“HMRC’s latest tax receipts arrive just months before the budget and highlight the fiscal bind facing the government. Between April and August 2025, PAYE income tax and National Insurance contributions reached £197.0 billion, up £17.3 billion year-on-year. With thresholds still frozen, more workers are being pulled into higher bands and businesses continue to bear rising employer NICs. These measures have become the backbone of Treasury revenue, but the political reality is that Labour has ruled out increasing income tax, NICs or VAT for working people.
That manifesto pledge leaves Rachel Reeves hemmed into a corner. With a £22bn fiscal hole to fill and the most obvious levers off the table, attention inevitably shifts to other taxes. Inheritance tax is already on the rise, with receipts totalling £3.7 billion so far this year – £0.2 billion higher than the same period in 2024. Frozen thresholds, high property values, and the scheduled inclusion of pensions in 2027 mean IHT is set to grow further, making it a tempting, if controversial, source of additional revenue.
Capital gains tax receipts also reflect this dynamic. Between April and August 2025, CGT brought in £922 million, compared with £852 million over the same period a year earlier. The sharp reduction in the annual exempt amount from £12,300 to £3,000 has pulled far more people into scope, particularly landlords and second-home owners. While receipts in this area are volatile, speculation around further reforms has fuelled debate about whether to accelerate sales. But disposals should only be made if they are part of a long-term plan — reacting to rumour risks crystallising tax liabilities unnecessarily.
The budget is shaping up to be a delicate balancing act between political promises and fiscal necessity. The temptation to tinker with IHT, CGT or property taxes is clear, but reform must be proportionate and predictable, or it risks damaging confidence and distorting behaviour in ways that ultimately reduce the Treasury’s tax take.”
