In the upcoming autumn budget, the UK Chancellor is tasked with addressing a potential budget shortfall of £25-£50 billion for day-to-day spending. This figure does not account for additional funds needed to restore public services or address the two-child benefit cap. Chancellor Rachel Reeves has committed to not raising income tax, national insurance, or VAT, which limits her options for increasing revenue following a national insurance increase implemented in her previous budget.
Recent policy discussions from Treasury sources have proposed various changes, including reforms to inheritance tax, the introduction of a national proportional property tax for homes valued over £500,000, and the possibility of a capital gains tax on primary residences exceeding £1.5 million. These proposals aim to overhaul an outdated property tax system but may lead to unintended consequences.
One suggested reform involves a capital gains tax on high-value primary homes, targeting unearned wealth. However, this could inhibit property sales, potentially trapping older homeowners and disrupting market mobility for families. Other proposals, such as replacing council tax with a new property tax, raise concerns about affordability for homeowners in expensive areas and lack clarity on how they may impact rental prices.
While the government considers ways to reform property taxes, it is important to note that a significant portion of wealth among the wealthiest does not reside in property. According to a 2020 study by the Resolution Foundation, those with £5 million or more in assets hold less than 20% of their wealth in property. This highlights the challenge in effectively taxing wealth.
Reform of inheritance tax faces political resistance due to emotional ties to property. A proposed alternative is a wealth tax, suggested to raise more than £24 billion annually through a modest levy on net wealth exceeding £10 million. Public support for such a tax is reported to be high, although administrative hurdles remain.
The government must ensure that improvements in quality of life are evident to the public; otherwise, confidence in its proposed changes may falter. Exploring a wealth tax could present a more equitable solution to address issues of wealth inequality in the UK.
Source: https://www.theguardian.com/commentisfree/2025/aug/22/rachel-reeves-labour-wealth-tax-budget