UK’s Driving Goal: Fairness Among Income Types
Starting 6 April 2026, HMRC raised the dividend income tax rates, with savings and property income rate changes following from 6 April 2027. The changes aim to reduce disparities between tax paid on work vs. income from assets. (gov.uk)
What Has Changed & When 📆
| Income Type | Change | Effective Date |
|---|---|---|
| Dividend Income | Ordinary Rate: 8.75% → 10.75%; Upper Rate: 33.75% → 35.75% | 6 April 2026 (gov.uk) |
| Savings Income & Property Income | Separate base rate 22%; higher 42%; additional 47% | 6 April 2027 (gov.uk) |
Note: The additional/highest rate for dividends remains unchanged at 39.35%. (gov.uk)
Implications for Different Taxpayers
- Savers or investors with dividend income outside tax-advantaged accounts (ISAs, SIPPs) will face higher income tax rates starting from tax year 2026-27.
- Property owners will pay separate income tax rates on rental profits; finance cost relief (e.g., allowable mortgage interest) will be provided at the property basic rate (22%) from April 2027. (gov.uk)
- Pensioners & retirees: may be impacted if they draw dividend or savings income beyond allowances.
Example
Julie has £5,000 in dividends outside her ISA and higher-rate status. Under old rules, taxed at 33.75% ⇒ about £1,688; new rate 35.75% ⇒ £1,788—£100 extra tax. If she also has savings interest £2,000 taxed at higher rate, beginning 2027 that income may be taxed at 42%, up from 40%, for those in higher rate band.
What to Do Before Changes Hit
- Increase use of ISAs, SIPPs, or other wrappers that shelter dividend/savings income.
- Plan timing of income: if expecting large dividend distributions, see if it fits better in the year before the higher rate.
- For property owners: review finance cost structuring, interest expense claims.
Big Takeaway
These changes bring income from savings, property and dividends closer in treatment to labour income, narrowing “tax-on-income from work” vs “income from assets” gaps. If you receive asset-based income or are involved in property, plan ahead for the changes in April 2026-27, review allowances, and structure investments accordingly.