Two percentage points increase in tax rates

On first review, it may look like these are the new rates of income tax on property and savings income that were announced in the 2025 budget, however that is not the case.

In 2025, it was announced that the rate of income tax on property and savings income would be:

• 22% for basic rate taxpayers,
• 42% for higher rate taxpayers, and
• 47% of additional rate taxpayers. 

For savings income, this was a two percentage point increase on the rate of savings income tax and introduced a new separate rate of income tax for property income.

Budget 2026 included an announcement to increase the rate of income tax on savings and property income by a further two percentage points. This means that taxpayers will face basic, higher and additional rates of 24%, 44% and 49% respectively from April 2027.

The way in which the personal allowance is allocated will also change. See our article on preparing for 2027/28 changes to the calculation of income tax, which will be updated shortly for the rate changes announced in the budget.

The rates of income tax on dividends and savings income apply to taxpayers across the UK. However, the UK government has provided the power for the devolved governments of Scotland and Wales to determine their own rates of property income tax. The devolved budgets are scheduled to take place on 17 November for Wales and 3 December for Scotland.

New income tax allowance for pensioners

From April 2027, the state pension will exceed the personal allowance. To prevent individuals in receipt of state pensions from having to file a self assessment return to collect small amounts of tax, the government is introducing a new pension tax allowance.

Further information:

• Budget: personal allowance increased for low-income pensioners

Modernising the distributions framework

Earlier this year, HMRC consulted on whether changes should be made to the income tax and/or capital gains tax treatment of different types of company distributions, to which ICAEW responded.

The government has issued a factsheet outlining the following changes which it intends to make from April 2028. These include:

• Aligning the taxation of profits extracted via the insertion of a holding company, such as a capital reduction, with income tax.
• Aligning the rules for payments and loans from overseas companies that would otherwise be close companies, with those of UK-resident close companies.
• Updating the purchase of own shares rules and the demergers rules to reflect modern commercial practices.
• Modernising the distributions rules to reduce the uncertainty caused by anti-avoidance measures.

The draft legislation will be subject to a technical consultation in 2027.

Cash ISA limit to remain at £20,000

The government has announced that it will not take forward plans to reduce the annual cash individual savings account (ISA) subscription limit to £12,000 for individuals aged over 65 from 6 April 2027. The annual cash ISA subscription limit will remain at £20,000 for 2027/28.

The reduction in the limit had been announced by the Kier Starmer government at the 2025 budget. 

Other ISA changes include: 

• a First Time Buyer ISA that will replace the Lifetime ISA for new savers; and
• a proposed new stocks and shares ISA for first time investors.

UK resident members of US limited liability companies

Following a consultation over the summer, to which ICAEW responded, the government will introduce a credit-based double tax relief mechanism to enable investors to claim relief for foreign taxes.

Relief is expected to be available from early 2028 and the measures will be subject to further consultation with stakeholders.

More timely payments for self assessment

Income tax self assessment payers who make payments on account twice a year will be required to make more regular payments. For more information, please see our separate article.

Other changes to note

• The trading allowance will increase to £3,000 (see our article covering business tax measures).
• Legislation will be introduced to ensure certain social security benefits are taxed on the accruals basis.
• There will be consultations later this year on the potential reform of penalties for offshore matters and on expanding third-party reporting requirements for property income data. 
• For pension tax purposes:
  - A standalone process will be introduced to collect the income tax payable by beneficiaries on lump-sum death benefits exceeding the death benefit allowance that is payable where a member dies under the age of 75.
  - A serious-ill-health lump sum will be introduced for pension scheme members who are expected to live for less than a year.
• Reforms to the cultural gift scheme will allow gifts of jointly owned assets to be made.
• A sovereign tax status will be introduced for states who invest in the UK. It will provide some exemptions while making certain income and gains liable to corporation tax, income tax or capital gains tax.