Budget 2026: how to beat the new savings tax rates
Chancellor John Healey has increased tax rates on savings and property income, adding two percentage points to rates previously due to rise in April 2027. From 6 April, savers across the UK will pay 24% at the basic rate, 44% at the higher rate and 49% at the additional rate, making it harder to preserve savings’ value after inflation.
Tax-free allowances can reduce the impact. Cash Isa interest remains tax-free, with the annual contribution limit staying at £20,000 after plans to cut it for under-65s were dropped. The personal savings allowance exempts up to £1,000 of interest for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers receive none. Some lower-income people may also qualify for a starting rate for savings of up to £5,000, depending on their other income.
In short
- Savings tax rates rise by two percentage points from 6 April.
- The cash Isa limit remains £20,000 a year.
- Allowances can shelter some savings interest from tax.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters could argue that higher taxes on savings and property income help raise public revenue and ensure people with income from assets contribute fairly alongside those earning wages. The tax-free Isa limit and existing allowances protect many savers, while those with greater savings or property income are better placed to absorb higher rates.
The case against
Critics could argue that taxing savings more heavily discourages people from putting money aside and reduces the real value of funds already saved, particularly when returns struggle to keep pace with inflation. They may also see the change as unfair to people relying on savings or rental income and warn that it could weaken incentives to invest.
Explained simply
UK tax on savings depends on the interest a person earns and their income tax band. The personal savings allowance lets basic-rate taxpayers earn up to £1,000 in interest tax-free each year, and higher-rate taxpayers up to £500; additional-rate taxpayers have no such allowance. Some people on lower incomes may also qualify for a separate tax-free starting rate on savings, depending on their other income.
A cash Isa is a savings account where interest is tax-free, up to the annual contribution limit of £20,000. These allowances matter because tax can reduce the return savers keep, while inflation also affects what their money can buy.