3,000. The number of people who paid CGT in 2024-25 was up 45% on the previous year, hitting 584,000. Nearly half of the tax raised came from those who made gains of £5m or more, less than 1% of CGT taxpayers. The rate was increased by Rachel Reeves in her autumn 2024 budget to 18% for basic-rate taxpayers and 24% for higher or additional rate taxpayers. Reports this week suggested Healey has rejected calls to raise CGT in the budget.
From April 2028, owners of properties in England valued at £2m or more will have to pay the high-value council tax surcharge on top of existing council tax. The annual charge ratchets up from £2,500 for properties valued between £2m and £2.5m to £7,500 for those worth £5m and above. The government says fewer than 1% of residential properties in England will be affected by the surcharge, which the OBR estimates will raise £400m a year. The estate agent Hamptons estimates there are just over 138,000 homes in England, mainly in London and the south-east, worth more than £2m.
Why it matters for wealth
The pension rule change from April 2027 could add £34,000 on average to IHT bills for estates with unspent pension wealth. The mansion tax from April 2028 may cost owners of £2m-plus properties up to £7,500 a year, concentrated in London and the south-east. Capital gains tax changes have already pushed receipts to £24.3bn, and further rate increases remain possible in future budgets despite this week's reports.
The chancellor will deliver the budget on 28 October.
Source: The Guardian
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