Chancellor Rachel Reeves has announced a series of measures that will increase tax bills for millions of savers and investors, including changes to cash Isas, pension salary sacrifice, and taxes on savings interest, dividends, and property income.
In a widely trailed move, the annual limit for cash Isas will be cut by 40% from £20,000 to £12,000 from April 2027, with over-65s exempt from the reduction. The overall Isa allowance remains at £20,000, and the Treasury said the change is designed to encourage greater investment in stock markets, particularly British companies.
The Budget also includes a clampdown on salary sacrifice pension schemes, which allow employees to exchange part of their salary for extra employer pension contributions with national insurance benefits. From April 2029, there will be an annual cap of £2,000 on earnings exchanged in this way, a change the Treasury estimates will raise £4.7bn by 2029-30. However, Steve Hitchiner of the Society of Pension Professionals said it would "affect the take-home pay of millions of employees – especially basic-rate taxpayers – and is a tax on working people, in spirit if not in name".
From April 2027, income tax rates on savings interest and rented property income will rise by 2 percentage points. Basic-rate taxpayers will pay 22%, higher-rate taxpayers 42%, and additional-rate taxpayers 47% on such income after allowances. The personal savings allowance still protects the first £1,000 of interest for basic-rate taxpayers and £500 for higher-rate taxpayers, but Sarah Coles of Hargreaves Lansdown described the rise as "a really shocking tax rise for savers".
Dividend taxes will also increase from April 2026, with the ordinary rate rising from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. Coles said this "tax attack on dividends flies in the face of the government’s desire to encourage investors to hold UK equities".
