Autumn Budget 2025: Changes to Income Tax Rates

Autumn Budget 2025 decoded: Changes to Income Tax Rates

After weeks of speculation as to whether we would see an increase in income tax rates, it’s mostly investors who will be impacted by the changes announced.

What’s changing regarding income tax rates?

The government have increased the rate charged on the following sources:

• 2% increase on dividend income for basic rate and higher rate taxpayers from 6 April 2026, with no change for additional rate taxpayers.
• 2% increase on savings income for basic rate, higher rate, and additional rate taxpayers from 6 April 2027
• 2% surcharge charged on basic rate, higher rate, and additional rate rental income under the introduction of a new ‘property rate’

Whilst dividend income and property income is self-explanatory, the umbrella of savings income covers a wide range of sources, for example interest, accrued income on gilts, and gains on investment bonds and deeply discounted securities will all attract the higher rate.

What income tax rates are staying the same?

The tax rate thresholds currently in place as well as the personal allowance will be now frozen until 5 April 2031, effectively pushing more individuals into the higher rate brackets over time.

In addition, there will not be any change to the income tax rate charged on other income not captured above, for example, employment income, trading income, and pension income.

What will the new income tax rates look like?

*Red highlights the changes

How will other tax rates and reliefs be impacted by the Autumn Budget? 

Other reliefs, such as the starting rate for savings (£5,000), the personal savings allowance (£1,000 for higher rate taxpayers and £500 for basic rate), and the dividend allowance (£500) are unchanged and continue to be available to offset against investment income.

With respect to property income, finance relief will continue to be given by way of a basic rate tax reducer (now at 22% rather than 20%), and the property allowance (£1,000 for 2025/26) and rent-a-room relief (£7,500 p/a) remain available to landlords.

Hidden within the budget detail is that individuals will have less flexibility over how they use these allowances or reliefs. Available allowances, including the personal allowance, will automatically offset against employment income in priority to the savings income, effectively saving tax at the lower rate.

Those in the infamous 60% tax bracket e.g. those with income between £100,000 and £125,140, may now be pushed into an effective rate of up to 62%. Pension contributions for those with earned income will prove useful.

How the 2025 Autumn Budget’s income tax changes could affect your finances

These further tax increases will clearly have an impact on incorporated businesses, with owners once again having to revisit their profit extraction strategy.

For investors, ISAs look more attractive than ever. Similarly, investment bonds, which allow the deferral of income tax, could provide a good solution for a higher rate or additional rate taxpayer. Family investment companies, which do not pay tax on dividend income, may also be worth considering. Please contact Rochelle Comyn, or another member of our tax team for any further questions or clarification – we are happy to help.