Graeme Privett, Partner, Head of Private Client shares his thoughts ahead of the Autumn Budget 2026
As a tax professional, the Budget should be the highlight of my professional year. This year, with a new Prime Minister and Chancellor, I would expect a more muted affair. The run-up to this year’s Budget has not been punctuated with the endless kite flying of potential policies, raised today and shot down tomorrow. This Chancellor plays his cards closer to his chest and when you are not holding the winning hand, it is probably the wisest course of action. However, the UK’s fiscal issues have not changed significantly over the last year. As a country, we spend more than we raise through taxation, the costs of servicing the interest on accumulated and current borrowings increases, and we are still left with a laundry list of worthy ways for the Government to spend more. One Budget, let alone one policy changes, cannot change any of this, so the mantra will be about support, growth for the future and stability. Whether this hits home remains to be seen.
Where can the Chancellor actually turn?
At a high level, the Chancellor remains constrains by the 2024 Manifesto Pledges, so no increases to income tax, Employee’s National Insurance and VAT. With an increase to 25% for corporation tax, there is little, if no, meat left on that bone. This leaves capital gains tax and wealth taxes, which have played out over the Summer. It has been suggested that the UK equalises income and capital gains tax rates for individuals, though in my opinion, this would lead to a reduction of tax take as this slows business and investment sales. The current 24% rate is enough to raise significant tax without hurting too much. Even with equalised income and capital gains tax rates, which we had in the UK in the past, we offered lower effective rates by allowing indexation or a tapering of the gain based on whether this was a business asset and the length of time that the investment had been held. A straight equalisation ignores the effect of inflation and disincentivises investors from taking profits off the table, thereby distorting the market. A change is not unwelcome, though real thought on rewarding entrepreneurial behaviour would go some way to improving growth. Whilst the Chancellor has ruled out equalisation, CGT reform remains on the table.
Growth needs more than good intentions
None of this should diminish from the fact that the UK still does some things well. The EIS and SEIS reliefs for investors in newer smaller businesses encourages that growth. However, by the time that we get to Series B and C, we tend to lose our way with businesses looking outside the UK, often to the US or the Middle East for their next stage of growth. Whilst business should be branching out of the UK, longer-term success needs to be built on those businesses being here in the UK and where appropriate, listing here in the UK; this needs some serious consideration.
We still attract great talent to the UK to work in high-skilled industries, though the jury remains out as to how effective the new Foreign Income and Gains will be in keeping them here. The imposition of Inheritance Tax after ten years remains a significant deterrent to longer-term residence. The discussion of wealth taxes has bred concern as to the stability of the UK tax system amongst individuals who remained in the UK after April 2025 (when the non-domicile regime was abolished), UK domiciled high net wealth families and potential arrivers to the UK. Uncertainty is not good for business and the UK operates in an increasingly competitive global tax market. We now compete with jurisdictions offering sector specific tax incentives (such as the Greek regime for Private Equity professionals and Italy for retirees) and those offering little or no tax with or without a fee (the UAE or Italy again). My experience is that some clients have left and it is not in droves, though they pay a very disproportionate level of tax when compared to the general populus. This is more of an issue for the UK with a comparatively narrow tax base. The top 1% of income taxpayers in the UK contribute approximately 29% to 33% of all income tax (and combined income and capital gains tax) revenue. Slightly more broadly, the top 10% of income taxpayers overall contribute approximately 60% of total income tax revenue. Whilst freezing allowances has drawn more individuals into paying income tax and others into higher rates, none of this addresses the narrow individual tax base.
The problem with wealth taxes
The discussion of new taxes undoubtedly creates instability and drives away talent from the UK. The UK was gripped by discussion of a wealth tax earlier this year, though this appears to have receded. It is not expected that the Chancellor will want to progress with this despite many on the left of the party feeling that this would be a necessary step. Many jurisdictions, notably France and Spain, have operated a wealth tax with modest success at best. It is costly to administer, disincentives growth and where an individual’s wealth is illiquid, it creates funding issues. The UK has already dipped its toe into a targeted wealth tax on residential properties in the High Value Council Tax Surcharge, which is due to take effect in April 2028, on properties valued in excess of £2million. When suggested that the threshold drop to £1.5million, the cacophony of disapproval of objection from London Labour MPs was deafening.
So, what could move the needle and raise revenue? With the improvements in AI, we expect more HMRC engagement on enquiries using the copious information that they receive. Enquiries will be computer generated and replies will be prepared by the AI. All of this will increase the number and speed with which enquiries will be handled with a view to driving down the Tax Gap, which HMRC believed was just under £60billion in 2024/25 (or about 6.4% of the total tax that could be collected). Despite what one may expect from listening to certain sections of the media, the tax gap is not driven by non-compliance for higher net wealth individuals, but rather from small businesses, which comprise the largest component by customer group with a 62% share in 2024 to 2025. This makes sense when one considers the pressures they are under.
It remains to be seen what we will get next week and I would expect a quieter Budget. There are elements of the UK tax code in need of change with a few examples above. By no means is this all of them. Whilst no single tax measure will correct the UK’s fiscal ills, with a Government reset, one only has one chance to make a good first impression.
If you would like to discuss how the Autumn Budget could affect you or your business, please get in touch with me here.
