Savings and rental income get a new, higher tax rate from April 2027

Reacting to: Budget 2026: how to beat the new savings tax rates (The Guardian, 31 October 2026) →

From 6 April 2027, the Budget adds a separate, higher tax rate on savings interest and rental income, four points above the normal income tax rate at each band. It affects anyone holding cash outside an ISA or renting out property.

What the Budget changed

Savings interest and rental profit are usually taxed at the same rates as wages: 20% basic rate, 40% higher rate, 45% additional rate. From 6 April 2027, that stops being true. The new rates for savings interest and property income specifically become 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers — four percentage points above the normal rate at every band. Rachel Reeves had already announced a smaller version of this, a 2-point rise due from April 2027, before she left the Treasury. Chancellor John Healey's first Budget doubled it, adding a further two points on top. Jason Hollands, managing director at wealth manager Evelyn Partners, described the move to the Guardian as a “sting in the tail” for savers, while noting there are practical steps people can take depending on their circumstances.

Reeves had also planned to cut the cash ISA allowance to £12,000 a year for anyone under 65, from April 2027, down from today's £20,000. Healey has scrapped that plan entirely. The ISA allowance stays at £20,000 a year for everyone, and ISA interest is sheltered from the new rate.

Worked example: a saver

Everyone keeps some tax-free headroom before the new rates apply. The personal allowance is £12,570 for 2026-27, and HMRC applies any of it not already used by wages or pension income to savings interest first. On top of that sits the personal savings allowance (PSA): £1,000 of interest tax-free for basic-rate taxpayers, £500 for higher-rate taxpayers, and nothing extra for additional-rate taxpayers, who rely on the personal allowance alone.

Take an illustrative example: a company director who has moved £40,000 of post-tax profit into a personal savings account as a buffer, earning a fairly typical 4.5% interest, which is £1,800 a year. As a higher-rate taxpayer, their £500 PSA covers the first £500, leaving £1,300 taxable. Today, that £1,300 is taxed at 40%, a bill of £520. From 6 April 2027, the same £1,300 is taxed at 44%, a bill of £572 — an extra £52 a year for holding exactly the same balance in exactly the same account. Anna Bowes, a personal finance expert at The Private Office, told the Guardian that once the new tax is factored in, a higher-rate taxpayer would need to earn 6.25% gross interest just to keep pace with 3.5% inflation — a rate she says is currently impossible to find on a standard savings account.

Worked example: a landlord

Rental profit has no ISA-style shelter. Take a higher-rate taxpayer letting two properties, clearing £18,000 a year in rental profit after allowable expenses. Today, that profit is taxed at the standard higher rate, 40%, a bill of £7,200. From 6 April 2027, the same £18,000 is taxed at the new 44% rate, a bill of £7,920 — an extra £720 a year, or £60 a month, with no change in the rent coming in or the costs going out. For an additional-rate landlord with the same profit, the rate moves from 45% to 49%, taking the bill from £8,100 to £8,820, an extra £720 as well. Scale either example up to a larger portfolio and the gap grows in direct proportion.

What it means for savers and landlords

If most of your spare cash already sits inside a cash ISA, this change will cost you nothing directly, because ISA interest stays entirely tax-free and the £20,000 annual allowance is not being cut after all. If you hold a meaningful balance of savings outside an ISA, particularly as a higher or additional-rate taxpayer, plan now for the higher bill from April 2027. If you're a landlord, there is no equivalent shelter available, so the extra cost lands regardless of how the property is financed, and it is worth building the new rate into any rental yield or remortgaging calculation you run between now and then. If your main income is modest, under £17,570 a year, the starting rate for savings can shield up to a further £5,000 of interest on top of your personal allowance and PSA, which covers many smaller savers completely.

What to do this week

First, if you have cash sitting outside an ISA and haven't used this year's £20,000 allowance, moving it across costs nothing and removes that balance from the new rate entirely, both now and after April 2027. Second, if you're a landlord, run your rental numbers forward with the new 44% or 49% rate in place of 40% or 45%, so the April 2027 bill isn't a surprise — our landlord accounting team can model this against your own portfolio. Third, if you hold savings or rental income through a limited company rather than personally, the calculation is different again, since these new personal rates don't touch corporation tax directly; that's a conversation worth having with our tax planning team before, not after, April 2027 arrives. For the wider picture of what else moved in this Budget, our rundown of the twelve-week planning window covers the rest of it.

What is still uncertain, and when we'll know more

The headline rates, 24%, 44% and 49%, and the 6 April 2027 start date were confirmed in the Budget and are the numbers to plan around now. What hasn't yet been published is the Finance Bill legislation setting out the precise drafting, including how the new rate applies to furnished holiday lets, to rental property held jointly between spouses or partners, and to landlords already inside Making Tax Digital for property income reporting. Treat the headline figures as settled and the detail around specific ownership structures as still to come.

Our tax planning service works out what the new rate costs your own accounts and puts a plan in place before April 2027.