Policy paper

Income Tax — Changes to Tax rates for Property, Savings and Dividend Income

Published 27 November 2025

Who is likely to be affected

This measure will affect individuals who receive income from letting property, individuals who earn interest from their savings, and individuals who receive distributions, including dividend income, and participators in close companies who receive loans or benefits from those companies.

General description of the measure

Property rates measure:

This measure will introduce separate tax rates for property income from April 2027. The rates for the 2027 to 2028 tax year will be

• the property basic rate at 22%
• the property higher rate at 42%
• the property additional rate at 47%

This will apply to England, Wales and Northern Ireland. The government will engage with the devolved governments of Scotland and Wales to provide them with the ability to set property income rates in line with their current Income Tax powers in their fiscal frameworks.

Savings rates measure:

The tax rates for savings income will increase from April 2027. The rates for the 2027 to 2028 tax year will be:

• the savings basic rate at 22%
• the savings higher rate at 42%
• the savings additional rate at 47%

These rates apply across the UK.

Dividend rates measure:

The tax rates for dividend income will increase from April 2026. The rates for the 2026 to 2027 tax year will be:

• the dividend ordinary rate at 10.75%
• the dividend upper rate at 35.75%
• the dividend additional rate will remain at 39.35%

These rates apply across the UK.

Use of Allowances and Reliefs

From April 2027, the Income Tax calculation rules will be changed so that reliefs and allowances will only be applied to property, savings and dividend income after they have been applied to other sources of income.

Policy objective

The government is raising rates of tax on savings, dividend and property income to ensure income from assets is taxed more fairly. Those with property, savings or dividend income pay less tax than those whose income comes from employment or self-employment as they do not pay National Insurance. The government is increasing taxes on property, savings and dividend income, to narrow this gap between tax paid on work and tax paid on income from assets.

Background to the measure

These measures were announced at Budget 2025.

Detailed proposal

Operative date

The legislation relating to the property rates, savings rates, and changes to ordering of the allocation of the Personal Allowance will take effect from 6 April 2027 for the 2027 to 2028 tax year and subsequent tax years.

The legislation relating to the dividend rates will apply to distributions and to loans or benefits conferred on participators from close companies, made on or after 6 April 2026, for the 2026 to 2027 tax year and subsequent tax years.

Current law

Property rates measure:

Property income is defined in Part 3 of the Income Tax (Trading and Other Income) Act 2005. The tax rates which currently apply to property income are set out in Chapter 2 of Part 2 of the Income Tax Act (ITA) 2007.

Section 80C of the Scotland Act 1998 provides for the Scottish Parliament to set Scottish Income Tax rates for Scottish taxpayers.

Section 116D of the Government of Wales Act 2006 provides for the Senedd to set Welsh Rates of Income Tax for Welsh taxpayers.

Savings rates measure:

The tax rates which apply to savings income are set out in Chapter 2 of Part 2 of ITA 2007. Section 7A of ITA2007 sets out that the savings basic, higher and additional rates are set by Parliament for each tax year. Since April 2017 the rates have been 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers.

Dividend rates measure:

The tax rates which apply to dividend income are set out in sections 8 and 9 of ITA 2007. Section 13 determines what dividend income is charged at each rate. Since April 2022, the rates have been 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.

The rate of tax charged on loans to, or benefits conferred on, participators under sections 455 and 464A of the Corporation Tax Act 2010 is aligned to the dividend upper rate, so is currently 33.75%.

Use of Allowances and Reliefs:

The calculation of Income Tax liability is set out in Chapter 3 of ITA 2007 with main calculation steps set out in Section 23. Section 24 establishes the reliefs and allowances deductible in Steps 2 and 3 of the calculation and section 25 the order in which they are applied.

Proposed revisions

Property rates measure:

Legislation will be introduced in Finance Bill 2025-26 that will create separate rates of tax on property income in the Income Tax calculation so that new rates can apply from the 2027 to 2028 tax year.

The rates for the 2027 to 2028 tax year will be:

• the property basic rate at 22%
• the property higher rate at 42%
• the property additional rate at 47%

The legislation will also amend the Scotland Act 1998 and Government of Wales Act 2006 for the Scottish Parliament and the Senedd to be provided with the ability to set devolved property Income Tax rates. These powers will be subject to commencement following engagement with the Scottish Government and the Welsh Government.

Secondary legislation will be amended to update the rate of withholding tax for the non-resident landlord scheme and property income distributions by real estate investment trusts and property authorised investment funds, to reflect the new basic rate for property income. Other consequential amendments may be made.

Savings rates measure:

Legislation will be introduced in Finance Bill 2025-26 to set out that the savings basic, higher and additional rates will increase for the 2027 to 2028 tax year to:   

• 22% savings basic rate
• 42% savings higher rate
• 47% savings additional rate

Dividend rates measure:

Legislation will be introduced in Finance Bill 2025-26 to change section 8 of ITA 2007 to increase the tax rates which apply to dividend income for the 2026 to 2027 tax year. The new ordinary rate will be 10.75%, and the new upper rate will be 35.75%. The additional rate will remain at 39.35%.

