Savers face a new tax hit: Higher rates and new rules explained

The tax you pay on interest from savings is changing next year. Be prepared.

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Published: July 16, 2026 at 5:45 PM

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From next April, the tax charged on money earned on savings, shares and property will rise. And, for the first time, some income from money in a tax-free investment ISA may be taxed.

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The changes were set out in Chancellor Rachel Reeves’s last Budget in November 2025.

The changes mean that from April 2027 any interest you earn on savings that are not in an ISA will be taxed at higher rates than other income.

The basic rate will be 22%, the higher rate 42% and the top rate 47% – in each case that’s two percentage points up on the present regime of 20%, 40% and 45%, which applies to other income.

The change applies throughout the UK, as tax on savings and investments is not devolved to Scotland.

It will mean that for each £10,000 you have in a taxable savings account that earns 4.5% – which is quite possible now – you will pay an extra £9 a year in tax.

It may not sound much, but the change will raise around half a billion pounds a year for the Treasury.

The same rates will also apply to the tax on rental income, raising a similar amount.

There will also be a two-percentage-point increase in tax rates on the dividends paid on shares. That will raise more than £1 billion extra, which makes a total of well over £2 billion a year more in tax from savers and individual landlords.

However, the new tax rates can be avoided by moving your savings or investments into an ISA.

This year a total of £20,000 can be salted away in an Individual Savings Account, either in a cash ISA, a stocks and shares ISA, or both.

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There is currently no tax due on any interest that’s earned in an ISA, so that will be even more valuable from next April.

But at the same time the amount that can be put into a cash ISA is being cut to £12,000 for people under 65 throughout the tax year.

So if your birthday is 5 April 1963 or earlier, that rule will not apply and you can still put £20,000 a year into a cash ISA.

To discourage younger people from putting the other £8,000 into a shares ISA but keeping it there in cash, any interest earned on cash in an investment ISA will be taxed at a flat rate 22%.

Surprisingly, that rule will also apply to people aged 65 and over – so be careful.

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