Measure
The Chancellor has announced increases in the tax rates for dividend income. From 6 April 2026, the basic rate will increase from 8.75% to 10.75% and the higher rate will increase from 33.75% to 35.75%.
The Chancellor has also announced increases in the tax rates for savings and property income. From 6 April 2027, the basic rate will increase from 20% to 22%, the higher rate will increase from 40% to 42% and the additional rate will increase from 45% to 47%.
These measures are forecast to raise over £2.3 billion in the 2030/31 tax year.
All individuals and trustees subject to income tax on their dividend and savings income.
The property income tax rates change will apply to English, Welsh and Northern Irish taxpayers. The government has said it will engage with the devolved Scottish and Welsh governments to provide them with the ability to set property income rates in line with their current income tax powers in their fiscal frameworks.
The basic and higher tax rate for dividends will be 10.75% and 35.75% respectively from 6 April 2026.
The basic, higher and additional tax rate for savings will be 22%, 42% and 47% respectively from 6 April 2027.
The basic, higher and additional tax rate for property income will be 22%, 42% and 47% respectively from 6 April 2027.
Labour’s manifesto pledged that “Labour will not increase taxes on working people, which is why we will not increase National Insurance [or] the basic, higher, or additional rates of Income Tax…”. Some may argue that the increase to the dividend and savings rates in the coming years would breach this manifesto pledge. Labour are likely to counter that while ‘working people’ may receive dividends and savings income, these types of income do not directly derive from employment. They are also likely to argue that people who derive their income from rental income are not ‘working people’.
The nil-rate band for dividends was recently reduced; from £2,000 to £1,000 from 6 April 2023, then to £500 from 6 April 2024, so an increase in the rates of dividend tax is a further increase in tax on this type of income.
Savers are not just impacted by the increase in savings income tax rates but also a reduction in the cash Individual Savings Account (ISA) annual allowance for those aged 65 and under from £20,000 to £12,000 from 6 April 2027.