In his first outing as chancellor, John Healey dropped a plan to cut the cash Isa limit for under-65s but surprised everyone with an extra tax charge on savings and property income. His predecessor, Rachel Reeves, had already announced a plan to increase the income tax rates for savers and landlords that was due to take effect in April 2027. But Healey went further, adding an additional two percentage points to each of the rates.
Jason Hollands, managing director at wealth manager Evelyn Partners, describes the higher rates as a “sting in the tail” for savers. However, he says: “There are practical steps savers can consider to mitigate this interest tax crunch, although the right approach will depend on their circumstances.” The levels of tax, which will apply to savers across the UK, will be 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for those on the additional rate. They come into effect on 6 April.
This means it will get harder to find savings accounts that beat inflation – especially if, as expected, that stays high next year. Anna Bowes, personal finance expert at advice firm The Private Office, says if inflation hits 3.5%, with the new tax to pay, a saver who pays basic-rate tax will need to earn 4.61% gross interest to retain the value of their money. A higher-rate payer will need 6.25% gross, and an additional-rate taxpayer will need 6.86%.
Currently, she says, these higher two rates “are impossible as far as I am aware” to find on a standard savings account. There are, however, allowances you can use that will protect some savings, meaning you can beat inflation with a lower-paying account. Most people can earn a chunk of interest from their savings without facing any tax bill.
You don’t have to pay tax on anything earned on money held in cash Isas, and the maximum amount you can put into one in each tax year is going to stay at £20,000. This was set to be slashed to £12,000 for anyone aged under 65 from April 2027. But Healey has ditched that plan.
Aside from Isas, other things come into play that reduce the tax you pay on savings, or mean you don’t pay any tax at all. Your tax-free personal allowance covers all of your income, and for the 2026-27 tax year, this is £12,570. If your personal allowance isn’t fully used up by your wages, pension or other income, HM Revenue and Customs will apply it to your savings interest.
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