Throughout the Budget, there was an emphasis on substantially raising further revenue from sources of wealth and therefore, it is unsurprising that Rachel Reeves has announced increases to income tax, with the changes focusing on income deriving from property, savings and dividends.
Dividend income
Dividend income is the distribution of profits from a company to its shareholders.
Whilst the £500 dividend allowance will remain, from 6 April 2026 the rates of income tax on this source of income will increase by 2% as follows:
Tax band
Current tax rate
From 6 April 2026
Basic rate
8.75%
10.75%
Higher rate
33.75%
35.75%
Additional rate
39.35%
39.35%
Savings income
Savings income typically takes the form of interest, including bank interest and certain types of investments and company loan accounts. Although individuals will still be able to relieve some of this interest income using their personal savings allowance, from 6 April 2027 individuals’ will see an increase in income tax rate as follows:
Tax band
Current tax rate
From 6 April 2027
Basic rate
20%
22%
Higher rate
40%
42%
Additional rate
45%
47%
Property income
Profits from property income typically derives from land and buildings. On occasions, certain types of investments can also be treated as property income. Where property income is taxable the rates of Income Tax will increase from 6 April 2027 as follows:
Tax band
Current tax rate
From 6 April 2027
Basic rate
20%
22%
Higher rate
40%
42%
Additional rate
45%
47%
Basic rate tax relief on finance costs for residential property will also increase from 20% to 22% following the introduction of these rules.
ISA changes
Currently ISA’s afford both income tax and capital gains tax exemptions. Whilst the total £20,000 allowance will remain unchanged, from 6 April 2027 a £12,000 limit will be introduced for the amount that can be transferred into a cash ISA for under 65’s.
While many anticipated a broad-based increase in income tax, the government has opted for a more targeted approach, focusing on income streams not subject to National Insurance Contributions. These changes will significantly impact individuals with substantial investment income, and proactive planning with professional advisors will be essential to mitigate the effects.
If the Budget has raised any questions for you, or if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.
FAQs regarding the changes to income tax and ISAs
How have income tax thresholds changed under the Autumn Budget 2025?
The Budget confirms that the personal allowance (and other income tax thresholds) will remain frozen until at least 2031, meaning there will be no inflation‑linked increases for the next few years.
This “threshold freeze” means that as salaries increase, more people (or more of their income) may be pushed into higher tax bands, a phenomenon known as “fiscal drag.”
What changes have been made to the tax treatment of savings, dividends and property income?
The Budget raises taxes on income from savings, property and dividends in an effort to “narrow the gap” between employment income (which pays National Insurance) and income from investment assets.
Specifically:
Dividend income tax rates will rise by 2 percentage points from April 2026, with the exception of the additional rate.
Tax on savings income will also increase by 2 percentage points for basic, higher and additional rate taxpayers from April 2027
Property income will also be subject to the additional 2 percentage points for basic, higher and additional rate taxpayers
What is the status of ISA allowances after the Budget and are there changes to cash ISAs?
The existing general annual ISA subscription limit of £20,000 remains in force until at least 5 April 2030.
However, the Budget introduces a cut to the cash ISA allowance for under‑65s: from April 2027, the maximum you can deposit into a cash ISA each year will be limited to £12,000 (though the overall £20,000 ISA limit remains).
Importantly, savers aged 65 or over retain the full £20,000 cash ISA allowance as they are exempt from the cut.
Why are the changes to ISA and savings/dividend tax significant for savers and investors?
Because with higher tax on savings and dividends, and reduced cash‑savings ISA allowance for under‑65s, the value of tax‑sheltered savings (ISAs) becomes more important. ISAs remain a key way to minimise tax on interest, dividends or gains.
At the same time, the freeze on income tax thresholds can push people into higher tax brackets, increasing the advantage of using ISAs and other tax-efficient wrappers to shelter income from tax.
What should savers or investors do now to adapt to these changes?
Some practical steps to consider:
Review how much you plan to save this year. If under‑65, you might want to maximise cash ISA contributions before the £12,000 cap kicks in.
For those with investment or rental income, run projections under the new tax rates (savings, dividend, property income) to assess future tax exposure.
If you expect salary increases, account for potential fiscal‑drag effects from the threshold freeze as you might pay more tax as bands remain fixed.
For further advice and guidance, contact us today. Our dedicated tax teams are available to discuss your situation in more detail.
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How have income tax thresholds changed under the Autumn Budget 2025?
How have income tax thresholds changed under the Autumn Budget 2025?
