Savers are set to be hit with new tax rate rises from next April, marking the second year in a row which has seen those trying to save losing more money to the taxman, on top of cuts to Cash ISA limits.
Tax and financial planning firm Blevins Franks and Paragon Bank have both set out how savings taxes are set to increase from April 2027, policies first introduced by now-ex Chancellor Rachel Reeves but which are due to come into force under new Chancellor John Healey and Prime Minister Andy Burnham.
Three new savings tax rates
Blevins Franks explains: “The basic and upper rates of tax on dividend income increased by 2 percentage points from 6 April. A similar tax increase on savings income will take effect a year later [from April 2027].”
In April 2026, the savings income rate for dividends was increased for those on the basic tax rate and the higher tax rate, from 8.75% to 10.75% for those paying 20% tax, and from 33.75% to 35.75% for those on the higher rate.
From April 2027, the savings tax rate will increase for all savings, from 20% for a basic rate taxpayer to 22%. For 40% taxpayers (earning £50,270 or more), the rate increases from 40% to 42%, and for additional rate taxpayers (earning £125,140), the rate moves from 45% to 47%.
Impact on savers’ bills
Savings tax applies to the interest on savings which sits outside your annual Personal Savings Allowance (PSA), the exact amount depending on your income.
Paragon Bank says that this tax rise, coupled with a cut to Cash ISAs, could lead to tax increases for some households. It explains: “From April 2027, the tax rates applied to savings income outside of ISAs are set to increase.
“The savings basic rate will rise to 22%, the higher rate to 42%, and the savings additional rate to 47% for the 2027 to 2028 tax year. Despite these changes, the Personal Savings Allowance (PSA) is staying in place, this means:
“Basic-rate taxpayers can still earn up to £1,000 of savings interest each tax year, outside of an ISA, before tax may be due. “Higher-rate taxpayers receive a £500 allowance, while additional-rate taxpayers do not receive a personal savings allowance.”
Costing this out, for those earning under £50,270, you usually have £1,000 PSA, which means you can earn £1,000 interest on savings tax-free. Then, anything above that threshold is taxed at 20%. From April 2027, that will be 22%.
So, for example, for someone earning £2,000 of savings interest, a basic rate taxpayer faces a £200 bill on £1,000 of interest, which becomes £220. For a higher earner (above £50,270), it’s less simple, as you only get £500 PSA. It then means you pay tax on £1,500 of the money, which is £600. However, 40% is becoming 42%, so a bill on £1,500 interest goes from £600 to £630.
For additional rate taxpayers (over £125,140) there is no PSA, and the tax is rising from 45% to 47%. It means a bill applies to the entire £2,000, which makes a £900 bill. From April, that rises to £940.
Cash ISA changes and advice
Paragon Bank adds: “Cash ISAs remain attractive for savers because any interest earned is tax-free, but from the next tax year, the amount some people can pay in is due to change.
“While the overall ISA allowance will remain at £20,000, from 6 April 2027 the amount under-65s can pay into cash ISAs each tax year is due to be capped at £12,000 a year. For those aged 65 and over, the cash ISA limit will remain at £20,000.”
It continues: “A practical first step is to check your latest savings statements and estimate how much interest you expect to earn over the tax year. If it looks likely to exceed your allowance, you may want to consider moving some of your savings into a cash ISA, where interest is tax-free. Paragon’s range of ISAs is also flexible, so any withdrawals can be replaced within the same tax year without affecting your annual ISA allowance.”
Blevins Franks also sets out recommendations for savers. It adds: “Now is the time to make sensible adjustments over the coming months so you are well‑placed for the significant reforms arriving in April 2027 and beyond.
“Given the breadth of UK tax changes over recent years and the complexity they introduce, obtaining personalised, professional guidance is increasingly important. Understanding how the reforms apply to your situation, and how best to position your assets, can help you avoid unnecessary tax exposure and protect your family’s long‑term interests.”
