Lifting the weight: Bearing the tax burden

In summary

• The Autumn 2025 Budget will push the UK tax burden to a record high, but its impacts won’t be evenly felt 
• Recent years have seen an increasing reliance on top earners and the wealthy for tax revenue 
• A narrowing tax base and complex array of changes in recent budgets could prove unpredictable 
• For those on the receiving end of tax rises, the need for effective planning has never been greater 

Before the 2024 election, Rachel Reeves criticised the Conservatives for pushing the tax burden to a 70-year high of 36.3% of GDP. Now it seems the point could have been that they were insufficiently ambitious. By 2030/31, the Office for Budget Responsibility forecasts that it will reach 38.3%, a new record. 

But the rising burden is not evenly distributed. A significant proportion of recent rises have focused on businesses, for example. Before the last Budget, the CBI’s research showed that the share of the tax burden on business had increased steadily from 2019/20 to reach 30.5% in 2024/25, the highest this century. 

But that still leaves the majority of revenues raised from individuals, which will continue. Even before the latest Budget, the OBR noted that the increases in tax take as a percentage of GDP in the coming years would mainly be driven by personal tax, “particularly income tax and national insurance contributions (NICs)”. 

With the freezes in personal tax thresholds in the Autumn 2025 Budget, that’s unlikely to change. Individuals, particularly the wealthy and higher earners, face rising rates, fiscal drag (extended to April 2031 at least) pushing more of their income into higher tax brackets, and restricted allowances. 

Understanding both the targets and timing of the tax changes, in the most recent and previous Budgets, is the starting point for mitigating and managing the impact. 

The reliance on higher earners has been increasing for decades, and well before the current government explicitly sought to put the burden on those with the broadest shoulders.  

An FT analysis in November 2025, just days before the Budget, drew on OECD data to show that the UK has the biggest tax rate difference between top and average earners anywhere in the developed world. Combining taxes and social contributions (such as NI in the UK), top earners (the top tenth) pay 45% of their salaries, while the average is just 29%.  

As the writer explained: “In Britain, taxes at the top are comparable to Denmark and Norway, but the average Briton is taxed less than the average American.” 

Another striking fact from its analysis: Britain’s top 10% is the only segment of the population paying more in taxes today than in 2010. 

The increase in the personal allowance has a lot to do with this, rising rapidly from 2011, until it was frozen in 2021. At the same time, the triple lock on pensions, implemented at the start of that period, ramped up spending.  

Both have helped narrow the tax base. In Plucking the Goose: a century of taxation from the Great War to the Digital Age, the authors noted that, by 2014/15, such changes meant the poorest 40% of households received more in benefits than they paid in taxes: An exact reversal of the situation in 1979, when six in ten were net contributors.  

There’s been little to change this trend in the last decade; if anything, it’s accelerated. A more recent, post-Budget, analysis in The Times includes not just benefits but “benefits in kind”, such as NHS use (higher among poorer households), education and rail travel subsidies. On this measure, it finds nearly two thirds of households take more in benefits than they pay in taxes. 

Its analysis also demonstrates the impact of higher tax thresholds. In 2002, it notes, a full time worker on the median wage paid about 24% of their salary in tax and national insurance. That’s now just 19%. Even those on double the average income saw a modest drop in their effective tax rate over the same period. By contrast, the top 1% of earners, saw their rate increase from about 36% to about 41%.  

Today, this latter 1% cohort account for 30% of income tax paid in Britain. As The Times piece puts it, “[T]he nation’s tax revenues have become increasingly reliant on those at the very top of the pile.” 

The latest Budget did little to change this. The back and forth over income tax rises ultimately saw the Chancellor appear to recoil from breaking her manifesto promise. She froze tax thresholds for another three years to April 2031, which will continue to erode the real value of the nil-rate band. But they were already frozen until April 2028 and will also draw more of higher earners’ incomes into higher and additional rates.  

Instead of a simple income rate increase, the Budget saw a range of smaller changes. From milkshakes to mansions and Motability, it was a pick and mix Budget: a wide range of measures and a confusing mix of rate changes taking place over different tax years.  

Crucially, as the mansion tax (high value council tax surcharge) reminded us, it’s not just earnings that are taxed. As well as the mansion tax, the 2025 Budget also increased taxes on dividends, savings and rental income, (which actually breaches the manifesto pledge in the authors’ view). But those pushing for a wealth tax, for instance, were disappointed, and overall, the Budget brought in incremental increase to tax on unearned income rather than on unearned wealth.  

Changes last year, by contrast, were profound.  

The impact of the 2024 Budget will be felt for years. On the one hand, there were increases in capital gains tax from 10% and 20% to 18% and 24% for the basic and higher main rates, respectively, and from 20% to 24% for trusts on non-residential property gains. These were less bad than some expected, however.  

