Changes to tax rates for property, savings & dividend income

The government is raising rates of tax on property, savings and dividend income to ensure income from assets is taxed more fairly. Those with property, savings or dividend income pay less tax than those whose income comes from employment or self-employment as they do not pay National Insurance. The government is increasing taxes on property, savings and dividend income to help to narrow this gap between tax paid on work and tax paid on income from assets. 

1. What are the changes being made?

• Tax on dividend income will increase by 2 percentage points. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75% from April 2026. The additional rate will remain unchanged at 39.35%.

• Tax on savings income will increase by 2 percentage points across all bands. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027.

• The government is creating separate tax rates for property income. Income tax is already charged on property income. These separate rates mean property income will have its own individual tax rates (as already occurs for the taxation of savings and dividend income). From April 2027, the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%. Finance cost relief will be provided at the separate property basic rate (22%).

• The way individuals report and pay tax on property, savings and dividend income will remain the same – it is only the rates of tax charged that will change.

  2. What is property income and how is it taxed?

  Property income is any income from letting land and buildings.

  There are a number of allowances and reliefs, in addition to your Personal Allowance, to help reduce your income tax liability on this kind of income.

  Property income of less than £1,000 does not need to be reported to HMRC and is tax free. If a landlord has annual gross property income of more than £1,000 they can benefit from either using the tax-free £1,000 property allowance or deducting relevant expenses. The Government also provides the Rent a Room Scheme, which lets individuals earn up to a threshold of £7,500 per year tax free from letting out furnished accommodation in their home (£3,750 for joint lettings). Additionally, finance cost relief (FCR) provides unincorporated landlords income tax relief at the basic rate on their mortgage interest costs. Finance cost relief will be provided at the separate property basic rate (22%).

  3. What is savings interest and how is it taxed?

  Individuals are not taxed on the money they save, but some will pay tax on the interest income they earn from their savings depending on their circumstances. Savings interest income is what a financial institution pays you for depositing your money with them, typically calculated as a percentage of the amount you have saved.

  All interest received on assets held within ISAs is entirely tax free.

  Lower earners benefit from the Starting Rate for Savings and can receive up to a further £5,000 on top of their Personal Allowance without paying tax. If your taxable income not from savings or dividends is less than £17,570 the Government provides a Starting Rate for Savings, which is a 0% tax rate that allows individuals to receive up to £5,000 of interest tax free.

  Most UK taxpayers are also entitled to a Personal Savings Allowance, on top of their standard Personal Allowance of £12,570 which allows individuals to earn a certain amount of savings income each tax year outside of an ISA without paying tax. Basic Rate taxpayers can receive £1,000 of interest without paying tax, and Higher Rate taxpayers can receive £500 without paying tax.

  4. What are dividends and how are they taxed?

  A dividend is a distribution of profits made by a company to its shareholders.

  All dividends received on assets held within an Individual Savings Accounts (ISA) are entirely tax free. Dividends received within a Self-Invested Personal Pension (often called a SIPP) or by registered pension schemes are also tax free. Dividends received on investments outside of tax-advantaged wrappers like these are subject to income tax.

  All taxpayers benefit from a dividend allowance which allows individuals to earn up to £500 of dividend income each tax year outside of an ISA without paying tax on it, in addition to the Personal Allowance of £12,570.

  5. What do the changes to property, savings and dividend tax rates mean for employees and the self-employed?

  The government is making no changes to the tax rates on employment and self-employment income. These changes only impact those with income from property, savings or dividends. The majority of taxpayers have no taxable savings, dividend or property income and will pay no more tax as a result of these changes.

  6. What does this mean for pensioners?

  Pensioners, along with the rest of the population, will only pay additional tax if they have taxable income from property, savings and dividends, outside of ISAs and above the applicable allowances. The majority of pensioners have no taxable property, savings, dividend income and will pay no more tax as a result of these changes.

  7. What do the changes to the ordering of reliefs and allowances mean?

  The income tax ordering rules will be changed from April 2027 so that the Personal Allowance will be deducted against employment, trading or pension income first.

  This does not impact use of specific structural allowances, including the dividend allowance, personal savings allowance and property allowance.