The Chancellor will add two percentage points to the rates of tax paid on income received from dividends, savings and property.
If you receive dividends; interest and other savings; or income from a property you rent out as a sole trader landlord you will see an increase in the amount of tax you have to pay on these sources of income.
Dividends will be taxed at 10.75% basic rate; and 35.75% higher rate (currently 8.75%; and 33.75%). The additional rate for dividends will remain unchanged at 39.35%. Property and savings income will be taxed at 22% basic rate; 42% higher rate; and 47% additional rate (currently 20%; 40%; and 45%). The hike on dividend tax will be effective from 6.4.26 while taxpayers with savings and/or property income have an extra year’s reprieve until April 2027.
The Chancellor also announced a freezing of the personal tax thresholds for a further three years. The personal allowance (the amount you can earn before paying any income tax) will remain at £12,570, with the higher rate and additional rate thresholds fixed at £50,270 and £125,140 respectively until April 2031. This means that as income from dividends, property and savings increases as a result of inflation, more people will be drawn into paying these increased taxes.
Directors and business owners should review their salary and dividend arrangements to ensure they are extracting profits from their company in the most tax efficient way. We can help you run the numbers.
ISA allowance
Currently you are allowed to invest up to £20,000 per year in an individual savings account (ISA) and any interest you receive is tax free. From 6.4.27 the ISA allowance will be amended so that while the maximum investment will remain at £20,000, £8,000 of this must be invested in non-cash ISAs such as stocks and shares ISAs. This effectively reduces the maximum annual amount that can be put into cash ISAs to £12,000.
Taxpayers over 65 will still be able to invest up to £20,000 in cash ISAs.
Speak to an independent financial advisor if you are considering making any changes to your investments.
