Whom do you trust more? Reeves or Rayner?

You will have been living on a desert island not to know that Chancellor Rachel Reeves has been struggling to balance the nation’s books.

In her 31st October Budget 2024, she made a £9 billion allowance for unforeseeable surprises – otherwise called “headroom” ; a tiny amount when matched against annual forecasts of UK Government spending and income . Unfortunately for our Labour Government, this “headroom” has already been gobbled up. Inflation is now in excess of 3%  – making the cost of Government borrowing more expensive: various trades unions are already requesting eye watering pay increases: there is a stooshie  between Angela Rayner and Rachel Reeves on how best to fill the gap between income & expenditure ( Ms Rayner wants to levy higher taxes – see note 1 below -  and Rachel Reeves wants to cut benefits rather than increase taxes again):  and lastly, there is of course the unforeseeable – come in, Donald Trump and his spitefully infantile tariffs!

Over the next month or so, I will remind you of the key proposed changes – and exemptions - to Inheritance Tax (IHT) from 6th April 2026, Capital Gains Tax , Employers’ National Insurance and what is coming down the line on Pensions. ( In short, from 6th April 2027, Pension savings will no longer be exempt for IHT.)

Because they have sparked such a huge backlash from farmers, particularly smaller family farmers , I  will start with Inheritance Tax . To be continued…

Note (1) Angela Rayner’s memo to Rachel Reeves in mid March 2025 – before Ms Reeves’s Spring Statement March 26

1. Raise the bank surcharge to 5%

● When corporation tax increased in April 2023, the previous Chancellor cut the banking surcharge paid by banks on profits from 8% to 3% as an offsetting measure. Reinstating the surcharge at 8% could be worth £1.5bn a year, based on the OBR forecasts from the time of the cut, though clearly this could create competitiveness risks. However, even a smaller increase of the surcharge to 5% could still raise £500-700m a year and only take the rate of tax paid by banks on their profits back to the 2008 levels of c.30%.

2. Remove Inheritance Tax (IHT) Relief for AIM Shares completely

● Shares designated as ‘not listed’ (notably AIM shares) receive 50% relief (reduced from 100% relief at Autumn Budget). Removing the relief completely for AIM shares could raise between £100m-1 billion per year. External tax expert, Dan Neidle, argued in favour of such a change, saying, “AIM yields are currently depressed by market valuations driven by the tax benefit, not fundamentals. This is an unhealthy state for any market to be in.”

3. Remove the dividend allowance

● Tax is not paid on dividend income that falls within your income tax Personal Allowance. There is also a £500 dividend allowance each year. You only pay tax on any dividend income above this. It was reduced from £2,000 to £500 over the past few years but removing it altogether would be worth £325 million a year, according to HMRC data.

4. Freeze the additional rate income tax threshold

● The additional rate of income tax (45%) applies to income above £125,140. The Chancellor has announced that income tax thresholds will remain frozen until 2028 before being uprated. Continuing to freeze the additional rate threshold in cash terms rather than uprating it with inflation from April 2028 could raise revenue and would be consistent with the manifesto.

5. Annual Tax on Enveloped Dwellings.

● The Annual Tax on Enveloped Dwellings could be increased. Our main arguments to increase this tax are that (i) we are leaving money on the table by setting it too low, potentially c.100-200m a year; and (ii) the people who pay it are nearly exclusively living in big homes in exclusive London postcodes (over 8 in 10 are in London and over 7 in 10 in Westminster or Kensington and Chelsea).

6. Close the commercial property stamp duty loophole

● Stamp duty on commercial property purchases is up to 5% - but a lot of transactions place the property in an offshore company and sell the shares in the company, in order to pay no stamp duty. This is an obvious loophole, impossible to explain to the public, and external experts estimate closing it could raise up to £1 billion a year from the commercial property market.

7. Move higher and additional rate Dividend Taxes closer to Income Tax

● Both the higher and additional rates of dividend taxes are set lower than income tax - Higher rate: 33.75% (vs. 40%); and (iii) Additional rate: 39.35% (vs. 45%). Whilst HMT would need to consider the implications for investment, it is worth considering whether closing this gap could raise significant income and provide a logical alignment of the tax system.

8. Reinstate a pensions lifetime allowance

● In March 2023, then Chancellor Jeremy Hunt announced the abolition of the pensions lifetime allowance. The lifetime allowance was a limit on the total value an individual’s private pensions could reach before high tax rates were applied. One option would simply be to reinstate the lifetime allowance at around its previous level of £1,073,100. Costing such a reform is difficult, but given that the OBR’s assessment was that abolishing the allowance cost £800 million a year, reversing it might be expected to raise almost as much. Another option would be new higher lifetime allowance, for example the last Labour government set the lifetime allowance at £1.8 million in April 2010, although that would raise less than the 800m.

Two additional proposals are worth potential consideration but would be more contentious, and potentially take longer to deliver or implement:

9. Reverse the changes to the High Income Child Benefit charge

● High Income Child Benefit Charge provides for Child Benefit to be clawed back through the tax system from families where the highest earner has an income above a set threshold. At Spring Budget 2024, the previous government increased the threshold from £50,000 to £60,000 and made changes to the taper rate - as a result the system was made more generous to families, with their child benefit only withdrawn completely when their income reaches £80,000. These two changes were forecast to cost c.600m a year, which could be saved if they were reversed on the grounds that they added to the welfare budget without being properly funded.

10. Tighten migrant access to the welfare system

● Migrants who have spent 5-10 years in the UK generally receive access to a broad range of welfare entitlements. Indefinite leave to remain in the UK confers access to core welfare entitlements such as Universal Credit, and 10 years of National Insurance contributions confers eligibility for some state pension provision. Those who arrived in the UK during the period
of very high immigration in the past few years will become eligible for indefinite leave to remain over the course of this Parliament.

● The Spring Statement could announce a review of entitlements with a target saving to be delivered in time for the Spending Review or Autumn Budget, and include Universal Credit and state pension entitlements. The review could also consider whether further rises in the Immigration Health Surcharge should be implemented (currently set at £1,035 and raising c£1.7bn a year). DHSC figures shows that this only just covers the estimated average annual cost of treating migrant patients.

Andrew Hamilton, Dip PFS

Chartered Tax Advisor

June 3rd 2025