Andy Burnham will oversee three new savings tax rate rises (Image: Getty)
Savers are set to be hit with new tax rate rises from next April, marking the second year in a row which has seen those trying to save losing more money to the taxman, on top of cuts to Cash ISA limits.
Tax and financial planning firm Blevins Franks and Paragaon Bank have both set out how savings taxes are set to increase from April 2027, policies first introduced by now-ex Chancellor Rachel Reeves but which are due to come into force under new Chancellor John Healey and Prime Minister Andy Burnham.
Blevins Franks explains: “The basic and upper rates of tax on dividend income increased by 2 percentage points from 6 April. A similar tax increase on savings income will take effect a year later [from April 2027].”
In April 2026, the savings income rate for dividends was increased for those on the basic tax rate and the higher tax rate, from 8.75% to 10.75% for those paying 20% tax, and from 33.75% to 35.75% for those on the higher rate.
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From April 2027, the savings tax rate will increase for all savings, from 20% for a basic rate taxpayer to 22%.
For 40% taxpayers (earning £50,270 or more), the rate increases from 40% to 42%, and for additional rate taxpayers (earning £125,140), the rate moves from 45% to 47%.
Savings tax applies to the interest on savings which sits outside your annual Personal Savings Allowance (PSA), the exact amount depending on your income.
Paragon Bank says that this tax rise, coupled with a cut to Cash ISAs, could lead to tax increases for some households.
It explains: “From April 2027, the tax rates applied to savings income outside of ISAs are set to increase.
“The savings basic rate will rise to 22%, the higher rate to 42%, and the savings additional rate to 47% for the 2027 to 2028 tax year. Despite these changes, the Personal Savings Allowance (PSA) is staying in place, this means:
“Basic-rate taxpayers can still earn up to £1,000 of savings interest each tax year, outside of an ISA, before tax may be due.
“Higher-rate taxpayers receive a £500 allowance, while additional-rate taxpayers do not receive a personal savings allowance.”
Costing this out, for those earning under £50,270, you usually have £1,000 PSA, which means you can earn £1,000 interest on savings tax-free. Then, anything above that threshold is taxed at 20%. From April 2027, that will be 22%.
So, for example, for someone earning £2,000 of savings interest, a basic rate taxpayer faces a £200 bill on £1,000 of interest, which becomes £220.
For a higher earner (above £50,270), it’s less simple, as you only get £500 PSA.
It then means you pay tax on £1,500 of the money, which is £600. However, 40% is becoming 42%, so a bill on £1,500 interest goes from £600 to £630.
For additional rate taxpayers (over £125,140) there is no PSA, and the tax is rising from 45% to 47%. It means a bill applies to the entire £2,000, which makes a £900 bill. From April, that rises to £940.
Paragon Bank adds: “Cash ISAs remain attractive for savers because any interest earned is tax-free, but from the next tax year, the amount some people can pay in is due to change.
“While the overall ISA allowance will remain at £20,000, from 6 April 2027 the amount under-65s can pay into cash ISAs each tax year is due to be capped at £12,000 a year. For those aged 65 and over, the cash ISA limit will remain at £20,000.”
It continues: “A practical first step is to check your latest savings statements and estimate how much interest you expect to earn over the tax year. If it looks likely to exceed your allowance, you may want to consider moving some of your savings into a cash ISA, where interest is tax-free. Paragon’s range of ISAs is also flexible, so any withdrawals can be replaced within the same tax year without affecting your annual ISA allowance.”
Blevins Franks also sets out recommendations for savers. It adds: “Now is the time to make sensible adjustments over the coming months so you are well‑placed for the significant reforms arriving in April 2027 and beyond.
“Given the breadth of UK tax changes over recent years and the complexity they introduce, obtaining personalised, professional guidance is increasingly important. Understanding how the reforms apply to your situation, and how best to position your assets, can help you avoid unnecessary tax exposure and protect your family’s long‑term interests.”
