Chancellor Rachel Reeves has announced a series of tax changes in the latest budget, which will affect individuals who receive savings, dividends and property income.
The proposed changes made by the Government will impact landlords, investors and anyone with multiple income sources.
What new tax changes have been announced?
A key element of the reform is the increase of tax rates applied to dividends and savings income.
For 2026/27, the dividend tax rate will increase by two percentage points. As a result, the basic rate on dividends will raise from 8.75% to 10.75%, and for the higher rate, an increase from 33.75% to 35.75%.
For 2027/28, the rates of income tax on savings will also increase by two percentage points within the basic and higher rates. From 6 April 2027, the basic rate will be 22% (currently, 20%), the higher rate 42% (40%) and the additional rate 47% (45%).
As for landlords, the government is creating separate tax rates for property income. From 2027/28, the tax rate applied to property income will be set at the same level as savings income.
Another major change introduced by the Budget is the removal of flexibility around relief relocation.
Historically, taxpayers could apply certain reliefs in the most favourable way in order to reduce the impact of higher rate tax on rental (or investment) income. Under the new rules, the reliefs must now be applied after they have been applied to other sources.
This reduces the scope of tax planning and may result in a greater proportion of dividend, savings or property income being in the higher tax band.
What are the reasons behind the changes?
The Government announced that the change of tax rates on property, savings and dividend income is to ‘ensure income from assets is taxed fairly.’ This is because currently, individuals who earn income through these ways pay less tax than those who earn their income from employment or self-employment as they do not pay national insurance.
How could this affect you?
These changes therefore pre-set a noticeable shift in how investment and property income is to be taxed.
As a result, individuals with rental portfolios may seek to review their current position and decide to mitigate the new increased tax burden by either holding the property through a company or selling their properties completely.
If this is the case, and you are thinking about transferring or selling a property of any kind, please do contact our real estate team, who will be happy to provide assistance.
