'I'm a tax expert, here are 4 areas I Rachel Reeves will target in Budget'

Chancellor Rachel Reeves is widely expected to unveil a raft of tax-raising measures in the Autumn Budget, as a worsening fiscal outlook leaves the Treasury facing a potential shortfall of up to £40billion.

The Office for Budget Responsibility is reportedly preparing to downgrade its productivity forecasts ahead of the Budget. This could add billions more to the current fiscal shortfall and force Ms Reeves to look for new ways to raise money while avoiding spending cuts. Economists believe the Chancellor will be left with little choice but to turn to tax rises. Jon Hickman, corporate tax partner and budget lead at BDO shared four “highly likely” areas Ms Reeves could target in her Budget on November 26.

One of the most likely options on the table for Ms Reeves is to extend the freeze on income tax thresholds beyond their current expiry in 2027/28. While the Chancellor may be reluctant to raise headline tax rates, experts believe she could raise more revenue though what’s often described as a “stealth tax”.

Rising wages and frozen thresholds drag more workers into higher tax bands, increasing tax receipts for the Treasury without any changes to tax rates.

Mr Hickman said: “The current freeze on income tax thresholds and personal tax allowances is gradually dragging many individuals into paying tax for the first time and pushing higher earners across the higher and additional rate thresholds as their incomes increase over time.

“Similarly, the freeze in the inheritance tax (IHT) nil rate bands continues to increase the IHT take as property values rise.”

Freezing income tax thresholds to the end of the economic cycle - 2030 - could raise billions in revenue “without technically increasing income tax rates”. Mr Hickman added: “It wouldn't feel like a tax rise for most taxpayers.”

The Chancellor may look at indirect taxes on wealth, such as property, to raise more money. Mr Hickman said: “Taxing items that wealthy people own and use seems significantly easier to implement.”

He suggested that new higher bands of council tax and/or a house revaluation exercise, and further moves on second homes could raise revenue in a targeted way.

Mr Hickman said: “The added political benefit being that this would be carried out by local authorities and not central Government.”

The tax expert noted that rumours continue to circulate that the Treasury is reviewing Capital Gains Tax relief on main residences.

He said: “Currently, the exemption for gains on the sale of your home is not capped and can exempt all gains – although there are rules to be met to qualify. By removing the exemption where the value of the home exceeds a fixed threshold - figures between £500,000 and £1.5m are said to be under consideration - the Chancellor could significantly increase the tax collected from high-value property sales.”

He added: “Another rumour suggests the Government is also considering creating a new tax on the sale of high-value homes valued at £500,000 or more. A specific ‘Mansion tax’ would be easier to implement than a general wealth tax, although it may simply operate as a replacement for Stamp Duty Land Tax, which is widely seen as a block in the housing market.”

With the annual cost of providing tax relief on pension contributions estimated at £45billion to £50billion, mounting speculation about reducing relief ahead of each Budget is unspurprising. However, Mr Hickman said: “This has proved a risky and difficult nut to crack for successive Chancellors.”

He continued: “One answer might be a simple levy on pension fund values – a small percentage added to the annual charges that pension fund managers already make.

“A 0.25% fund levy would hardly be noticed by most pension savers and would be minimal compared to the tax relief they already get and tax free growth in their pension funds. However, this would still raise billions for the Government.

“It could easily be collected by pension fund managers with no involvement of the taxpayer and minimal support from HMRC. It might also be possible to target the levy at those with highest pension values (combined for all their pensions).”

Mr Hickman said it seems “quite possible” that increasing the tax rates on gambling companies will prove attractive.

He added: “Similarly, if inflation is falling at the time of the Budget, taxes ‘for our own good’ on sugar, tobacco, and alcohol may well be increased - with some specific exceptions to support pubs and restaurants.”