UK Tax Burden Keeps Rising: Scotland Expands 'Mansion Tax' as U.S. Tax Exemption Hits Britain
- TBA
- Jul 13
- 6 min read
Rising tax burdens in the UK exacerbate fiscal pressures
The latest UK tax figures show that both businesses and individuals are facing a steadily increasing tax burden.
In May 2026, employers paid £11.3 billion in Employer National Insurance Contributions (NICs), an increase of £848 million compared with the same month last year, representing annual growth of around 8%.
During the same period, Corporation Tax receipts reached £3.31 billion, up 12% year-on-year. When combined with other business-related taxes, including the Energy Profits Levy, total business tax revenues amounted to £8.6 billion during the first two months of the 2026/27 fiscal year, an increase of 9.3% compared with the same period last year.
Workers Also Facing Higher Tax Bills
Businesses are not the only ones paying more tax. Ordinary employees across the UK are also seeing their tax bills rise. In May 2026, PAYE Income Tax receipts totalled £24.2 billion, up from £22.2 billion a year earlier—an increase of approximately 9%.
Analysts attribute much of this increase to fiscal drag. Since personal income tax thresholds have been frozen at 2021/22 levels, wage increases have pushed more people into paying income tax or into the 40% higher-rate tax band, even though tax rates themselves have not changed.
Sarah Coles, Head of Personal Finance at AJ Bell, said that the freeze in income tax thresholds, combined with higher dividend taxes, has significantly increased the tax burden on households.
She noted that since the thresholds were frozen in 2021, every pay rise has resulted in millions of Britons paying more tax or moving into higher tax bands. With the thresholds expected to remain frozen until at least 2031, she warned that tax pressures are unlikely to ease anytime soon.
Coles also pointed out that once taxpayers cross into a higher tax band, they not only pay more income tax on their earnings, but also face higher tax rates on savings and investment income, while access to various tax allowances is gradually reduced.
Inheritance Tax Revenue Continues to Climb
Inheritance Tax (IHT) receipts also continued their upward trend, reaching £730 million.
Industry experts expect these revenues to rise even further once pension assets become subject to inheritance tax under planned reforms, potentially bringing many more families within the scope of the tax.
Government Borrowing Still Rising Despite Higher Tax Revenues
Despite the continued increase in tax receipts, pressure on the UK's public finances remains intense. Official figures show that government borrowing reached £23.3 billion in May 2026, more than 30% higher than in the same month last year and the highest May borrowing figure since 2020.
Of that total, £11.7 billion was spent on servicing government debt—accounting for roughly half of all new borrowing during the month and marking the highest debt interest payment ever recorded for May.
Financial analysts say the UK's large debt burden means movements in the bond market will continue to place significant constraints on fiscal policy. They note that debt interest costs, public service spending and welfare expenditure are all growing faster than tax revenues. As a result, even with taxes continuing to rise, government income is still insufficient to eliminate the budget deficit.
Many observers believe that, with the UK government expected to announce new defence spending plans in the coming weeks, the Treasury will be forced to seek additional sources of revenue—raising the possibility of further tax increases in the future.
UK to miss out on £600m a year after allowing US exemption from landmark tax deal
The UK's tax authority, HM Revenue & Customs (HMRC), has revealed that Britain is expected to lose around £600 million in annual tax revenue after the United States secured an exemption from the global minimum corporate tax agreement.
In January this year, countries reached a landmark international tax agreement under which nearly 150 jurisdictions agreed to implement a 15% global minimum corporate tax rate. The initiative was designed to prevent large multinational companies from shifting profits to low-tax jurisdictions and to curb international tax avoidance.
Co-operation and Development (OECD), U.S. companies were granted an exemption from key elements of the global minimum tax rules. HMRC's Director of Large Business Compliance said the exemption for U.S. businesses is expected to have a direct impact on the UK's public finances, reducing annual tax revenues by approximately £600 million and creating a significant fiscal shortfall.
The Public Accounts Committee (PAC) has called on HMRC to strengthen its oversight of multinational corporations amid ongoing concerns over profit shifting and the exploitation of differences between international tax systems.
According to official figures, HMRC was investigating approximately £70.1 billion in potential tax liabilities involving large businesses in 2025, with around £21 billion linked to international tax risks. The committee has asked HMRC to provide greater clarity on the scale of these risks and to outline more effective measures to address them.
Clive Betts MP, Deputy Chair of the Public Accounts Committee, warned that the UK continues to face a significant risk of losing tax revenue as multinational companies shift profits overseas.
He said: "The UK remains at risk of losing substantial tax revenues through multinational profit shifting. With U.S. companies now exempt from parts of the global minimum tax framework, it is even more important that HMRC strengthens its oversight to ensure businesses comply with the new international tax rules and to better understand how these rules are operating in practice."
Analysts believe that the U.S. exemption could undermine the effectiveness of the global minimum corporate tax regime. It may also reduce the additional tax revenues that other countries had expected to collect under the new framework, while weakening international efforts to discourage multinational corporations from shifting profits to lower-tax jurisdictions.
Scottish mansion tax will double council tax for £2m homes
The Scottish Government is proposing new Council Tax bands for high-value residential properties, introducing higher charges for homes worth more than £1 million. Under the proposals, owners of properties valued at over £2 million could see their annual Council Tax bills rise by around £3,600, bringing the total charge close to double the current level for some of Scotland's most expensive homes.
Unlike England, where a similar "mansion tax" proposal would apply only to properties worth more than £2 million, Scotland plans to introduce the higher tax bands starting from £1 million.
According to a consultation published by the Scottish Government, two new Council Tax bands would be created:
Band I: For properties with an estimated market value between £1 million and £2 million as of 1 April 2026, with an expected annual Council Tax increase of around £720.
Band J: For properties valued at over £2 million, adding approximately £3,600 to the current highest Council Tax charge under Band H.
At present, Band H is Scotland's highest Council Tax band and applies to homes valued at more than £212,000 under the existing valuation system. Under the proposed reforms, owners of multi-million-pound properties would face significantly higher annual tax bills.
For the 2026/27 financial year, annual Band H Council Tax charges are:
Edinburgh: £3,983.82
Glasgow: £4,180.00
Aberdeen: £4,281.47
South Lanarkshire: £3,597.75
Scotland's Deputy First Minister said the reforms are based on the principle of fairness, arguing that "those with the greatest wealth should contribute a little more." The Scottish Government estimates that the new high-value property bands would affect less than 1% of homes across Scotland.
Following the public consultation and discussions with local authorities, the Scottish Government will determine the final tax rates for Bands I and J before submitting the proposals to the Scottish Parliament for approval. As the reforms require primary legislation, the government intends to introduce the new Council Tax bands on 1 April 2028.
Reduction Scheme—would continue to apply across all Council Tax bands. The public consultation is open until 24 August 2026.
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