Savers Hit with Three New Higher Tax Rates Under Andy Burnham
Millions of British savers are preparing for changes to the tax rules that will increase the amount of tax payable on certain savings interest from April 2027. Under the announced reforms, the basic rate on savings income will rise from 20 per cent to 22 per cent, the higher rate from 40 per cent to 42 per cent, and the additional rate from 45 per cent to 47 per cent. The changes apply across the UK and were announced in the 2025 Budget, before their implementation under Prime Minister Andy Burnham’s government. <Cite refs={[“turn747200search0″,”turn747200search2”]}/>
For people who have spent years building up savings, even a two-percentage-point increase may raise questions about how best to protect their money. The impact, however, will depend on how much interest someone earns, their income-tax band, the allowances available to them and whether their savings are held in a tax-free account.
The changes also arrive after several years of adjustments to the UK’s personal tax system. Savers have faced frozen tax thresholds, changes to investment allowances and uncertainty over future pension rules. Financial advisers have warned that frequent changes can make long-term planning more difficult, particularly for households relying on savings to supplement wages or retirement income.
Three New Rates for Savings Income
The government’s published policy sets out three higher rates for savings income from 6 April 2027. <Cite refs={[“turn747200search0″,”turn747200search1”]}/>
| Tax band | Current rate in 2026–27 | Rate from April 2027 |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
These rates apply to taxable savings interest, not automatically to every pound held in a bank account. The amount of tax a person actually pays will depend on their personal circumstances and whether their interest exceeds the relevant tax-free allowances.
That distinction is important because headlines about higher tax rates can create the impression that all savers will immediately pay more. In reality, people whose interest remains within their available allowances may see no additional savings tax at all.
Nevertheless, households with larger cash balances, higher interest earnings or limited allowances could face an increased bill once the changes take effect.
Why Is the Government Increasing Savings Tax?
The government says the purpose of the reform is to narrow the difference between taxation on income from assets and taxation on earnings from employment or self-employment.
People who earn wages may pay Income Tax and National Insurance, whereas savings interest does not generally attract National Insurance contributions. Ministers argue that increasing the rates applied to savings, property and certain investment income will make the overall system fairer. <Cite refs={[“turn747200search0″,”turn747200search2”]}/>
The argument has attracted debate. Supporters of the changes say people receiving income from substantial financial assets should contribute more where their income falls outside existing tax-free allowances. They argue that the reform can help raise revenue without increasing the headline rates of Income Tax on employment.
Critics, however, are concerned about the effect on people who have saved carefully over many years. Cash savings may represent an emergency fund, money set aside for a house deposit or the financial cushion of someone approaching retirement. For these households, interest is not necessarily a sign of exceptional wealth; it may simply help protect savings against rising living costs.
The central question is how the tax system should balance fairness between different forms of income with the need to encourage people to save for future expenses.
How Much More Could Savers Pay?
The effect will vary according to the amount of taxable interest earned. Consider a basic-rate taxpayer who receives £2,000 in savings interest during a tax year and has the full £1,000 Personal Savings Allowance available.
In this simplified example, £1,000 of interest falls within the allowance, leaving £1,000 subject to tax. At the current 20 per cent rate, the tax on that portion would be £200. At 22 per cent, it would be £220.
That represents an additional £20 in tax over the year.
A higher-rate taxpayer with £2,000 of interest and a full £500 Personal Savings Allowance would have £1,500 subject to tax. At 40 per cent, the tax on that portion would be £600; at 42 per cent, it would be £630, an increase of £30.
For an additional-rate taxpayer with £2,000 of taxable interest and no Personal Savings Allowance, the calculation would rise from £900 at 45 per cent to £940 at 47 per cent, an increase of £40.
These examples illustrate the rate change rather than predict every household’s tax bill. Actual calculations can be affected by total income, the starting rate for savings, available allowances and other tax rules. The Personal Savings Allowance remains in place under the published policy. <Cite refs={[“turn747200search1″,”turn747200search3”]}/>
For households earning modest amounts of interest, the increase may be relatively small. For people with substantial taxable savings, however, the additional cost could become more noticeable over time.
