With a tight public finance picture and growing pressure to fund services, one of the biggest questions ahead of the 2025 UK Budget is simple:
Are taxes going up?
While no one knows exactly what the Chancellor will announce, we can look at the signals, consultations, and economic pressures to understand where changes are most likely. Here’s what to expect — and what it could mean for your take-home pay.
1. Income Tax: Will Thresholds Finally Unfreeze?
The personal allowance and higher-rate threshold have been frozen since 2021. This creates “fiscal drag”: wages rise, but because thresholds don’t, more people pay tax.
What could happen in 2025:
- Thresholds could remain frozen until 2028 as originally planned.
- A partial unfreeze is possible if inflation falls and government finances improve.
- A basic or higher-rate tax cut is politically tempting but fiscally difficult.
What it means for you:
- If thresholds stay frozen, you’ll pay more tax even if your real income doesn’t rise.
- A small threshold increase would ease the squeeze slightly, especially for middle earners.
2. National Insurance: More Cuts or a Quiet Rise?
NI was reduced twice in 2024, which boosted take-home pay for workers.
2025 scenarios:
- A further 1p cut has been floated but is not confirmed.
- Self-employed NI changes may be revisited.
- Employer NI could become a target for job-creation incentives.
Impact on your pay:
- A 1% employee NI cut could mean around £150–£300 more per year for the average worker.
- For the self-employed, any update to Class 4 could make a noticeable difference to profits.
3. VAT: A Quiet Area, But Not Dead
VAT hasn’t moved since 2011 and changes here tend to be politically risky.
Possible moves:
- No major VAT rise — unlikely in the current climate.
- Targeted VAT cuts for hospitality, energy efficiency, or childcare sectors.
- A VAT registration threshold increase for small businesses (currently £90,000).
What it means for you:
- Any sector-specific VAT cuts could reduce costs for households in targeted areas (e.g., eating out, childcare, energy efficiency improvements).
4. Wealth Taxes and Capital Taxes
Not strictly “income taxes,” but hugely relevant during a revenue squeeze.
Potential areas:
- Capital Gains Tax adjustments, especially to property-related gains
- Inheritance Tax threshold review
- Pension tax relief modernisation (covered in Blog 2)
Changes here tend to hit smaller groups but can raise meaningful revenue.
5. What This Means for Your Money in 2025
If you’re trying to plan ahead:
- Expect the status quo or small tweaks — not huge tax cuts.
- Prepare for ongoing impacts of fiscal drag.
- Revisit your tax planning before April 2025:
- Maximise ISA and pension contributions
- Use salary sacrifice where possible
- Review your tax code
- Check whether you’re missing allowances (marriage allowance, dividends, savings allowance)
Bottom Line
The 2025 Budget is unlikely to deliver dramatic tax cuts — but the existing freeze on thresholds will continue to shape your take-home pay. A mix of modest NI adjustments, small business support and targeted VAT tweaks is the most likely path.
Staying ahead of the changes and using the allowances available now will help protect your finances, whatever the Chancellor announces.
More info: Check out our Personal Finance tools or our blog on the potential changes to The Property Market in the Budget 2025/26.
