Incoming Changes to Tax Rates in 2026/27
The UK’s Autumn Budget 2025 has introduced significant tax increases on property income, savings, and dividends, primarily affecting higher-rate taxpayers and investors. These changes, taking effect in stages from April 2026, aim to narrow the tax gap between income from work and income from assets.
New Tax Rates
The following new tax rates for dividend income, savings income, and property income will be introduced over the next two tax years:
From 6 April 2026, dividend tax rates will increase by 2% for basic and higher rate taxpayers, meaning that:
- Ordinary rate (basic) will rise from 8.75% to 10.75%.
- Upper rate (higher) will rise from 33.75% to 35.75%.
- The dividend additional rate will remain unchanged at 39.35%.
The annual tax-free dividend allowance will also remain at £500.
Savings Income
Income tax rates on savings interest will increase by 2% across all bands, moving to a separate savings tax regime. From 6 April 2027, the following changes will become effective:
- Basic rate will rise from 20% to 22%.
- Higher rate will rise from 40% to 42%.
- The additional rate will rise from 45% to 47%.
Existing allowances such as the Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate, £0 for additional rate) as well as the starting rate for savings will remain in place.
Property Income
A separate set of income tax rates for rental property income will be introduced from 6 April 2027, adding a 2% increase across all bands. The following rates will apply from 6 April 2027:
- Basic rate will be set at 22%.
- Higher rate will be set at 42%.
- The additional rate will be set at 47%.
Relief for residential finance costs (e.g. mortgage interest) for individual landlords will be provided at the new property basic rate of 22%.
Examples in Practice
Tax is generally calculated by applying reliefs and allowances first to employment income, and then to savings, property, and dividend income. The below examples show how the new tax rates would be applied in practice.
Example 1: Dividend Tax (Higher Rate Taxpayer)
An individual with employment income of £60,000 (a higher rate taxpayer) and receiving £13,000 in dividends would see the following changes to their tax liability:
Current Tax Year (2025/26):
- Personal Allowance (£12,570) and Dividend Allowance (£500) are covered.
- The remaining £12,500 of dividends falls into the higher rate band and is taxed at 33.75% = £4,218.75 tax.
From April 2026:
- The same £12,500 is taxed at the new higher rate of 35.75% = £4,468.75 tax.
- Extra tax hit: £250 per year.
Example 2: Savings Tax (Basic Rate Taxpayer)
An individual earning £30,000 in salary and £2,000 in savings interest (with a Personal Savings Allowance (PSA) of £1,000 as a basic rate taxpayer) would see the following changes to their income after tax:
Current (2025/26):
- £1,000 of interest is covered by the PSA (0% tax).
- The remaining £1,000 is taxed at the current basic income tax rate of 20% = £200 tax.
From April 2027:
- The same £1,000 of interest is taxed at the new savings basic rate of 22% = £220 tax.
- Extra tax hit: £20 per year.
Example 3: Property Tax (Higher Rate Landlord)
A higher rate taxpayer landlord receives £15,000 in net rental profit (after expenses but before finance costs which are not factored in on this example). The annual personal allowance is already used up. This person would see the following change to their income from property:
Current Tax Year (2025/26):
This income will be taxed at a rate of 40% = £6,000 tax.
From April 2027:
- This income will be taxed at the new property higher rate of 42%. The tax liability would be £6,300, subject to other personal allowances and reliefs.
- Extra tax hit: £300 per year
As tax rates rise on property income, savings, and dividends, more people may look to consider utilising tax-efficient vehicles such as ISAs and pensions.
If you have any questions about recent or upcoming changes to tax rules in the UK, please contact our Tax Director, Liam Coulter, for a confidential discussion.