'Basic taxes will have to rise,' former UK Business Secretary says - Some Suggestions about your taxes

4th July 2025

Vince Cable, former U.K. business secretary, discusses the outlook for U.K. Chancellor Rachel Reeves' fiscal policy.

What are the prospects for tax rises in UK and Scotland?

UK-Wide Tax Prospects (2025 and Beyond) Tax rises in the UK are looking increasingly likely, especially in the upcoming Autumn Budget 2025. Here's what's driving the pressure:

Frozen Income Tax Thresholds: These remain unchanged until April 2028, meaning more people are pulled into higher tax bands as wages rise—known as fiscal drag2.

Capital Gains Tax (CGT): Rates are rising, and reliefs like Business Asset Disposal are being tightened.

Inheritance Tax (IHT): Proposed changes include a 20% levy on estates over £1 million from April 2026.

Council Tax: Local authorities in England can raise council tax by up to 5% without a referendum from April 2025.

ISA & Pension Reliefs: Adjustments are being considered, especially for high earners.

Political Pressure: Chancellor Rachel Reeves faces a narrowed fiscal margin and rising public spending, making further tax hikes almost inevitable.

Scotland
Scotland-Specific Tax Outlook (2025-26) Scotland's devolved tax system is evolving differently, with some targeted changes:

Income Tax Bands:

The Starter rate band (19%) and Basic rate band (20%) will rise by 22.6% and 6.6% respectively—above inflation.

Higher, Advanced, and Top rate thresholds are frozen until at least 2026-276.

Land & Buildings Transaction Tax (LBTT):

The Additional Dwelling Supplement for second homes increased from 6% to 8%, making property purchases more expensive.

Tax Burden Gap:

Scots earning over £30,300 will pay more income tax than counterparts in the rest of the UK8.

The Top rate in Scotland is 48%, compared to 45% in England9.

What to Watch For

The Autumn Budget 2025 (expected late October/early November) will likely confirm further UK-wide tax changes.

In Scotland, any new tax proposals will require cross-party support in Holyrood due to the SNP's minority government.

What can you do to reduce your tax liability
Strategies to Reduce Your Tax Exposure
1. Boost Tax-Efficient Savings
Maximise pension contributions through personal or employer schemes. Contributions receive immediate income tax relief, cutting your taxable income by up to 45%.

Fully use your annual ISA allowances (£20,000 per tax year). Growth and withdrawals are free of income and capital gains tax.

Consider a salary-sacrifice arrangement for pensions, childcare vouchers or cycle-to-work schemes. You save both employee National Insurance and income tax.

2. Optimise Capital Gains and Dividends
Use the annual CGT exemption (£6,000 for 2023-24, dropping to £3,000 in 2024-25). Sell assets up to that limit each year to avoid charges.

Bed & ISA: Sell investments in a taxable account and immediately repurchase within an ISA to lock in the annual exemption and shelter future gains.

Dividend allowance (£1,000 for 2023-24) means you can draw modest income from shares tax-free. Keep dividends within the allowance where possible.

3. Leverage Family and Personal Allowances
Marriage Allowance lets a lower-earner transfer £1,260 of their personal allowance to a higher-earner, saving up to £252 per year.

Gift Aid boost: Donate cash to charity and claim 25% top-up from HMRC; higher-rate taxpayers can claim additional relief via self-assessment.

Consider family trusts for larger estates (IHT mitigation) but seek specialist advice to navigate anti-avoidance rules.

4. Inheritance Tax Planning
Make use of your £3,000 annual gift exemption and the £5,000 wedding gift allowances. These reduce your estate without incurring IHT.

Assets held in Business Property Relief-qualifying businesses can escape IHT after two years.

For agricultural land, Agricultural Property Relief can be 50% or 100%, so transferring farmland into spouses or trusts may cut duty.

5. Business-Focused Tax Reliefs
Claim R&D Tax Credits for qualifying innovation projects. SMEs can get up to 33% back on eligible spend.

Use Capital Allowances (e.g., the AIA at £1 million/year) to write off plant, machinery and equipment against profits.

Utilise EIS/SEIS/VCT schemes—investors get up to 30-50% income tax relief and CGT deferral or exemption on qualifying shares.

6. Scotland-Specific Considerations
Remember Scotland's different income-tax bands—the Starter (19%) and Basic (20%) rates are more generous inflation-linked, but higher bands kick in sooner.

Land & Buildings Transaction Tax charges on second homes are steeper (8% supplement). Factor this in if downsizing or investing in rental property.

Devolved reliefs may emerge: keep an eye on Holyrood's Budget for targeted reliefs (e.g., green-energy grants or regional investment zones).

Common Pitfalls in Tax Planning to Avoid
1. Failure to Plan Ahead
Often individuals and businesses wait until the year end—or even tax-return deadlines—to think about tax. This reactive approach limits your ability to use reliefs effectively, crystallise gains at optimal times, or structure income and expenses in the most tax-efficient way. Starting planning early in the tax year gives you breathing space to explore options and implement strategies in stages.

2. Ignoring Legislative Changes
Tax rules change frequently, from tweaks to allowances and thresholds to entirely new reliefs or levies. Relying on outdated strategies can backfire if a relief you counted on is reduced or withdrawn. Keeping abreast of Spring Statements, Autumn Budgets, and devolved administrations' announcements (e.g., Scotland’s Holyrood Budget) is crucial.

3. Neglecting the Timing of Income and Capital Gains
Shifting income or realising gains into a tax year with a lower marginal rate can save thousands. Conversely, mistimed disposals or dividend payments can push you into a higher tax bracket. Overlooking the annual Capital Gains Tax exemption window or failing to split gains between spouses can mean missing out on significant allowances.

