With significant changes to both pensions and Individual Savings Accounts due from April 2027, advisers should not overlook the other Income Tax changes taking effect at the same time. These include higher rates of tax on savings income, new separate rates for property income, and changes to the ordering rules for the personal allowance and certain reliefs. The combined effect may increase tax liabilities for clients with a mix of earned income, pension income, savings interest, property income and dividends.
1.Background
In the 2025 Autumn Budget, the Government confirmed a package of Income Tax changes taking effect in two stages. The dividend rate increase already applies from 6 April 2026. The remainder — new property income rates, higher savings income rates, and a mandatory personal allowance/relief ordering rule — apply from 6 April 2027. Legislation to enact these changes was included in the Finance Act 2026.
With the increase to dividend rates of tax now in force, the outstanding changes that are likely to matter most for clients are:
Savings income rate increase, taxed at 2 percentage points above the main income tax rates
Property income becomes its own category, taxed at rates 2 percentage points above the main income tax rates.
The personal allowance (and other unrestricted reliefs) must be set against earnings/pension-type income first — clients will lose the flexibility to redirect the allowance to whichever income type currently gives the best result.
2. Rate and allowance changes — rest of UK (England, Wales, Northern Ireland)
Income type | 2026–27 | 2027–28 onwards |
|---|---|---|
Personal allowance | £12,570 (tapered £1 per £2 of income over £100,000, lost entirely above £125,140) | Unchanged — £12,570, same taper, frozen to 2030–31 |
Earnings, pensions, trading profits, etc. ("Income A") | Basic 20% / Higher 40% / Additional 45% | Unchanged — 20% / 40% / 45% |
Basic rate band / additional rate threshold | £37,700 / £125,140 | Unchanged — £37,700 / £125,140 [TD1] |
Property income | Taxed as ordinary non-savings income: 20% / 40% / 45% | New separate rates: 22% (basic) / 42% (higher) / 47% (additional) |
Savings income | 20% / 40% / 45% | 22% / 42% / 47% — same increase as property |
Starting rate for savings | £5,000 at 0%, available where non-savings income leaves it unused | Unchanged, frozen to 5 April 2031 |
Personal savings allowance | £1,000 (basic rate) / £500 (higher rate) / nil (additional rate) | Unchanged |
Dividend allowance | £500 | Unchanged |
Dividend rates | 10.75% / 35.75% / 39.35% (already increased from 6 April 2026) | No further change currently announced |
3. Rate changes — Scottish taxpayers
Savings and dividend income continue to be taxed at UK-wide rates. The new separate property income rates apply to England, Wales and Northern Ireland. For Scottish taxpayers, care is needed because property income sits within the devolved income tax framework unless and until separate Scottish property income rates are introduced under the new powers. Advisers should therefore check the position once the Scottish Budget and any commencement regulations are available.
Band | 2026–27 taxable income (SRIT) | 2026–27 rate | 2027–28 |
|---|---|---|---|
Starter | £1 – £3,967 | 19% | Not yet set — 2027–28 SRIT bands are normally confirmed in the Scottish Budget, expected around December 2026
|
Basic | £3,968 – £16,956 | 20% | |
Intermediate | £16,957 – £31,092 | 21% | |
Higher | £31,093 – £62,430 | 42% | |
Advanced | £62,431 – £125,140 | 45% | |
Top | Over £125,140 | 48% |
Rates and bands per the Scottish Budget 2026-27; taxable income bands assume the standard £12,750 personal allowance is fully available.
Key points for Scottish clients from April 2027:
The personal allowance, other reliefs and the new mandatory ordering rule apply identically to Scottish taxpayers — these are reserved UK matters administered by HMRC, not devolved.
Property income rates remain a rest-of-UK measure for now. The UK Government has committed to devolve an equivalent power to Scotland (and Wales) to set a separate property rate, but this requires Scottish Parliament consent and, at the earliest, would apply from 2027–28 — the Scottish Government has not yet indicated what rate it would set.
4. Application of the personal allowance
Under the current section 25 ITA 2007 rules, allowances and reliefs are generally applied in the way that minimises an individual’s Income Tax liability. In practice, this often means setting the personal allowance first against non-savings income, then savings income, then dividends, but the calculation can be adjusted where a different allocation produces a lower overall tax bill.
From 6 April 2027, this flexibility will be restricted. Where possible, the personal allowance and relevant general reliefs must first be deducted from income other than property, savings or dividend income. Only if there is any unused balance can it then be allocated against property, savings or dividend income in the way that is most beneficial to the taxpayer.
This matters because savings and property income will be taxed at higher rates from April 2027. In some cases, clients who currently benefit from allocating the personal allowance against higher-taxed income will lose that flexibility, increasing their overall tax liability.
5. Practical implications for advisers
Investment bonds and interest paying portfolios: investment bond gains and interest will move from 20%/40%/45% to 22%/42%/47% from April 2027 — increasing the tax payable. Note also that the internal rates for onshore bonds will also be increasing by 2% and chargeable gains from onshore bonds will be treated as having the basic rate for savings tax (22%) already paid. While the tax differential between onshore and offshore bonds may become more relevant for some investors, the most suitable wrapper will continue to depend on the client’s individual circumstances and future tax planning objectives.
Scottish clients with property: monitor forthcoming Scottish Budgets — a separate Scottish property rate could be introduced from 2027–28 subject to Holyrood’s agreement, which would change the England/Wales/NI vs Scotland comparison used in this note.
Timing: because the ordering and rate changes bite from 6 April 2027, any restructuring of client investments, adjusting income mix between spouses, or accelerating/deferring bond encashments should be considered ahead of that date.
Autumn Budget 2026: With a new Chancellor and Budget still to come, the future direction of tax policy remains uncertain. Advisers should continue to monitor announcements that may affect investment and savings taxation.
All information is based on our understanding and interpretation of applicable law and regulation which is subject to change. Tax treatment depends on individual client circumstances and may change in the future.