Understanding the Changes
From 6 April 2026, dividend income rates increased by 2 percentage points: basic rate rose from 8.75% to 10.75%, upper rate from 33.75% to 35.75%. The additional rate remains 39.35%.
From 6 April 2027, new separate tax rates will apply to property income: basic rate 22%, higher rate 42%, additional rate 47%. Savings income rates are also increased from April 2027. Allowances/reliefs such as the personal allowance will be applied first against employment/trading income, then property, savings, and dividend income in that order. (gov.uk)
Strategic Planning Opportunities
• Use ISAs and pensions: Income from assets held within ISAs remains tax free. This makes ISAs especially attractive for dividend or savings income. Contribute up to annual limits.
• Timing of income: If approaching higher or additional rate thresholds, consider bringing forward dividend or property income to before April 2026/2027 where possible to benefit from lower rates.
• Use reliefs and allowances efficiently: For example, property-allowance (£1,000) and letting reliefs may reduce taxable income for landlords. Ensure that you claim all eligible expenses to minimise property profits.
• Consider incorporation: For those with letting businesses or rental income, holding property via a company may offer lower corporate tax rates and allow dividend extraction, though with costs and administrative burdens.
Practical Examples
Example 1: A taxpayer with £30,000 employment income, £5,000 property profits and £2,000 dividends in the 2027/28 year. Under the new ordering:
- Employment income taxed first using personal allowance
- Property income taxed at 22% basic property rate
- Savings income (if any)
- Dividend income taxed at dividend rate after allowance.
They can allocate allowances to employment first to reduce exposure to higher rates on property or dividend income.
Example 2: Landlord with high mortgage interest expenses (finance costs). Under new rules, finance cost relief will be provided at the property basic rate (22%). For those in higher rate bands, this limits tax relief available. Restructuring expenses, or adjusting borrowing, may offer relief.
Actionable Takeaways
- Review your investment portfolio to shift more income-producing assets into tax-advantaged wrappers before rate changes.
- For property income, ensure you understand new definitions and rates, and consulting a professional is helpful to assess whether incorporation or joint ownership can reduce effective tax.
- Plan dividends around timing thresholds.
- Keep detailed records of finance costs and allowable property expenses to maximise deductions.
This tax planning article aims to equip asset-rich individuals with actionable strategies to adapt to the new rates regime. Always consider personal circumstances and seek specialist advice where needed.