After months of speculation, Budget Day threatened to descend into chaos when the Office for Budget Responsibility (OBR) released the contents of the announcement early.
As experts mulled over the details a full half-hour before Rachel Reeves took to the despatch box, what emerged was a more “traditional” Labour budget than many were anticipating.
The prime minister later confirmed that the Budget, which is set to raise £22 billion in taxes, “asked everybody to make a contribution”, from the so-called “mansion tax” to increasing taxes on dividends, property, and even savings.
As the dust settles on the key announcements, keep reading to find what the 2% rise in tax on property, savings, and dividend income could mean for you.
Despite a manifesto promise not to increase the headline rate of Income Tax, some tax rates on income have increased
While the government broadly maintained its manifesto pledge not to raise the headline rate of Income Tax and National Insurance (NI), some forms of tax on income did see rate increases.
The basic and higher rates of tax on property, savings, and dividend income are to increase by 2%, while the additional rate of tax on property and savings income will rise by the same amount.
Changes to Dividend Tax are effective from April 2026, while the changes to savings and property income won’t come into force until 2027.
1. Dividend Tax
If you receive regular income from dividends, you’ll know that they’ve been in the firing line for a decade.
The Dividend Allowance stood at £5,000 back in 2016/17 before gradually falling to £500 in 2024/25. This has greatly decreased the amount you can receive in dividends before tax becomes payable.
Dividend Tax rates have also been increasing since 2016, as you can see below.
| Dividend Tax changes since 2015 | |||
| From tax year | Basic rate | Higher rate | Additional rate |
| 2015/16 | 0% | 25% | 30.56% |
| 2016/17 | 7.5% | 32.5% | 38.1% |
| 2018/19 | 7.5% | 32.5% | 38.1% |
| 2022/23 | 8.75% | 33.75% | 39.35% |
| 2023/24 | 8.75% | 33.75% | 39.35% |
| 2024/25 | 8.75% | 33.75% | 39.35% |
| 2026/27 | 10.75% | 35.75% | 39.35% |
From April 2026, basic and higher rates of Dividend Tax will rise by two percentage points to 10.75% and 35.75%, respectively. There is no change to the additional rate, which will remain at 39.35%.
2. Property
Pre-Budget rumours of a new class of NI for landlords didn’t come to fruition. But the Renters’ Rights Act 2025 will come into effect on 1 May 2026. Among other things, it empowers tenants to challenge unreasonable rent increases and abolishes so-called “no-fault” evictions.
Following the introduction of these measures, the rate of tax on property income will also increase from April 2027 by two percentage points. Rates will rise to 22% (basic), 42% (higher), and 47% (additional).
If you own a buy-to-let property or have a property portfolio, you might already be finding the UK environment increasingly hostile to landlords. And then, of course, there’s the High Value Council Tax Surcharge (HVCTS). The so-called “mansion tax” is expected to apply to less than the top 1% of properties but could raise £400 million by 2031.
3. Savings
From April 2027, the rate of tax on savings income will also increase by two percentage points across all tax bands.
This could encourage you to turn to investing, especially as the chancellor also announced changes to Cash ISAs. Intended to encourage greater investment, the cap on Cash ISAs will come into force from April 2027.
While the ISA Allowance will remain at £20,000, £8,000 of this will be reserved exclusively for investments. That effectively leaves just £12,000 for non-investment accounts, of which the Cash ISA is arguably the most popular. (It’s worth noting that this cap will not apply to those over the age of 65.)
While easily accessible savings remain vital for emergency funds, check in regularly to ensure your fund remains fit for purpose and consider moving excess savings into investments. We can help here, so get in touch.
Why avoiding panic and taking the time to seek advice is key
The Budget raised £22 billion in tax and asked “everyone to play their part”. This means you’ll likely find your tax bill rising in at least one area, not least because of the stealth taxes that were also announced. You can read more about the hidden tax rises you might’ve missed in our latest blog.
Alongside rising taxes, OBR growth forecasts (up slightly for 2025) have been downgraded for every year of the parliament from 2026 onwards, with inflation also expected to remain higher for longer.
In this economic environment, and with ongoing global conflicts and market turbulence, advice and long-term planning remain key.
We can help you to stay on top of changing rules and legislation, and on track to your goals. Just as last year’s Budget saw consumers hastily withdraw pension tax-free cash to counter an announcement that wasn’t made, speculation was rife this year, too. Many of the rumours were proved false.
At Jane Smith, our experience allows us to keep a cool head, and we track changing legislation so that you don’t have to. This ensures your plans are robust enough to remain on track, whatever happens in geopolitics or the global economy. This gives you peace of mind to enjoy your life and money now.
Get in touch
If you’re looking for an independent financial adviser in Milton Keynes or Olney, look no further. At Jane Smith Financial Planning, we’ve been helping clients for 30 years, so contact us at info@janesmithfinancial.com or call 01234 713131 to see what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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