Rachel Reeves is likely to go after the wealthy in a bid to balance the books.

Her recent u-turn on winter fuel payments and increased defence spending will need to be paid for. 

But the Chancellor has boxed herself in with her iron-clad fiscal rules, giving her little room to manoeuvre.

Most economists and think tanks think tax rises in the Autumn Budget are now inevitable.

Campaigners want to see a wealth tax to pay for increased spending, but given its limited impact, it's unlikely to happen.

Reeves has ruled out taxes on the working people, including income tax, National Insurance for employees, VAT and corporation tax.

Instead, she may indirectly impose taxes on the wealthy, despite their protests that they already pay their fair share.

Pensions

Pensions are a big source of individual wealth, and there was plenty of speculation in the run-up to the last Budget that the Government would impose changes.

While Reeves dragged unused pension assets into the IHT net in April 2027, she did not go as far as some experts feared. That's not to say that she won't meddle with pensions again in this year's Budget.

HMRC recently announced a consultation on salary sacrifice - when people forgo a pay rise or bonus and add to their pension instead, which helps avoid higher marginal tax rates.

It has prompted speculation that the Government might introduce a cap on the amount of salary sacrifice that people can use.

There is also the ongoing speculation about the reintroduction of the pensions lifetime allowance (LTA), which Labour pledged to reintroduce before dropping it at the election.

This was mainly due to the issues that came with the LTA and those with large NHS pensions. The higher tax charges meant more doctors and consultants were opting for early retirement, which deterred them from taking on extra work.

Jason Hollands of Evelyn Partners thinks resurrecting the LTA, or a new allowance with a carve-out for doctors, is unlikely. 

Instead, Reeves may look at how much tax-free cash can be taken from pensions, possibly lowering the cap from the current level of £268,275 to £100,000.

'While this is a possibility, I would urge people not to jump the gun on taking their tax-free cash now if they don't need to, as nothing may happen on this front. 

'Precedent suggests that, were such a move be announced, there would probably be some form of transitional arrangement for people who were already able to take the higher amount.'

Finally, the Government may look at reforming income tax relief on pension contributions.

'A controversial move would be to remove higher and additional rate income tax reliefs for private sector pensions (and perhaps create a new flat rate of 30 per cent that would make pensions more appealing to those on lower earnings), while leaving net pay arrangements in place in the public sector.' says Hollands. 

'This would be dynamite as public sector DB pensions represent a huge cost to the taxpayer and are already considerably more attractive than most schemes available in the private sector.

'A radical overhaul of pensions would take time to put into effect given the implications for pension providers and payroll systems, so if the Government goes down this route, it may not kick in for some time.'

After the winter fuel payment fallout, Reeves may not want to anger pensioners even further. And if her main goal is to tax the wealthy, she might find that, because of rising property prices, plenty of pensioners are asset-rich but cash-poor.

Inheritance

The Chancellor has already indicated she's keen to limit the amount families can inherit tax-free.

In the Autumn Budget, she capped the availability of Business Relief and Agricultural Relief, and halved the relief available on Aim shares.

Most significantly, the Government announced plans to bring pensions into the scope of inheritance tax (IHT) from 2027.

This Is Money recently revealed how these pension changes will add tens or even hundreds of thousands of pounds more in tax to middle-class families.

In reaction to these changes, advisers say more families are using lifetime gifts to mitigate the impact of these changes, namely the £3,000 annual gifting allowance and unlimited individual small gifts of up to £250 per person.

Hollands thinks the Chancellor might overhaul the gifting regime to combat those handing over substantial gifts to reduce their family's IHT bill.

'The now-defunct Office of Tax Simplification came up with a set of such proposals in 2019, which could provide a blueprint or starting point,' he says.

'But the elements of a new gifting regime could involve sweeping away all of the current allowances and replacing these with a single lifetime gifting allowance. Or alternatively, extending the seven-year rule to a longer period, such as ten years.'

Fairchild also points to possible changes to holdover relief on CGT, which allows people to defer paying tax when passing on certain assets, including rental properties, into a trust.

The capital gain is held over, which means the person who receives the asset takes on the risk and will pay tax when they sell the asset.

