Budget 2025 - Income tax on savings, dividends and property hiked 2% | Tax burden to hit 38%

The Chancellor increased income tax on savings, dividends and property income in her Budget today. The measures are as follows:

•    Property income: From 2027-28, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. This will take effect from 6 April 2027. 
•    Dividend income: From 2026-27, the ordinary rate will be increased by 2 percentage points to 10.75% and the upper rate will be increased by 2 percentage points to 35.75%. The additional rate will remain unchanged at 39.35%. This will take effect from 6 April 2026. 
•    Savings income: From 2027-28, the savings basic rate will be increased by 2 percentage points to 22%, the savings higher rate will be increased by 2 percentage points to 42% and the savings additional rate will be increased by 2 percentage points to 47%. This will take effect from 6 April 2027.

Gary Smith, Senior Partner in Financial Planning at wealth management firm Evelyn Partners, comments:

“The two percentage point income tax hike made it into the Budget after all. We thought this might be a Budget that targeted saving and investing via dividend taxes but this wider measure was an unwelcome rabbit out of the hat. Alongside the pensions crackdown on salary sacrifice, these 2% increases on most income tax rates on savings interest, dividends and property constitute a penalty on prudence.

“They will deter many people from building financial resilience and the implication is that there is something wrong with creating an income for yourself from anything but paid work. People do this across the UK not because they are hoarding wealth but because they are saving for their families or funding retirement or simply aspiring to build a financial buffer, so that they don’t become a burden on the state.

“With the existing freeze of the personal savings allowances and the forthcoming ISA reforms, savers in particular might wonder what to do with their cash. Income streams from cash deposits are already being reduced by falling interest rates, so the net return if savings are exposed to tax could end up being meagre indeed.

“But wage and salary earners are of course being taxed more heavily too by the freeze in income tax thresholds, now set to last another three years until 2030/31. Along with the host of other smaller tax-raising measures, that will take the overall tax burden to 38% by 2030, according to the OBR – an unprecedented number for the UK and significantly higher than the forecast at the last Budget. It seems impossible that economic growth and prosperity will thrive in such an environment.

“As for property, there have been a lot of tax reforms over the last decade or more that have made being a private landlord steadily less attractive and viable. Coming at a time when tenants are getting increased rights, this could be the straw that breaks the buy-to-let back. Rental properties are already in short supply in important parts of the country and in the absence of any alternative supply of homes, hammering private landlords is probably not going to help matters.”