Chancellor Rachel Reeves has increased the tax rate due on savings interest, dividends and property income.
In today’s Budget she announced that these will all be increased by 2 percentage points, at both the basic and higher-rate level.
This means that basic-rate taxpayers earning more than £1,000 interest a year will pay 22 per cent in savings tax, and higher-rate taxpayers will pay 42 per cent on interest earned over £500.
Luke James, tax director at Gravitate Accounting says: “While politically more palatable than other taxes, raising dividend tax hits investors and businesses where it hurts most.
“From a tax advisory perspective, higher rates sharply reduce the appeal of dividend income, potentially discouraging investment in dividend-paying companies, particularly SMEs and family-owned businesses. Over time, this move could have a big impact on corporate behaviour, curb investment and harm the UK’s competitiveness in capital markets.”
Commenting on the increase to savings tax, AJ Bell director of personal finance Laura Suter says: “Savers are being hit with another whopping tax increase on their savings interest – adding to the tax tsunami that’s hit them in the past few years.
“The combined forces of a freeze on income tax bands, higher interest rates and a frozen personal savings allowance have all dragged millions more people into paying tax on their savings – and now they are being clobbered with a tax rise as the cherry on top.
A Freedom of Information request from AJ Bell revealed that pensioners account for almost half (44 per cent) of all taxpayers facing an HMRC bill for interest earned on their cash savings.
HMRC expects 1,160,000 people over state pension age to incur an income tax liability on savings this year (2025/26).
