The 2025 Autumn Budget introduced three major Income Tax changes that will affect dividend income, savings interest, and rental profits in the years ahead.
Some measures will take effect from April 2026, with further changes following in April 2027 – giving individuals time to assess their position and plan accordingly.
Alongside these increases, the government confirmed that Income Tax thresholds will remain frozen until 2031. Combined, these measures are expected to increase tax liabilities for business owners, investors, and landlords.
Here, we break down the key changes and when they will apply.
Dividends
From 6 April 2025, HMRC introduced new Self-Assessment reporting requirements for directors and shareholders of close companies with individuals being required to provide additional information on their tax returns. The dividend allowance remains unchanged at £500.
What’s changing from April 2026?
From April 2026, the basic and higher rates of tax will rise by two percentage points. The additional rate will remain the same.
Dividend tax applies to income above the £500 allowance and is charged according to your Income Tax band.
Dividend tax rates from April 2026 are:
- Basic rate taxpayer: 10.75%
- Higher rate taxpayer: 35.75%
- Additional rate taxpayer: 39.35%
Dividend income from investments held within a Stocks & Shares ISA, Junior ISA, Lifetime ISA, or pension remains tax free.
Interest on Savings
The Autumn Budget also announced changes to the tax treatment of savings interest. From April 2027, savings income tax rates will increase by two percentage points across all Income Tax bands.
Savings income tax rates from April 2027 will be:
- Basic rate taxpayer: 22%
- Higher rate taxpayer: 42%
- Additional rate taxpayer: 47%
Interest earned on savings held within ISAs will continue to be tax free, making them a tax-efficient option for savers.
Personal Savings Allowance (PSA)
In addition to the £12,570 personal allowance, basic and higher rate taxpayers benefit from a Personal Savings Allowance:
- Basic rate taxpayers: up to £1,000 of savings interest tax free
- Higher rate taxpayers: up to £500 of savings interest tax free
- Additional rate taxpayers: no PSA available
Property Income
From April 2027, tax rates on rental income will also increase by two percentage points across all Income Tax bands.
Property Income Tax rates from April 2027 will be:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
Landlords can still benefit from a number of allowances and reliefs to reduce their tax exposure:
- The £1,000 property allowance remains available allowing individuals to earn up to £1,000 in annual rental income tax-free
- The Rent a Room Scheme allows individuals to earn up to £7,500 per year tax free from letting furnished accommodation in their main home.
- Finance Cost Relief (FCR) continues for unincorporated landlords. This tax credit applies to the lower of: eligible finance costs, property business profits, and adjusted total income above personal allowances. It is currently 20%, increasing to 22% from 6 April 2027
Income Tax Thresholds
In addition to the rate changes, Income Tax thresholds will remain frozen until 2031, extending the current freeze by a further three years.
It’s estimated that this extended freeze could push an additional three million people into the higher rate (40%) tax band by 2028/29, increasing tax bills even where incomes haven’t risen in real terms.
Our thoughts
The Autumn Budget will introduce higher tax 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 changes are being phased in, their combined impact could be significant – particularly for business owners, investors and landlords with multiple income streams.
Forward planning will be essential. Reviewing how and when income is extracted from say, your limited company, making full use of available allowances and tax-efficient wrappers, and reassessing ownership structures could all help mitigate the impact of the changes and ensure you are planning and driving tax efficiencies.
We can support you by:
- Reviewing your current income sources and projected tax liabilities;
- Modelling the impact of the rate increases and threshold freezes;
- Advising on dividend strategy and profit extraction;
- Assessing whether pension funding or ISA planning could improve tax efficiency; and/or
- Reviewing property ownership structures and finance cost relief implications.
If you would like to discuss how these changes may affect you or your business, we would be more than happy to help. Please contact your Cowgills advisor or enquires@cowgills.co.uk for more information or to carry out a review of your affairs.
