The income tax rate applicable to dividend income, property income and savings income will be increased to try and align the tax burden with earned income (being income derived from employment and self-employment). Essentially, this is because earned income is subject to national insurance contributions, whereas dividend income, property income and savings income is not.

The changes will apply at different times and in slightly different ways:

Dividend income

There will be an increase by 2 percentage points in the ordinary rate (rising from 8.75% to 10.75%) and the upper rate (rising from 33.75% to 35.75%) with effect from April 2026. The additional rate will remain unchanged at 39.35%.

The dividend allowance (although of little value these days) will remain as is.

Savings income

There will be an increase by 2 percentage points across all bands, meaning that the basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. These changes will apply from April 2027.

The starting rate for savings and the personal savings allowance will remain in place at their current level.

Property income

This is currently taxed at the standard rates of income tax, but a new tax rate will apply for all property income from April 2027. Property income is defined as any income from the letting of land and buildings, and the delayed introduction is due to the need to allow time for software and systems to be updated to apply this change.

Property income falling within the basic rate, higher rate and additional rate bands will be taxed at 22%, 42% and 47% respectively.

Relief for finance costs will continue to be provided at the basic rate of tax (although this will be by reference to the new property tax rate of 22%) while other reliefs (such as the property allowance and rent a room scheme) will be unaffected.

If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at experts@tacs.co.uk.