Autumn Budget: Tax on Savings, Rental and Investment Income to Rise by 2 Percentage Points

The Autumn Budget includes a significant change for individuals who receive income from savings, investments, rental properties or interest-bearing accounts. From April 2027, the government will introduce a 2-percentage-point increase to the tax rates applied to these types of income.

This change will raise substantial revenue and will particularly affect higher-rate and additional-rate taxpayers, many of whom rely on these income streams as part of their overall financial planning.

What Is Changing?

From April 2027, the tax rates on the following types of income will increase by 2 percentage points:

• Savings income (interest)
• Dividend income (already covered separately)
• Rental income
• Other investment income outside of tax-sheltered accounts

This means the tax burden on unwrapped investments, rental portfolios and interest-generating accounts will rise across the board.

Who Will Be Most Affected?

While the change affects anyone receiving savings or investment income, the biggest impact will fall on:

Higher-rate taxpayers

The rate on savings and investment income for higher-rate taxpayers will rise by two percentage points, increasing overall tax liabilities and reducing net returns.

Additional-rate taxpayers

Those paying the top rate of tax will face the steepest increase in absolute terms. For individuals earning significant investment or rental income, the cumulative effect could be substantial.

Landlords

Rental income will be more heavily taxed, reducing net yields and potentially impacting the viability of highly leveraged property portfolios.

Investors with non-ISA holdings

Income generated outside of ISAs or pensions will become less tax-efficient, prompting many to review where and how they hold their assets.

Individuals with large cash balances

Higher interest rates have increased returns on savings — but from 2027, more of that return will be taxed away.

Why Introduce This Change?

The government is broadening its tax base by increasing taxes on sources of income that have grown in importance over recent years. Savings rates have been higher, property income remains strong, and investment portfolios continue to expand.

Raising tax rates by two percentage points is a straightforward way to increase revenue without altering headline rates of income tax.

What Does This Mean in Practice?

From April 2027, individuals may see:

• Lower net returns on interest-bearing savings
• Reduced profitability on rental properties
• Higher tax bills on investment portfolios
• More income pushed into higher tax brackets due to threshold freezes elsewhere in the Budget

For those with diversified income streams, the effect may be noticeable across multiple areas.

Planning Considerations

Individuals may wish to consider:

• Maximising ISA allowances to shield investment income from tax
• Reviewing pension contributions as a tax-efficient shelter
• Assessing whether rental portfolios remain viable under increased tax rates
• Considering restructuring of property ownership for tax efficiency
• Reviewing investment strategy to focus on assets with lower taxable income
• Planning cashflow in anticipation of higher tax liabilities

A proactive approach will help mitigate the long-term impact of this change.

Impact on Future Financial Planning

This measure reinforces the broader theme of the Budget: a gradual tightening of the tax environment for wealth, investment, property and non-salary income.

For individuals relying on investment income for lifestyle or retirement planning, these additional tax costs may influence decisions around:

• Asset allocation
• Retirement age
• Drawdown strategy
• Property investment and divestment
• Inheritance and family wealth planning

Summary

The 2-percentage-point increase in taxation on savings, rental and investment income from April 2027 represents a meaningful shift in how non-salary earnings are taxed. While the basic mechanics are simple, the financial consequences may be significant for higher-rate and additional-rate taxpayers.

If you receive income from savings, rental properties, or investments, now is a good time to review your tax position and consider strategies to protect your returns. Merranti Accounting can assist with tailored planning to help you adjust ahead of the 2027 changes.