In her Autumn Budget, Rachel Reeves raised the tax rates on three non-employment sources of income, but she was able to avoid raising the headline income tax
Do you intend to pay more?
A mistake at the Office for Budget Responsibility (OBR) caused the much anticipated second Autumn Budget of Chancellor Rachel Reevess to be shortened after weeks of anticipation.
According to the OBR report that appeared prematurely on the agency's website, the Autumn Budget included a wide range of tax increases, as was widely anticipated, totaling about £26 billion by 2029 - 2030.
Three new taxes on non-employment income sourcesproperty, dividends, and savingsare among the tax increases that have been announced.
Reeves changed course and pledged not to raise income tax on earnings prior to her Autumn Budget after hinting in her speech on November 4 that she was thinking of breaking a manifesto pledge.
However, Reeves intends to increase the fiscal headroom she has attempted to create with her most recent Budget by raising the tax rate on three non-employment forms of income.
According to Shaun Moore, a tax and financial planning specialist at Quilter, "many more people will now pay higher rates of tax, adding yet another hurdle to long-term saving and making it harder for investors to build diversified portfolios."
According to government estimates, the three tax increases taken together should raise about £2 billion during the 2030 - 2031 tax year.
Income tax on real estate.
In England, Wales, and Northern Ireland, distinct tax rates for property income will be established by the Reevess Budget. Beginning in 2027 - 2028, the basic rate will be 22%, the additional rate will be 47%, and the higher rate will be 42%.
Hargreaves Lansdown's head of personal finance, Sarah Coles, stated that "property investment has always come with a painful tax bill." "This statement makes it more intense. The "
By 2030/31, the government hopes to raise 445 million a year from this.
Coles cautioned that increased taxes on property income might affect renters in addition to decreasing landlord profits.
According to Coles, "the Hargreaves Lansdown Savings and Resilience Barometer already shows that renters have less money left at the end of the month at just 39 compared to 299 among mortgage holders." Additionally, compared to homeowners, they have less savings and are less likely to be on track with their pension. An increase in rent would exacerbate this. A "
Taxation of dividend income.
Reeves declared that the income tax rates on dividends would be adjusted. Two percentage points will be added to the two lowest dividend tax rates starting in 2026 - 2027. As a result, the upper rate will increase to 35.75 percent and the ordinary rate to 10.75 percent. At 39.35 percent, the additional rate will not change.
According to Craig Rickman, a personal finance expert at Interactive Investor, "increases to dividend tax are a further blow to investors who are already facing bigger tax bills due to jacked up capital gains tax rates and stingier annual tax-free allowances to investment income and profits."
Self-employed private limited company owners who receive a meager salary and primarily fund themselves through dividends would also be negatively impacted by the change, according to Rickman.
According to Rickman, "higher dividend tax rates may prompt investors to reconsider how they position their portfolios, focusing on high-yielding stocks within their pensions and ISAs, which are exempt from dividend tax, and choosing growth stocks on holdings outside of tax wrappers."
As a result of the change, the government anticipates raising an extra 1.4 billion in the 203031 tax year.
Income tax on savings.
The income tax rate that applies to savings income will also change starting in 2027 - 2028. The basic rate will be 22 percent, the higher rate will be 42 percent, and the additional rate will be 47 percent. These rates correspond to those that apply to property-related income.
"What is particularly striking is that savings tax applies at your marginal rate, meaning those who already pay higher or additional rates of income tax will be most affected by these increases," Moore stated. The idea of rewarding financial resilience is undermined and prudent savers are discouraged.
In the meantime, more savers will be impacted by these higher rates because the personal savings allowance has not changed. In particular, as more and more individuals become higher rate taxpayers, they only receive the £500 allowance instead of the £1,000 that basic rate taxpayers receive. A "
The government anticipates raising 505 million in the 203031 tax year by raising the tax on savings income.
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