Cash ISAs Become More Important for Some Households
Individual Savings Accounts, commonly known as ISAs, allow eligible savers to receive interest without paying UK Income Tax on it. As a result, cash ISAs may become more attractive to people whose savings interest would otherwise exceed their allowances.
However, the government has also announced a change to the amount that most people under 65 can pay into cash ISAs each tax year. From 6 April 2027, the cash ISA limit for under-65s will be £12,000 within the overall annual ISA allowance of £20,000. People aged 65 and over will continue to have a £20,000 cash ISA limit. <Cite refs={[“turn747200search1″,”turn747200search2”]}/>
This means savers may need to consider not only the tax rate on their interest but also where their money is held and how much they can contribute to a tax-free account.
A cash ISA does not necessarily suit every situation. Interest rates, access conditions, withdrawal rules and individual financial goals still matter. Some savers may value immediate access to emergency funds, while others may prefer fixed-term accounts or a combination of different savings products.
The important point is to understand the rules before making a major change. Moving money simply because of a tax headline could be unnecessary if the interest earned is already covered by allowances or if another account better meets the person’s needs.
The Wider Pressure on Household Finances
Savings tax is only one part of the financial picture facing British households. Many people are also dealing with housing costs, energy bills, food prices and uncertainty about their retirement income.
For pensioners, savings interest can supplement the State Pension and help cover unexpected expenses. Working households may be saving towards education, a home purchase or periods when their income is interrupted. A change that looks modest in percentage terms can therefore have different consequences depending on the purpose of the money.
The government’s wider fiscal choices are also under scrutiny. Ministers face pressure to fund public services and other spending commitments while managing borrowing and maintaining their stated tax commitments. Reuters reported in September 2026 that Chancellor John Healey was considering a range of possible tax measures ahead of the 28 October Budget, although proposed options should not be treated as confirmed policy. <Cite refs={[“turn747200news10″,”turn747200news9”]}/>
For savers, uncertainty can make financial planning harder. When rules change frequently, people may delay decisions or worry that a strategy that works today will become less effective in a future tax year.
The case for clear communication is therefore significant. Households need to know when changes begin, which types of income are affected and what allowances remain available.
What Should Savers Do Now?
The first step is to check how much interest savings are likely to generate over a full tax year. Bank statements and account projections can help establish whether that amount is likely to exceed the relevant tax-free allowances.
Second, savers should identify which accounts they use. Interest earned inside an eligible ISA is generally tax-free, while interest on ordinary savings accounts may be taxable above the applicable allowances. The distinction can materially affect the amount of tax due.
Third, anyone considering moving substantial sums should compare account terms and consider their need for access to cash. Tax efficiency is only one factor in a sound savings strategy. Emergency funds, deposit protection, interest rates and withdrawal restrictions all deserve attention.
People with complex finances, sizeable investment portfolios or retirement arrangements may also benefit from regulated financial or tax advice. The right approach depends on personal circumstances, and no single account or strategy is best for every saver.
Most importantly, savers should avoid assuming that they must take immediate action simply because the higher rates have been announced. The new savings tax rates are scheduled to begin in April 2027, leaving time to understand how the changes apply.
A Test of Trust for the Government
The three higher savings tax rates form part of a wider debate about how Britain raises revenue and distributes the tax burden. The government says the reform will help bring the treatment of income from assets closer to that of earnings. Critics argue that people who have saved responsibly could face additional costs at a time when household budgets are already under pressure.
Both the policy’s design and its practical impact will matter. The rates alone do not determine how much an individual pays; allowances, income levels and the use of tax-free accounts all play important roles.
For Andy Burnham’s government, the challenge is to explain the reform clearly and ensure that households understand the difference between an announced tax change and the amount they may actually owe. For savers, the priority is to review their own position, understand the timetable and make decisions based on the rules rather than fear.
From April 2027, the basic, higher and additional rates on savings income are set to rise to 22, 42 and 47 per cent respectively. The change is confirmed in the government’s published policy, but its effect will not be identical for everyone. For millions of households, the practical question is how much interest they earn outside tax-free allowances—and what that means for their financial plans.