Key Takeaways
- Concern over the government’s precarious fiscal position could lead to more drastic changes to property and pension tax at the Autumn budget.
- The tax-free pension lump sum could be scrapped to plug the gap in the public finances, advisors warn.
- Potential changes to how property is taxed in the UK include an end to stamp duty in favor of a new tax based on current property prices.
People approaching or already in retirement face fresh uncertainty as the Autumn Budget nears on Oct. 28. Experts are warning of further changes to private and public pensions in the coming months.
And that’s before some of previous years’ budget changes kick in, including increases to pensions taxes and a reduction in the cash ISA allowance.
Uncertain politics are compounded by an uncertain economy. Unemployment is rising for all age groups, and government figures show that 26% of people aged between 50 and 64 are “economically inactive.” Official surveys show that those below the state pension age of 67 find it harder to get or change jobs, prompting soul searching about their finances and encouraging them to take early retirement.
Ahead of the budget, financial advisors say clients are most concerned about having to use their home equity or pensions to pay for the cost of later-life care, and the potential impact this will have on their plans to leave money to their children.
“The immediate risk is that people approaching retirement respond to speculation by withdrawing pension funds from tax-effective pots earlier than they might have otherwise or should,” says Bob Tronson, head of pensions at investment platform InvestEngine.
“I wonder to what extent decision-makers consider how pensions fundamentally differ from other investments. They are a long-term product with the single purpose of looking after people as they head into the later stages of their life,” he adds.
Could Pension Taxes Change in the Autumn Budget?
With long-term UK government bond yields spiking once again, experts say Chancellor John Healey could target those approaching or in retirement in an effort to placate bond markets and balance the books. Once again, pension tax relief and tax-free lump sums are in scope.
Economist and cross-bench peer Jim O’Neill, who previously served as a Treasury minister but turned down a role in Andy Burnham’s government, recently added his own voice to calls to reform the “excesses of the triple lock.”
Last autumn, speculation was mounting that then-chancellor, Rachel Reeves, would axe the 25% pensions tax-free lump sum or make pension tax relief less generous. According to FCA data, pension withdrawals increased by 36% in the 2024/2025 tax year as savers brought forward their withdrawal decisions. As the budget approached, even policy experts were drawing down their pots in anticipation of a significant rule change, which failed to materialize.
“At the last budget, we had more inquiries or more people take the tax-free cash for either loans, holiday homes, or paying off debt than we’d ever had in 33 years,” says Andy Maher, director at Maher Broadsword Financial Planning.
“I think in September people will suddenly see that we’ve got a budget coming up [and] we’ll get a lot more inquiries.”
Plenty are opposed to the idea of reducing this tax-free allowance.
“The primary system design should be to encourage behaviors that improve people’s long-term financial future,” says InvestEngine’s Tronson.
“While we haven’t seen any specifics on proposed changes, we would view any lowering of the rate or the cap for pension tax-free lump sum as running against the purpose of the system,” he adds.
Potential retirees would be wise to think carefully before making significant decisions about withdrawing money, experts say. This is because of the tax rules about moving private pension pots around, as well as the potential for people to mistime stock market moves.
“It’s worth checking before you start drawing money from any pension,” says Sarah Coles, head of personal finance at AJ Bell.
Will John Healey Scrap Stamp Duty at the Budget?
The path of pension taxation may be unclear, but one thing is obvious: Andy Burnham wants property taxation to change. In the past he has backed property taxation being based on land valuations rather than the apparent headline value of property at sale—which could spell the end of stamp duty land tax and the consolidation of a previously-announced “mansion tax” into a new system based on up-to-date land valuations.
“One of the key challenges is that regular, accurate property valuations across the entire UK are difficult to assess,” says Nicholas Smith, head of tax at accountancy firm Duncan & Toplis.
Could Inheritance Tax Rise to Fund Social Care?
Property taxation may be an area Burnham has strong opinions on. Social care is another. In the six weeks since becoming prime minister, Burnham has already fast-tracked a review of social care by UK peer Louise Casey and proposed the creation of a National Care Service, which would work alongside the NHS.
So far, Burnham has not ruled out an additional 10% levy on all estates—on top of the existing 40% tax band—via the inheritance tax system to fund his reforms. For those who, under current rules, would not qualify for any social care funding in old age, this prompts serious concern, particularly around legacy planning.
“While there is no need for knee-jerk changes based on speculation alone, this is a timely opportunity for investors to review whether their estates are structured as tax efficiently as they would like,” says Susannah Streeter, chief investment strategist at Wealth Club.
