Chancellor Rachel Reeves has indicated that taxes will need to be raised to address the shortfall in public finances. Nesbitt has identified several potential areas for tax increases, with some options more likely than others.
Capital Gains Tax (CGT)
Nesbitt noted that the CGT regime has been tightened in recent years, with reductions to the annual exempt amount, increased rates for residential property, and reduced business asset disposal relief. He suggested that increasing CGT rates is the most probable next step, potentially aligning them with income tax rates. Alternatively, different rates for various assets (residential property, investments, business assets) might be extended. Nesbitt expects that any rate increase could be paired with a higher limit for business asset disposal relief, potentially raising it from £1 million.
Financially, Nesbitt advised realizing gains within investment portfolios now at current rates, as future reductions are unlikely. He also speculated that the CGT uplift for assets benefiting from Inheritance Tax (IHT) relief might be removed.
Pensions
Regarding pensions, Nesbitt considered it unlikely that the government would reintroduce the lifetime allowance. He pointed to more probable changes, such as reducing the lump sum allowance and addressing pension taxation upon death. Since the lifetime allowance abolition, the lump sum allowance is no longer tied to broader legislation, making it easier for the government to reduce the tax-free cash individuals can withdraw from their pensions.
