Chancellor Rachel Reeves has announced increases to income tax rates on property, savings, and dividends in today’s Budget.

The Office for Budget Responsibility (OBR) has estimated that the measures, covering the “non-labour components” of income tax, will raise £2.1bn by the 2029/30 tax year.

From April 2026, there will be a two-percentage point increase to the basic and higher rates of tax on dividends, raising them to 10.75% and 35.75%. This is estimated to yield £1.2bn a year on average from 2027/28.

In property income tax, the Chancellor’s Budget includes a two-percentage point increase from April 2027 to the basic, higher and additional rates, raising them to 22%, 42% and 47%, respectively. This is estimated to yield £500m a year on average from 2028/29.

There will also be another two-percentage point increase to the basic, higher and additional rates of saving income tax, likewise increasing these to 22%, 42% and 47%, respectively, which is also estimated to yield £500m a year on average from 2028/29. The OBR said this includes a small behavioural response, largely as individuals move more savings into ISAs – following the Chancellor’s confirmation on ISA reform.

Head of personal finance at Hargreaves Lansdown, Sarah Coles, commented: “Property investment has always come with a painful tax bill. This announcement intensifies it.
Landlords pay tax on the way in, tax on the sale, and tax on any income along the way. The hike in the tax rates on rental income make things even worse.

“Property investors might have to reconsider whether the maths still adds up under these rules, or whether they should join the exodus from the sector.

“The fact they can invest in stocks and shares completely free of tax in an ISA may persuade more of them there’s an easier return to be made elsewhere. For those who have been run ragged by the work involved in managing a property, it also enables them to make an income or gain that involves much less hard work.”

Coles also suggested the dividend tax changes mean investors have been “caught in the crossfire”.

“Income investors have already been hit with a succession of horrible cuts in the annual dividend allowance,” Coles said. “It fell from £5,000 to £2,000 back in April 2018, then it was slashed to £1,000 in April 2023 and just £500 in April 2024. To make matters worse, the dividend tax rate was hiked in April 2022 too – up 1.25 percentage points for every tax bracket.

“This tax attack on dividends flies in the face of the Government’s desire to encourage investors to hold UK equities. Given that the London market is home to so many good income stocks, it means particularly harsh tax treatment if they hold any of these investments outside an ISA or SIPP.

“The UK is already underinvested. The tax system needs to be built to support investors, rather than punishing them and turning them away.”

Separately from the non-labour components of income tax, Reeves also opted to extend the freeze of personal tax thresholds for a further three years, from 2028/29 to 2030/31.

As a result, the income tax personal allowance, the higher and additional rate thresholds are to remain frozen at £12,570, £50,270 and £125,140, respectively, until 2030/31.

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