What’s Changing: Summary of Asset-Income Tax Reforms
The UK government is increasing tax rates on property, savings and dividends to narrow the gap between income from work and income from assets. These changes were announced in Budget 2025 and will be implemented in phases between April 2026 and April 2027. (gov.uk)
- Dividend income: From 6 April 2026, the ordinary dividend tax rate will rise by 2 percentage points to 10.75%, and the upper rate to 35.75%, with no change to the additional rate. (gov.uk)
- Savings income: From 6 April 2027, savings tax rates will go up by 2 percentage points across basic, higher, and additional bands (to 22%, 42%, 47% respectively). (gov.uk)
- Property income: Also from 6 April 2027, income from property in England, Wales, and Northern Ireland will be taxed at separate rates—basic 22%, higher 42%, additional 47%. Finance cost relief will align with the property basic rate. (gov.uk)
- Ordering of allowances and reliefs will change so that personal allowances and reliefs are applied first against non-asset income (employment, pensions, etc.), then property, savings, dividends. This kicks in from April 2027. (gov.uk)
Who’s Affected and Who’s Protected
- Most taxpayers with little or no income from property, savings or dividends (especially within ISAs and tax-free wrappers) will see little or no additional tax due to this. (gov.uk)
- Investors with significant asset income—e.g. landlords, shareholders living off dividends, savers with taxable interest outside ISAs—will bear the brunt of the increases.
Example Scenarios
| Scenario | Before Changes | After Changes |
|---|---|---|
| A basic rate taxpayer with employment income and £5,000 taxable savings interest | Savings taxed at around 20% (if above thresholds) | Savings taxed at 22% from April 2027 |
| Landlord earning £10,000 profit from property plus employment income | Property income taxed at normal income-tax rates | Property income taxed at 22% basic, 42% higher, etc., using property-income band, from April 2027 |
| Shareholder living on dividends | Ordinary/upper dividend rates same (8.75/33.75%) | Raised to 10.75% / 35.75% from April 2026 |
Planning Opportunities & What to Consider
- Use ISAs and pensions to shelter asset income—they remain tax-free even under new rates. (gov.uk)
- Defer decisions or income timing if you anticipate falling into a higher rate band after changes take effect.
- Where possible, make use of reliefs (e.g. losses carried forward) before the new rates come in.
- Engage with financial professionals to review investment portfolios, particularly those with property or dividend focus.
Key Dates to Keep in Mind
- 6 April 2026: Dividend rate increases take effect. (gov.uk)
- 6 April 2027: Savings and property income rate increases, and ordering of allowances change. (gov.uk)
Category: Tax Planning Author: NomadicTax Research Team Tax Home: UK ReadTime: 5-8 min