4. Misusing or Double-Claiming Reliefs
Some reliefs are mutually exclusive or subject to anti-avoidance rules. For example, claiming Research & Development credits twice (once through RDEC and again under the SME scheme) is prohibited. Similarly, gifts into trusts or use of Business Property Relief must comply with residence and ownership conditions—getting these wrong can trigger penalties and clawbacks.

5. Overemphasis on Aggressive Avoidance
Chasing extremely low rates through complex structures (offshore entities, artificial arrangements) risks falling foul of General Anti-Abuse Rule (GAAR) or transfer-pricing regulations. HMRC increasingly targets aggressive schemes and levies hefty penalties, plus interest. Prudence and robust commercial rationale should underpin any plan.

6. Skimping on Documentation and Compliance
Every concession you plan to claim—whether a withholding tax relief treaty or a pension salary-sacrifice agreement—needs clear, contemporaneous paperwork. Missing or inconsistent documentation not only jeopardises reliefs but also wastes valuable HMRC enquiry time and can generate unforeseen tax bills.

7. Failing to Consider Lifetime Implications
A strategy that minimises this year’s tax might balloon your liability down the road. For instance, utilising all your Income Tax personal allowance via salary sacrifice reduces contributions to state benefits, and maxing out pension reliefs without checking your Lifetime Allowance can incur future charges. Always view planning through a lifetime lens.

8. Going It Alone in Complex Scenarios
DIY tax planning works for basic ISA contributions or utilising the Capital Gains Tax allowance. But once you’re navigating cross-border investments, high-value estates, or bespoke reliefs (EIS/SEIS, VCTs, R&D), professional advice pays for itself. A good adviser ensures you stay compliant, spot new opportunities, and adapt as rules evolve.

Avoid these pitfalls by building a structured plan, staying informed of legal changes, and seeking specialist advice for intricate areas. That way, you’ll protect yourself from unexpected bills, penalties, and lost opportunities—and keep more of your hard-earned money working for you.

Good Savings Places in Tax Planning
1. Pension Vehicles
Workplace pension schemes and personal pensions (SIPP) offer income tax relief at your marginal rate, reducing your taxable income.

Salary-sacrifice arrangements route part of your salary into pensions, saving both income tax and National Insurance contributions.

Contributions grow free of income and capital gains tax, compounding tax-efficiently until withdrawal (subject to the Lifetime Allowance).

2. Individual Savings Accounts (ISAs)
Cash ISAs shelter up to £20,000 per tax year of interest from both income tax and capital gains tax.

Stocks & Shares ISAs let you invest in funds, shares or bonds with all growth and dividends tax-free.

Lifetime ISAs provide a 25% government bonus on up to £4,000 of contributions each year, ideal for first-time buyers or retirement top-ups.

Junior ISAs enable tax-free saving for minors, with the same annual allowance.

3. Venture Capital Schemes
Enterprise Investment Scheme (EIS) grants up to 30% income tax relief on investments in qualifying companies and defers CGT.

Seed Enterprise Investment Scheme (SEIS) offers 50% income tax relief on smaller startup investments, plus potential CGT exemption.

Venture Capital Trusts (VCTs) provide 30% income tax relief, tax-free dividends and no CGT on disposals of shares held at least five years.

4. Trusts and Family Reliefs
Bare trusts allow assets to be held for children until age 18 (or 16 in Scotland) with income taxed at the child’s rate.

Discretionary trusts can help mitigate Inheritance Tax, subject to periodic charges, by moving assets outside your estate.

Use the annual gift exemptions (£3,000 per donor, per year) and small gift allowances to reduce IHT without incurring tax.

5. Other Tax-Advantaged Vehicles
National Savings & Investments products, such as Index-linked Savings Certificates, pay interest free of income tax.

Premium Bonds offer tax-free prizes, though with no guaranteed return.

Offshore investment bonds can defer UK tax until encashment, but require careful planning to avoid punitive charges.

Enterprise Zones or Regional Investment Grants sometimes include targeted reliefs for local business investments.

Warning on Cash ISA's
Suggestions for Changing Cash ISA Conditions
Rumours of Reducing the Cash ISA Allowance
Financial commentators widely expect the Chancellor to cut the maximum annual cash ISA subscription below the current £20,000 limit. Reports suggest a formal announcement may come in Rachel Reeves’s Mansion House speech on 15 July 2025.

Potential New Limits Under Discussion
A cut to £10,000, £5,000 or even £4,000 is being floated by insiders.

The overall ISA allowance would remain at £20,000, but the cash portion would be capped separately.

Warnings from Building Societies
Major mutual lenders warn that slashing the cash ISA allowance could:

Reduce the pool of deposits used for mortgage lending3.

Push up borrowing costs and tighten home-buying availability, especially for first-time buyers and lower-income savers.

Industry and Expert Reactions
Martin Lewis calls a cash ISA cut "a mistake" that will merely anger savers rather than nudge them into investing.

The Chancellor has insisted she will not reduce the total ISA allowance, only consider reforms to encourage better returns on savings.

Other ISA-Related Regulatory Changes
Separate amendments due 15 July 2025 will:

Extend ISA and Child Trust Fund qualifying status to certain transitional funds.

Include Long Term Asset Funds in innovative finance ISAs.

Mandate ISA managers to collect eligible investors’ National Insurance numbers from April 2027.

Clarify flexible ISA withdrawal and replacement rules.

Keep an eye on the Chancellor’s speech and follow-up legislation for definitive details on any new cash ISA conditions.