Reeves announces sweeping tax rises on savings, property and dividends from 2026–2027
Millions of savers, landlords and investors are set to face higher tax bills after the chancellor, Rachel Reeves, unveiled a wide-ranging package of measures in her latest budget. The changes, which affect everything from Isas to pension schemes and income earned from savings and property, mark one of the most significant overhauls of personal taxation in recent years.
Two of the biggest announcements had been widely anticipated: a reduction in the maximum annual contribution to cash Isas and a clampdown on salary sacrifice pension arrangements. But Reeves also introduced two surprise measures an exemption from the new Isa rules for people over 65 and higher taxes on savings interest, rental income and share dividends.
The Treasury said its Isa shake-up aims to “drive better returns for savers, and incentivise investment”. While the overall annual Isa limit remains at £20,000, the portion that can be placed into a cash Isa will drop sharply. From 6 April 2027, the cash Isa cap will fall by 40% to £12,000. Only savers aged 65 or over will retain the current £20,000 limit. The move aligns with the government’s desire to push more people toward stock market investing, particularly in UK companies, something Reeves has highlighted as essential to building a stronger culture of retail investment.
The second major change involves salary sacrifice pension schemes, which have become increasingly popular among employers and workers. Once a niche option, more than 7 million people now use salary sacrifice arrangements to reduce their national insurance contributions while boosting retirement savings. Reeves argued that the benefits were skewed toward higher earners, and the Treasury said the reform is designed to “increase fairness”.
An annual cap of £2,000 will be introduced on the amount of earnings an employee can exchange for pension contributions while still benefitting from national insurance relief. The cap will take effect in April 2029. According to the Treasury, three-quarters of basic-rate taxpayers using salary sacrifice will not be affected. Still, critics say it will reduce the take-home pay of many workers. Steve Hitchiner, president of the Society of Pension Professionals, said the move would hit “millions of employees – especially basic-rate taxpayers – and is a tax on working people, in spirit if not in name”. Analysis from the comparison site Finder suggests that someone earning £50,000 and contributing 15% of their salary through sacrifice would see a £320 reduction in their annual take-home pay. The Office for Budget Responsibility estimates the change will generate £4.7bn in the 2029–30 financial year.
Reeves also announced rises in taxes on income from savings, rental property and dividends. From April 2027, income tax on savings and property income will increase by two percentage points. After allowances are applied, basic-rate taxpayers will pay 22%, higher-rate taxpayers 42% and additional-rate taxpayers 47%. Dividend taxes will rise earlier, in April 2026. The ordinary dividend rate will increase from 8.75% to 10.75%, while the upper rate will rise from 33.75% to 35.75%.
Financial experts reacted strongly to the changes. Sarah Coles of Hargreaves Lansdown called the hike “a really shocking tax rise for savers”, noting that while the personal savings allowance shields modest amounts of interest, many people will still face higher bills. She also warned that the dividend tax rise runs counter to the government’s stated aim of encouraging investment in UK equities. Accountancy partner Zena Hanks said landlords would see already tight margins squeezed further, forcing many to pass costs on to renters or exit the market entirely.
The Treasury insisted that over 90% of taxpayers do not earn enough savings, rental or dividend income to be affected by the changes. However, for millions of those who do, Reeves’s budget marks an expensive turning point.