Further Tax Rises as Reeves' Budget Headroom Vanishes Within 4 Months
As Chancellor Rachel Reeves’ £9.9bn fiscal headroom disappears, she faces tough choices: raise taxes, cut spending, or break her 'iron-clad' fiscal rules. With the Office for Budget Responsibility (OBR) set to downgrade forecasts ahead of the Spring Statement, SMEs should prepare for further financial pressures.
Rob Wood, chief UK economist at Pantheon Macroeconomics, warns: "The chancellor is almost certain to be told that all her financial leeway has evaporated and that she will need to cut spending or raise taxes."
James Smith, research director at the Resolution Foundation, echoes this concern: "This throws up unenviable policy choices—unpopular tax rises or painful cuts to public services or welfare. Failing to act would risk a loss of confidence in financial markets."
Are tax rises the only option left? Reeves has ruled out drastic spending cuts and insists she won’t break her fiscal rules.
One option could be extending the freeze on tax thresholds beyond 2028, a move Reeves previously rejected, stating it would "hurt working people." However, the Institute for Fiscal Studies (IFS) estimates this could raise £3.5bn to £4bn if National Insurance thresholds remain frozen.
Yet, Reeves assured businesses that Labour would not be "coming back for more" in tax. This leaves her in a tight spot, with limited fiscal flexibility. Reeves’ best hope is economic growth, but as Ben Zaranko at the IFS notes: "An infrastructure boom would deliver benefits in the future, but those won’t arrive in time to ease short-term fiscal constraints."
For SMEs, this means uncertainty remains high. With tax hikes likely and major spending cuts off the table, businesses should prepare for further financial strain in the coming months.
SMEs Face Major Tax Hikes as Labour Defends Economic Reforms
Small and medium-sized enterprises (SMEs) are set to endure the most of Labour’s tax changes, with business leaders warning of job losses and economic harm.
During an Opposition Day debate, the Conservatives introduced a motion stating that the government's policies on inheritance tax, national insurance, and business rates would negatively impact family businesses and result in job losses. In response, the government sought to justify the reforms, arguing they are essential for maintaining economic stability.
The proposed cap on Business Property Relief means that, for the first time in 50 years, many families will face inheritance tax upon company succession.
Industry groups, including the CBI and Family Business UK, estimate that 125,000 jobs could be lost, with economic output falling by £9.4 billion. Shadow Chancellor Mel Stride labelled the tax increases “utterly atrocious,” warning that they will stifle investment and growth.
Labour maintains that these reforms are essential for fiscal sustainability. Exchequer Secretary James Murray assured that most small businesses would remain unaffected, with significant exemptions still in place. However, many MPs, including those from the Conservative, Liberal Democrat, and SNP benches, questioned the government’s estimates, warning of the dire consequences for businesses and workers.
With SMEs employing nearly 14 million people and contributing over £200 billion in taxes annually, business groups argue that more support—not additional tax burdens—is needed to drive economic recovery.
Outrage Over Inheritance Tax Changes
The government’s refusal to revise its controversial inheritance tax plans has sparked “fury” and “anger” among farmers, according to National Farmers Union (NFU) President Tom Bradshaw.
After meeting with the Treasury, Bradshaw expressed deep frustration, stating, “The government believes they are correct in the decisions they've made. Disappointment doesn't describe how I feel.” He warned that the tax changes would have devastating consequences for family farms, forcing many to sell off land or shut down entirely.
The proposed reform, set to take effect in April 2026, introduces a minimum 20% inheritance tax on farms and privately owned businesses valued over £1 million. The government argues that only the wealthiest estates will be affected, but farming groups insist that thousands of small and medium-sized farms will struggle to survive.
Protests have been escalating, with hundreds of tractors blocking Whitehall and Downing Street last week.
Despite the backlash, the government remains firm, claiming its reforms are “fair and balanced.” Liberal Democrat MP Tim Farron, however, was blunt in his criticism, saying, “This government is throwing farmers to the wolves.”
This situation is just one which highlights a crucial lesson for all small and medium-sized businesses: tax rules can change rapidly, and those who fail to plan could face serious financial consequences. Instead of waiting for new policies to take effect and related reliefs to be closed down, business owners should proactively review their estate planning whilst the opportunity still exists.
With the government focused on balancing the economy, tax reforms could continue to evolve. Whether you own a farm, a family-run shop, or a growing enterprise, future-proofing your business with a strong tax strategy is essential. The best time to plan for change is before it is too late!
Trusts Face New Restrictions Under IHT Relief Cap
In the Autumn Budget 2024, the Chancellor announced significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), setting a cap on the amount of property eligible for 100% Inheritance Tax (IHT) relief.
From next year, individuals will have a £1 million cap on the combined amount of qualifying agricultural and business property eligible for 100% IHT relief. Any qualifying property beyond this limit will only receive 50% relief.
A key focus of the consultation is the impact on certain types of trusts holding qualifying agricultural or business property. Additional new rules will apply as follows:
- Multiple trusts will not be permitted to each claim the £1m relief. Instead, the £1m allowance must be shared across all trusts created by the same individual.
- No spousal transfer of the £1m allowance will be permitted—each individual’s cap will stand alone, with no ability to transfer any unused relief to a spouse or civil partner.
- The £1m allowance will function similarly to the nil rate band, refreshing every seven years.
Currently, relevant property trusts face IHT charges at three points: on entry, at each 10-year anniversary, and on exit. From 6 April 2026:
- Entry charges for qualifying business/agricultural assets placed into a trust will depend on the £1m relief cap and any previous gifts or transfers made in the prior seven years.
- Gifts and transfers made before 30 October 2024 will not count towards the £1m limit, giving a short window to act before the new rules take effect.
- Once a trust is established, trustees will have their own £1m allowance for 100% relief on agricultural and business property, which will apply to both exits and 10-year charges.
With the lack of spousal transfers and shared allowances across multiple trusts, many individuals may need to review and update their wills and estate planning strategies to avoid unnecessary IHT charges. The consultation leaves some room for discussion, but without changes, these new restrictions could significantly impact succession planning.
For those with significant business or agricultural property, seeking professional advice before the rules take effect in April 2026 is essential.
Stay informed and plan ahead—this could mean revisiting existing trust structures and estate plans to optimize tax efficiency.
How Can Qubic Help?
To navigate these potential changes, Qubic offers tailored tax planning services. Our expertise can help mitigate the impact of higher taxes and leverage current reliefs effectively. The window of opportunity to leverage current tax rates and reliefs is narrowing, and the time to act is now.
We understand that the uncertainty surrounding tax changes can be challenging, and we are here to help you.
For more information on our tax planning services and to discuss your options with one of our team, simply click the link below:
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