UK Budget Increases Income Tax on Savers and Landlords

Chancellor John Healey has implemented an additional 2% income tax on savings interest and rental income, which will take effect from April 2027. This measure, announced in the recent Budget, doubles a previous 2% increase introduced by former Chancellor Rachel Reeves.

The new tax hike means that basic rate taxpayers will see their income tax on savings interest and rental income rise from 20% to 24%. Higher rate taxpayers will face a tax rate of 44%, up from 40%, and additional rate taxpayers will pay 49%, an increase from 45%. This change is projected to affect 16% of income taxpayers, with the government anticipating that half of the revenue raised will come from the wealthiest 10% of households.

The Treasury is expected to generate £455 million by the 2031-32 financial year from the increased tax on landlords, and an additional £590 million from savers. The government's Budget document stated the aim was to "seek an additional contribution from those with taxable income from assets," describing the hike as a "fair and proportionate approach."

According to forecasts from the Office for Budget Responsibility, the increased tax on landlords could lead to a "material reduction in returns to private landlords" and potentially cause rents to steadily rise. The income tax on earnings from employment will remain unchanged.

Healey's Budget also included a reversal of a previous decision to reduce the cash Isa allowance from £20,000 to £12,000 from April 2027. However, the increased income tax on savings means that individuals holding money in non-Isa accounts who exceed their Personal Savings Allowance will be subject to higher taxation on their interest earnings. The Personal Savings Allowance is currently £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, with additional rate taxpayers paying tax on all savings interest.

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