Income tax rate changes to dividends, savings and property income

The 2025 Autumn Budget announced three key Income Tax rate changes, impacting dividends income, savings interest and rental profits over the coming years.

While some measures take effect from April 2026, others will follow from April 2027, giving you time to review your position and plan ahead.

Alongside the rate increases, the government also confirmed a continued freeze on Income Tax thresholds until 2031. Together these changes will increase the tax liability for business owners, investors and landlords.

Below, we outline the key changes and when they come into force.

DIVIDENDS

From 6 April 2025, HMRC introduced new self assessment reporting requirements for individuals who are directors and shareholders of close companies, requiring additional information to be provided on the tax return. The dividend allowance remains £500.

What’s changing this year?

From April 2026, the basic rate and higher rate of tax on dividends will increase by two percentage points. The additional rate will remain unchanged.

The amount of tax you’ll pay on dividends (above the £500 allowance) depends on your Income Tax band.

Dividend tax rates from April 2026 will be:

• Basic rate taxpayer: 10.75%
• Higher rate taxpayer: 35.75%
• Additional rate taxpayer: 39.35%

It’s worth noting dividend tax doesn’t apply to investments held in a Stocks & Shares ISA, Junior ISA, Lifetime ISA, or pension.

 

INTEREST ON SAVINGS

In the Autumn Budget, the Chancellor also announced significant changes to the tax rates applied to savings income. These will come into effect from April 2027, with rates increasing by two percentage points across all tax bands.

• Basic rate taxpayer: 22.%
• Higher rate taxpayer: 42%
• Additional rate taxpayer: 47%

Note: Individuals are not taxed on the money they save, but may pay tax on the interest earned from their savings.

All interest earned on assets held within ISAs remains tax free, and may offer a tax-efficient alternative for savers.

Personal Savings Allowance

In addition to the standard personal allowance of £12,570, basic and higher rate taxpayers are entitled to a Personal Savings Allowance:

• • Basic rate taxpayers can earn up to £1,000 of savings interest tax-free.
  • Higher rate taxpayers can earn up to £500 of savings interest tax-free.
  • Additional rate taxpayers do not receive a PSA.

 

PROPERTY INCOME

Tax rates on rental income will also rise by two percentage points across all tax bands from April 2027.

• Basic rate: 22%
• Higher rate: 42%
• Additional rate: 47%

Landlords can still take advantage of several allowances and reliefs to help reduce their tax liability:

• The existing £1,000 property allowance will remain in place.
• The Rent a Room Scheme allows individuals to earn up to £7,500 per year tax free from letting furnished accommodation in their home.
• Finance Cost Relief (FCR) continues to provide unincorporated landlords with income tax relief given at the property basic rate (22%) on mortgage interest costs.

 

INCOME TAX THRESHOLDS

With the changes above, be aware that Income Tax thresholds will remain frozen until 2031, extending the current freeze by a further three years.

It’s estimated the new extension of the freeze could pull an addition three million more people into the higher rate band over time, increasing the number of individuals paying tax at higher rates despite no real-terms increase in income.

The threshold freeze was first announced in the 2021 Spring Budget by Rishi Sunak, originally set to run until April 2026. It was later extended to April 2028 by Jeremy Hunt and has now been extended again to April 2031 by Rachel Reeves.

 

Summary

The Autumn Budget tax changes introduce higher rates on dividends, savings interest and property income over the next two years, alongside a continued freeze on Income Tax thresholds until 2031. While these measures are being phased in, careful planning’s key to mitigate the impact and structure your income in the most tax-efficient way possible.

If you’re unsure how these changes will affect you, or would like support reviewing your income and tax position, our tax specialists can help.

Get in touch to discuss tailored planning opportunities and ensure you’re prepared for the changes ahead.