Rachel Reeves’ 2025 Autumn Budget is now just 4 weeks away. With rumours circulating that income tax rises could be on the table, here’s how higher and additional-rate taxpayers could cut their tax bill.
Just a few years ago there were only 5 million people paying the top rates of tax, but now there are over 8 million — and things could be about to get worse.
The reason? Something called Fiscal Drag.
In 2021, the Conservatives chose to freeze income tax thresholds until 2028, meaning more people have been drifting into paying more tax as incomes rise.
And now Rachel Reeves is rumoured to be considering raising income tax — something Labour promised it wouldn’t during last summer’s General Election.
Will Rachel Reeves raise income tax in the Autumn Budget?
Treasury officials are reportedly in ‘active discussions’ about adding 1p to the basic rate, taking it to 21%.
The government is hoping this will add another £8bn to the tax take, helping to bolster Reeves’ fiscal headroom and taking the pressure off how much it’s borrowing.
Increasing tax rates for higher earners is also on the cards.
Speculation is pointing to an increase in the additional rate, which already stands at 45%.
Other reports suggest the additional rate threshold could be lowered from £125,140 to £100,000, meaning even more people will be dragged into paying the very top rate.
The pressure on Reeves eased slightly last week thanks to falling interest rates on government debt. Yields fell to their lowest rates in more than a year, giving her potential savings of between £2bn and £3bn.
However, the good news didn’t last very long.
Just a couple of days ago it was reported that the OBR is expected to cut the UK’s productivity growth forecast in the budget, which analysts think could add around a £20bn hit to the public finances.
While rumours continue to swirl, it’s important to remember that like all Autumn Budget rumours, nothing has been confirmed yet and it’s still too early for any whispers to have any sort of certainty.
But that doesn’t mean you can’t make good financial decisions now to help shelter and grow your long-term wealth.
What can higher earners do? — 3 tax tips
1. Power up your pension
Paying into a pension, like the InvestEngine Self-Invested Personal Pension, is one of the best and easiest ways to grow your wealth.
That’s because not only do you not pay income or capital gains tax when your money is in a pension, but you also get free money (tax relief) from the government when you add money.
See how much you could get: try our tax relief calculator
If you’re a UK resident under 75, you can usually add in as much as you earn, up to £60,000 for most, and get basic-rate tax relief of 20%.
Tax relief made simple: your SIPP questions answered
As a higher or additional-rate taxpayer, you can then claim up to another 25% in tax relief, bringing your total potentially as high as 45% on what you put in — that means a £100 pension contribution could cost as little as £55.
An easy way to claim back tax relief
You normally have to fill in a self-assessment tax return each year to get your extra tax relief, which can feel like a headache.
That’s why we’ve partnered with PIE. Instead of wrestling with forms, you can:
- Log in to PIE through your InvestEngine dashboard
- Enter how much you’ve contributed (clearly shown in your transactions)
- PIE reclaims your extra relief from HMRC on your behalf
No forms. No hassle. Just money back.
2. Make the most of your ISA
Each tax year you can put in up to £20,000 in ISAs and once your money is in there, you won’t pay any income (including dividends) or capital gains tax.
You can also split your ISA allowance between different accounts, like the Stocks and Shares ISA and Cash ISA, depending on what your goals are.
For example, if you’re looking to invest in the stock market and grow your wealth over the long term, then the InvestEngine Stocks and Shares ISA could be a good fit.
Cash ISA versus Stocks and Shares ISA: which is right for you?
However, as we’ve been getting closer to the 2025 Autumn Budget, rumours of potential ISA allowance tweaks have been rife.
From a potential Cash ISA allowance cut to a new British ISA, it seems many options are being considered by the chancellor and her team.
Autumn Budget: Will Reeves cut the Cash ISA allowance and revive the British ISA?
Of course we might not see any ISA changes, but if you’re worried the government could make some tweaks, now could be a good time to make the most of your ISA allowance while you still can.
3. Use any spouse or civil partner allowances
If you have a spouse or civil partner, it makes a lot of sense to plan your finances as a couple, especially if one of you pays less, or no tax at all.
Not only do you both get ISA and SIPP allowances, but you could be making more of other allowances as a couple — for example the personal allowance, personal savings allowance, capital gains and dividend allowances too.
Make sure you’re both using these as best as you can. And if one of you isn’t using all of yours, then you could think about gifting investments (without worrying about capital gains tax from gifting), so you can shelter more from tax using any allowances you have left.
How to make the most of your tax allowances
Autumn Budget — make sure you don’t miss out
We’re now just 4 weeks away from Rachel Reeves’ Autumn Budget — sign up to our newsletter at the bottom of this page to hear what it means for you and your money.
Important information
Capital at risk. The value of your investments can go down as well as up, and you may get back less than you put in.
Tax treatment depends on individual circumstances and is subject to change. Scottish tax bands are different. ETF costs also apply.
This content is for information only and is not financial advice. If in doubt you may wish to consult a professional adviser for guidance.