UK Budget 2026: Chancellor John Healey raises savings tax rates by two percentage points
In his first budget, Chancellor John Healey introduced a two percentage point increase to tax rates on savings and property income, taking effect on 6 April. While his predecessor Rachel Reeves had previously planned to increase income tax rates for savers, Healey added an extra two percentage points to those rates. At the same time, the government dropped a plan to cut the cash Isa limit for under-65s. Financial experts suggest that savers may need to utilize personal savings allowances, Isas, and pension contributions to mitigate the impact of these changes.
Key points
- Chancellor John Healey increased tax rates on savings and property income by two percentage points.
- New rates of 24 percent, 44 percent, and 49 percent take effect on 6 April.
- A previously planned reduction of the cash Isa limit for under-65s has been cancelled.
- Experts suggest utilizing Isas, personal savings allowances, and pension contributions to manage tax liabilities.
What happened
Chancellor John Healey announced changes to savings taxation, adding two percentage points to existing rates for savings and property income. These adjustments build upon previously announced increases by his predecessor Rachel Reeves and are scheduled to take effect on 6 April.
The new tax structure will apply to savers across the UK, setting rates at 24 percent for basic-rate taxpayers, 44 percent for higher-rate taxpayers, and 49 percent for those on the additional rate.
Context
The budget also addressed the cash Isa limit, which was previously slated to be reduced to 12,000 pounds for individuals under 65 starting in April 2027. Healey confirmed that this reduction plan has been abandoned, maintaining the current 20,000 pounds annual limit.
Financial analysts, including Jason Hollands of Evelyn Partners, have characterized the tax increases as a significant challenge for savers. Experts note that finding savings accounts that outperform inflation will become increasingly difficult under the new tax regime.
What happens next
Savers are advised to review their financial strategies ahead of the implementation date. Potential mitigation strategies discussed by experts include maximizing Isa contributions, utilizing the personal savings allowance, and considering pension contributions to lower adjusted net income.
Individuals may also explore alternative investment vehicles such as low-coupon short-dated gilts, which may offer tax advantages regarding capital gains, or Premium Bonds, which provide tax-free prizes.
Why it matters
The tax rate increases will make it harder for UK savers to beat inflation, though the cancellation of the Isa limit reduction provides some relief for long-term savings planning.
What we know
- Chancellor John Healey increased tax rates on savings and property income by two percentage points.
- The new savings tax rates of 24 percent for basic-rate, 44 percent for higher-rate, and 49 percent for additional-rate taxpayers take effect on 6 April.
- The government cancelled a previously planned reduction of the cash Isa limit for individuals under 65.
- The annual cash Isa limit remains at 20,000 pounds.
What remains unclear
- The extent to which inflation will remain high is currently a forecast.
- The specific impact on individual household finances will depend on personal tax circumstances and savings levels.