This measure will also have the effect of raising the rate of tax charged on loans to, and benefits conferred on, participators.

Use of Allowances and Reliefs:

Legislative amendments will be made to the Income Tax calculation so that general reliefs and allowances will only be applied to property, savings and dividend income after they have been applied to other sources of income. Reliefs and allowances for specific types of income will still apply to those types of income first where relevant.

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
—	+285	+1045	+2275	+2230	+2340

These figures include the fiscal impact of the following measures, which have been costed separately:

• Property Income: Increase tax rates on property income by 2ppts at the basic, higher and additional rate from 6 April 2027
• Dividend Income: Increase tax rates on dividend income by 2ppts at the ordinary and upper rate from 6 April 2026
• Savings Income: Increase tax rates on savings income by 2ppts at the basic, higher and additional rate from 6 April 2027

The figures are set out in Table 4.1 of Budget 2025 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2025.

Macroeconomic impact

 This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

Property rates

It is estimated that by 2029 to 2030, 2.4 million landlords (6% of taxpayers in 2029 to 2030) will face an increase in tax as a result of this measure. Administratively this measure will affect individuals (including partners in partnerships) with profits from property rental income. It is anticipated that both the one-off and ongoing administrative burdens for these individuals will be negligible. The only one-off costs will be familiarisation with the change. No ongoing costs are expected, as there will be no additional information requirement.

Savings rates

It is estimated that by 2029 to 2030, those with savings income above the relevant tax-free allowances, 3.8 million individuals (9% of taxpayers in 2029 to 2030), will face an increase in tax as a result of this measure. They will not need to do anything differently but will need to be aware of the change. However, most taxpayers are not liable to tax on their savings income and the majority of those who do have the tax deducted automatically via tax recoding.

Dividend rates

• It is estimated that by 2029 to 2030, 3.9 million individuals (9% of taxpayers in 2029 to 2030) will face an increase in tax as a result of this measure.
• In 2029 to 2030, an estimated 1.6 million individuals will not see a change to the tax on their dividend income.

These figures are not additive as the populations overlap.

These measures are not expected to impact on family formation, stability or breakdown.

These measures are expected overall to have no impact on individuals’ experience of dealing with HMRC since the changes will not result in any new tax obligations.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. This measure will impact individuals who pay Income Tax on income from property, savings, or dividends. If a protected group is overrepresented in this population, then it will be disproportionately impacted.

The overall impacted population is estimated to be older than the general UK adult population, with 54% aged 55 and above compared to 39% of UK adults. Individuals over State Pension Age are more likely to have taxable savings income and therefore are overrepresented in the population affected by the savings rate increase. However, their representation in the population affected by all three rate increases is broadly in line with that of the UK adult population, therefore pensioners are not expected to be disproportionately impacted overall. Finally, people from an Asian, Asian British or Indian ethnic background are estimated to be overrepresented in the population affected by the property rate increase (4.8%) compared to the UK adult population (2.8%). People from the Hindu faith are also estimated to be overrepresented (2.9%) compared to the UK adult population (1.5%). This reflects that people from this group are more likely to have taxable income from property.
 
HMRC does not currently hold data on the other protected characteristics of individuals impacted by this measure and so cannot make an assessment of the impacts on those with shared protected characteristics.

Administrative impact on business including civil society organisations

These measures are not expected to disproportionately impact civil society organisations.

Savings rates for 2027 to 2028

There is a negligible impact on businesses.

Property rates for 2027 to 2028

There is a negligible impact on businesses.

Dividend rates for 2026 to 2027

This measure is expected to have a negligible impact on companies that use dividends to remunerate shareholders, and on closely controlled companies who choose to make loans to participators.

One-off costs will include businesses familiarising themselves with the change. Further one-off costs could include businesses needing to update their systems to reflect the increase. There are not expected to be any additional on-going costs.

Operational impact (£ million) (HMRC or other)

HMRC will need to implement changes to IT systems across all three measures to help support safe implementation of this measure. These changes are expected to cost in the region of £3.2 million.

There are no changes to reporting requirements due to these measures. Customers will report and pay tax liability for all three changes through existing Income Tax Self-Assessment (ITSA) or PAYE (Pay As You Earn) channels. Where collection is through PAYE this is done through tax codes issued to employers.

Where appropriate guidance and calculators will be updated ready for implementation of the respective rates to help taxpayers understand the changes and calculate their future Income Tax liability.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from tax receipts.

Further advice

If you have any questions about these changes, see Technical Note. For any other questions contact the Income Tax Structure team by email: incometax.structure@hmrc.gov.uk.