The reduction in agricultural property relief (APR) and business property relief (BPR) for inheritance tax was, for being unexpected, much worse. They’re also a reminder that, for the many wealthy individuals and entrepreneurs, the distinction between business and personal tax is largely artificial, since the owner’s wealth and the fortunes of the business are intertwined. You can’t squeeze one without hurting the other.  

The 2025 Budget offered some very slight relief by allowing unused BPR or APR allowances to transfer to surviving spouses or civil partners, effectively doubling the nil-rale inheritance available to such couples. Moreover, an unexpected early Christmas present on 23 December, the government increased the £1m allowance to £2.5m. But at the same time, it confirmed it would push ahead with the changes rather than properly consult. These will still threaten the viability of many family businesses and farms and mean a significant IHT bill for many families.   

In this regard, inheritance tax will soon no longer be a tax on individuals, From April 2026 it will be a generational tax on family businesses and farms. Worse still, Family Business UK’s Taxing Futures report from June 2025 estimated that the October 2024 Budget proposals on APR/BPR would threaten over 200,000 jobs by April 2030 and reduce economic activity by £14.8bn. 

And for good measure, the 2024 Budget also drew pensions into estates for inheritance tax purposes from April 2027 – whether you own a business or not.  

Whilst this shifting of the increased tax burden to business owners and wealth creators has been evolving over the past 15 months, internationally mobile individuals have seen a revolution in their tax treatment.  

The October 2024 Budget effectively abolished the UK’s non-dom regime, removing the remittance basis regime and replacing it with a new residence based foreign income and gains (FIG) regime.  

Perhaps more significantly, it changed the IHT rules  for non-UK domiciled individuals, which previously enabled individuals to shelter their non-UK asset base from IHT if settled into an “excluded property trust” before being UK resident for 15 years. These rules were replaced, effective from April 2025, by the new long-term residence rule, with IHT payable on the worldwide estate once an individual has been UK resident for at least 10 out of the previous 20 tax years, as opposed to reference to their domicile position. 

There is some potential relief under the TRF (temporary repatriation facility), which encourages former non- doms to bring previously untaxed foreign income and gains into the UK at a reduced tax rate of 12% until the tax year 2026/27, and 15% for 2027/28. This is “use it or lose it” opportunity to bring offshore untaxed funds to the UK at a reduced tax rate. 

There are even more generous reliefs for new arrivals to the UK, however. The FIG regime, enables new tax residents, (those who were non-UK resident for the previous ten years) to benefit from an exemption on certain overseas income and gains for the first four UK tax years of their residence. 

The government clearly hopes to encourage new high-net worth individuals to relocate to the UK. HMRC estimates the reforms will raise £39.5 billion by 2030/31. That’s highly uncertain, however, and we could equally see the UK adopted as a stop-over residence for a few years for business or property owners seeking to sell assets tax free and relocate again.  

The policy costing of these measures for the exchequer is, in the OBRs own words, assigned a “very high uncertainty rating” as it is highly dependent on behavioural reactions. In a globally competitive market for talent and capital, the greater challenge might be to convince people already in the UK to stay. 

While a hike in income tax rates would have brought both simplicity and relative certainty, recent budgets have chosen a different approach. Consequently, the revenue raised relies on there being little behavioural change. The uncertainty is further increased by the fact that, while the spending in the 2025 Budget was front-loaded, the majority of tax revenues raised (through rising thresholds) occur in later years.  

For the Chancellor, the pick and mix approach may ultimately prove unnourishing, and require her to come back for more, which the Chancellor could not rule out on 19 December. For individuals, the prolonged uncertainty is likely to increase the attraction of taking matters into their own hands where possible. This means devising or revisting their strategic objectives for their finances and acting on them to mitigate the worst impacts of the rising tax burden. 

In many cases, the advice is relatively straightforward: Using ISAs and other available tax efficient vehicles and both of a couple’s reliefs to minimise exposures; looking to advanced dividends to pre-empt the 2026 increase; reviewing property holdings and structures ahead of the 2027 change to rental income; and considering gifts to reduce estate values for IHT. For international individuals, there are the benefits of the TRF and FIG regimes. 

In some cases, though, it’s increasingly urgent to act. For those losing APR/BPR allowances, in particular, individuals have only until 5 April 2026 to use trusts to benefit from the full relief. After that, they will be subject to the £2.5 million cap.  

With the Budget finally behind us, it has at least put an end to the paralysis that characterised the months of speculation before. Across estate planning, succession planning, exit planning and restructuring, individuals and businesses are beginning to act – and having their say on how the tax burden evolves.