Budget tax changes affecting property, dividends and savings income

Rachel Reeves says she is asking everyone to contribute, with the wealthiest to contribute the most. Following the 2025 Budget, it is expected that the changes to tax on property income and savings will raise £2.2 billion in additional taxes, so it is a significant impact. Changes to council tax on high value properties are expected to raise a further £430m a year.

Tax on dividends

It was announced that the income tax rate on dividend income will increase by two percentage points from April 2026, to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers. The additional rate will remain at 39.35%.

Tax on savings income

The income tax rate on interest and other savings income will increase by two percentage points from April 2027, to 22% for basic rate taxpayers, 42% in higher rates and 47% at the additional rate.

As the existing saving and dividend allowances will remain, with ISAs in use as well, it is expected that 90% of UK taxpayers will not have taxable savings or dividend income and will be unaffected by the changes. For the 10% who are affected, the impact could be significant, depending on the levels of such income. Find out more about how the Autumn Budget impacts your savings and ISAs.

Tax changes for landlords

Unincorporated landlords will have their own separate tax rates for property income from April 2027. Property income will be subject to rates of 22% (basic rate), 42% (higher rate) and 47% (additional rate).

Finance costs, such as mortgage interest, will be relieved at 22% as a tax credit. The existing £1,000 property allowance and the rent a room relief will remain. Again, the government estimates that 90% of UK taxpayers do not have taxable property income.

Personal allowances

At present, a taxpayer is broadly free to allocate their tax reliefs and allowances how they wish. From April 2027, the personal allowance must be allocated against pension, employment or trading income first. This is to ensure the increased tax rates for other types of income will apply where possible.

Impact on landlords

Landlords have suffered a raft of tax increases in recent years, including the restriction on mortgage interest relief. This will be a further impact to absorb.

Incorporating portfolios may again be considered as an option to consider by some, given the differential in income tax and corporation tax rates. However, this process can be tricky to navigate and may not be suitable for many, particularly if significant profits are to be extracted.

From 6 April 2026, incorporation relief against capital gains tax on transferring assets into a company will no longer apply automatically – it will need to be claimed, presumably giving most visibility to HMRC to challenge claims.

Impact of tax changes on trusts

It is expected that the 2% additional tax rates will apply to trust income. Discretionary trusts would therefore see a trust rate of 47% (up from 45%), with partial relief for trust management expenses made out of income. This will have an impact on the trust tax pools which are used to offset tax on distributions to beneficiaries.

Tax rises in trusts usually mean that there is insufficient tax in trust tax pools to distribute all of the income without incurring a tax charge. There will be greater tax pool charges where dividends are distributed. Trustees will need to consider carefully planning how they deal with trust distributions and income accounts.

There will be an impact on the anti-avoidance tax provisions where there are capital payments made to settlors of a trust, which can include the repayment of loans. The rules are complex but often the tax impact is neutral, unless there is a change in tax rates. Careful consideration will be needed here.

The ‘mansion tax’ – council tax surcharge on high value properties

Owners of valuable properties will have to pay a high value council tax surcharge from April 2028. This will be calculated with reference to property values in 2026. These surcharges will be administered within the council tax system and are expected to raise around £430m per year.

The surcharge will apply to different value bands as follows:

The extent of reliefs and exemptions, together with support for those who may struggle to pay the surcharge, will be consulted on.

Planning and advice

The government has announced that real estate income will also form part of an international exchange of information programme to increase transparency and reduce tax evasion. This will come in from 2029 or 2030. Those with an overseas element to their affairs or property ownership are likely to see an increase in compliance administration as a result of this.

Clearly, wealthier individuals who rely on profits from a rental portfolio or a taxable investment portfolio will be particularly hit by the tax changes. Somebody with a £50,000 pension, £50,000 rental profits and £50,000 from an investment portfolio in the form of interest or dividends is likely to see their tax liability increase by around £2,000 per year as a result of the changes.

However, individuals who have structured their affairs to rely on property investment income or savings will feel the pinch when the changes come through. Careful planning and advice will be appropriate in many cases.

For more Budget insights visit our Budget Hub.