The Chancellor has announced significant changes to the way income from assets is taxed in the Autumn Budget, with landlords, shareholders and savers set to face higher tax bills over the coming years. In a move designed to narrow the gap between taxes paid on earnings from work and those paid on assets, the government confirmed that tax rates on property, dividends and savings will increase by up to 2 percentage points.
While the changes will generate an estimated £2.2 billion for the Treasury by 2029/30, the government has emphasised that the majority of taxpayers - including most pensioners - will see no change to their tax bill, thanks to existing tax-free allowances and ISAs. In this article, we provide a breakdown of the key changes and when they will take effect.
Property income tax to rise
In a major shift, the government is creating a separate tax regime for property income, which includes money earned from renting out residential or commercial property. Currently, rental income is added to your other earnings and taxed at standard income tax rates (20%, 40% or 45%). From April 2027, separate tax rates for property income will be introduced, effectively adding a 2% surcharge compared to current levels.
Property tax rates (from April 2027)
| Tax Band | Current 'Income Tax' Rate |
New 'Property Tax' Rate (April 2027)
|
| Basic Rate | 20% | 22% |
| Higher Rate | 40% | 42% |
| Additional Rate | 45% | 47% |
These changes will apply to taxpayers in England, Wales and Northern Ireland. The government has stated it will engage with the devolved governments in Scotland and Wales regarding their specific fiscal frameworks.
Dividend tax rates to rise
The changes to tax on dividends is likely to impact millions of small limited company owners who receive dividends as part of their income. Additionally, investors who hold shares outside of a tax-efficient wrapper, such as an ISA or pension, will also see their tax liability rise. From April 2026, the 'ordinary' (basic) and 'upper' (higher) rates of dividend tax will increase by 2 percentage points. However, the 'additional' rate paid by the highest earners will remain unchanged.
New dividend tax rates (from April 2026)
| Tax Band | Current Rate |
New Rate (April 2026)
|
| Ordinary Rate | 8.75% | 10.75% |
| Upper Rate | 33.75% | 35.75% |
| Additional Rate | 39.35% |
39.35% (Unchanged)
|
Investors will still be able to use their dividend allowance, which, for the 2025/26 tax year, allows them to earn £500 in dividends, free of any income tax.
Savings tax to rise for all bands
Savers earning interest on cash held outside of ISAs will also face higher taxes. Currently, savings interest is taxed at the same rates as income from employment (20%, 40% and 45%). From April 2027, the tax rate on savings income will increase by 2 percentage points across all income tax bands.
New savings tax rates (from April 2027)
| Tax Band | Current Rate |
New Rate (April 2027)
|
| Basic Rate | 20% | 22% |
| Higher Rate | 40% | 42% |
| Additional Rate | 45% | 47% |
It is important to note that the Personal Savings Allowance (PSA) remains in place. This currently allows basic rate taxpayers to earn £1,000 of interest tax-free, and higher rate taxpayers to earn £500 tax-free. Additional rate taxpayers do not receive a PSA. We explain more in our article 'What is the personal savings allowance (and how you can boost it by £5,000)'.
Why are these changes happening?
The government states that the current system allows those with income from assets to pay less tax than employees and the self-employed, primarily because asset income is not subject to National Insurance Contributions (NICs). The Treasury aims to "narrow the gap between tax paid on work and tax paid on income from assets" to ensure fairness. The government estimates that around two-thirds of the revenue raised from these measures will come from the wealthiest 20% of households.
Who is protected?
According to government figures, over 90% of taxpayers do not pay tax on savings, and the majority of pensioners will not be affected by these hikes. Crucially, ISAs (Individual Savings Accounts) remain completely tax-free. Interest earned in Cash ISAs and dividends received within Stocks & Shares ISAs are exempt from these new tax rates.
Those earning lower amounts of savings and investment income will also continue to be protected by the Personal Allowance (currently £12,570), the Personal Savings Allowance and the Dividend Allowance.
What can you do?
With tax rates on unearned income set to rise, tax-efficient planning is becoming even more important. In the first instance
- Maximise your ISA allowance - An Individual Savings Account (ISA) is a tax-free "wrapper" that allows you to save or invest without paying income tax or Capital Gains Tax on your returns. For the current 2025/26 tax year, your total annual allowance is £20,000, which you can split across different account types - such as Cash, Stocks & Shares, or Innovative Finance ISA - provided you do not exceed the total limit. It is worth noting that while the £20,000 limit currently applies, the Chancellor has announced that the allowance, specifically for Cash ISAs, will be reduced to £12,000 from April 2027.
- Check your allowances - Ensure you are using your available tax-free allowances for dividends and savings interest.
- Consider pension contributions - Contributing to a pension can be a tax-efficient way to save for the future, as investment growth within a pension is largely tax-free. However, be aware that while you can usually take 25% of your pot tax-free, any further withdrawals are taxed as income.
- Seek professional advice - Tax rules can be complex and depend entirely on your individual circumstances. If you are unsure how these changes might affect your long-term wealth or retirement planning, it is worth speaking to an independent financial adviser. If you are a small business owner, then you may want to seek advice from your accountant or relevant tax specialist. You can find a vetted professional near you using VouchedFor*
Autumn Budget 2025: Further reading
- Autumn Budget 2025 Roundup: Key points at a glance
- Minimum wage pay boost for millions of workers next April
- Rail fares frozen for the first time in 30 years
- Salary sacrifice to be capped at £2,000 per year from 2029
- Income tax thresholds to be frozen until April 2031 as ‘stealth tax’ continues
- Cash ISA allowance to be cut for those under 65
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