The Budget has increased tax on interest again. But what will another two percentage points mean for your savings and your tax planning?
Another rise in tax on savings income
“Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” So said the Labour manifesto in 2024. When Rachel Reeves raised employers’ National Insurance (NI) in 2024, the government explained that the manifesto pledge had only ever referred to employees’ NI.
The 2025 Budget brought a similar question. Rachel Reeves announced that tax on interest and other savings income would rise by two percentage points from 2027/28. Was that an increase in income tax rates?
A rise by another name
Look at the Finance Act 2026 and you will find three new rates of tax: the savings basic rate, savings higher rate and savings additional rate. The basic, higher and additional rates, all now described as default rates, were left unchanged. Arguably, then, the pledge was kept to the letter.
The relative ease with which this increase was achieved may help explain why Rachel Reeves’ successor, John Healey, has chosen to double down on it in his recent Budget.
The new savings tax rates from 2027/28
From 2027/28, across the UK:
- The savings basic rate will be 24%.
- The savings higher rate will be 44%.
- The savings additional rate will be 49%.
Who will actually pay more?
HMRC estimates that in 2027/28 the additional two percentage points will mean around one in eight taxpayers sees an average tax rise of £113 a year. Double that figure for the full impact of the four-point increase.
Why most savers will escape for now
The bulk of taxpayers will be spared because of the personal savings allowance, which has been in place since 2016/17. It is:
- £1,000 for basic rate taxpayers.
- £500 for higher rate taxpayers.
- Nil for additional rate taxpayers.
How much cash is too much?
Assuming an interest rate of 4%, a basic rate taxpayer with more than £25,000 on deposit could pay more tax, as could a higher rate taxpayer with more than £12,500. All additional rate taxpayers will be affected.
What can savers do now?
If you face a higher tax bill on your interest, it may be worth closing deposit accounts before 6 April 2027 so that the interest is taxed in 2026/27, before the new rates apply. Check first for any account closure charges.
Other strategies can help over the longer term, but they depend on your personal circumstances, so it pays to take advice before you act.
Talk to Chartwell Wealth Management about your savings
Rising tax on savings interest is one more reason to look at where your cash is held and whether it is working as hard as it could. If you would like to understand how the new rates could affect you, get in touch with Chartwell Wealth Management. Call us on 0161 929 3500 or contact us online and we will help you plan ahead.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
The value of investments and the income from them can fall as well as rise and investors may not get back what they originally invested.