'If the government wants to discourage wealth transfer down generations without any tax being payable (whether that be CGT, inheritance tax (IHT) and/or even a future wealth tax), it could consider removing the option to make holdover relief elections and/or include the value of the shares being gifted in some form of cumulative 'pot' of lifetime gifts, which either results in IHT becoming payable during lifetime or upon death.'

Capital gains

Reeves had the very wealthy in her sights when she hiked the capital gains tax (CGT) rates in last year's Budget.

The tax, which is levied on profits from assets ranging from shares to second homes, increased from 10 to 18 per cent for basic rate taxpayers. Higher-rate taxpayers now pay 24 per cent, up from 20 per cent previously.

'This increase was less than many had expected,' says Pete Fairchild, national head of private clients at Crowe. 'With some lobbying groups calling for CGT to be aligned with income tax rates, further increases - or even broader CGT reform - could be on the government's agenda.

'Some predict an annual 4 per cent rise will occur that will see the main CGT rate aligned with the 40 per cent income tax higher rate over Labour's current term in government.'

CGT is applied at lower rates than income tax, because the profits tend to come from people taking a risk; therefore, any change could result in significant backlash.

CGT is paid by only around 350,000 people, according to the Institute of Fiscal Studies, and two-thirds of the revenue comes from 3 per cent of CGT taxpayers.

Investors say raising the rate beyond its already elevated level would be a de facto wealth tax.

Hollands thinks another hike so soon after the last is unlikely, 'but a more radical measure would be to change the way capital gains are treated on death.'

Currently, CGT liability effectively ends when an individual dies and the capital costs are uplifted to the value at probate. IHT is then charged depending on the value of the total estate.

'Removing the rebasing element so that CGT first becomes applicable (and then additionally IHT is levied on the estate) could generate very significant amounts of tax post-death,' says Hollands.

'Another option would be for the beneficiary of the asset to 'inherit' the original base cost of the asset so that the accrued CGT liability would become triggered when they sold the asset, not just any gains made under their period of ownership.'

Property

There have already been huge changes made to property taxes, specifically for second-home owners and landlords.

In the 2024 Budget, Reeves introduced a 2 per cent increase to Stamp Duty for second home owners, and could signal further increases to come.

Fairchild says: 'Future SDLT hikes may exclusively target owners of multiple properties or high-value property transactions.'

Elsewhere, Reeves may follow in the Scottish Government's footsteps by making changes to council tax.

Households are already facing higher bills after the Government gave the green light to some councils to increase rates by as much as 9 per cent.

When current council tax was launched in 1991, every property in England and Wales was valued and put in one of eight council tax bands.

Band A is for properties valued at under £40,000 with owners paying the lowest level of council tax, while Band H was for properties valued at £320,000 or higher, with owners paying the highest level.

The bands are still used today, despite the average house price increasing by around 400 per cent, according to figures from the Land Registry.

'The government may consider modernising the system, potentially leading to increased charges for higher value properties and wealthier homeowners,' says Fairchild. 'The difficulty with reforming the system is that it would require a revaluation of every house, which will take time.'

Tax thresholds

One final lever Reeves may use to raise taxes is keeping income tax thresholds at their current level.

The freeze on thresholds since 2021 has created a huge stealth tax raid in recent years and brought in large sums for the Treasury.

The frozen basic rate threshold, currently £12,570, drags more people into paying income tax and means that the real value - adjusted for inflation - of the tax-free allowance has been diminished.

Stalling the higher rate threshold at £50,270 has shifted more people and a greater slice of earnings into the 40 per cent bracket.

Recent figures from HMRC show that the number of higher-rate taxpayers jumped 15 per cent between 2021/22 and 2022/23, and this number is only set to rise.

Reeves could still honour her commitment to keeping income tax at the samelevel, but push more people into paying more tax.

'The pain would gradually build over time, but people would not see an immediate impact on their monthly payslips and such a measure would technically not breach the pledge to increase tax 'rates'. In my view, this is probably the most likely option on the table,' says Hollands.

'Were the Chancellor inclined to act at a faster and more targeted pace, she might reduce the threshold on the 45 per cent additional tax band from £125,140 to say to £100,000, would strictly speaking not increase 'the rate' of tax as per the pledge in the manifesto, but achieve the same impact. 

'It has been done before: the last Conservative Government went down such as route, dropping the threshold from £150,000 in April 2023 to £125,140.'