Personal Income Tax
Tax rates and allowances – 2027/28 (Table A)
Chancellor Rachel Reeves announced in March 2025 that the main tax allowances and rate thresholds will remain at their 2022/23 levels until the end of 2030/31. This has been widely criticised as a ‘stealth tax’. For example, a person with a salary of £50,270 will pay £7,540 in income tax in 2026/27; if their income increases by 10% to £55,297 in any of the years to 2030/31, all of the increase will be taxed at 40%, and they will pay £9,551.
The income level above which the personal allowance is tapered away also remains £100,000; it will be reduced to zero when income is £125,140, which is also the threshold for paying 45% tax. In the tapering band, the loss of tax-free allowance creates an effective marginal income tax rate of 60% on additional salary (this will differ depending on the types of income received, whether the taxpayer is Scottish or English, and salary will also be subject to additional NICs). Once again, annual increases in income will bring more people into these higher rates.
Pensions Tax Allowance
Because the State pension is paid without deduction of tax, and will rise above the basic personal allowance in tax year 2027/28, the government has introduced a new allowance to prevent a tax charge falling on those whose only income is their State pension. It will apply for the tax years 2027/28, 2028/29 and 2029/30.
The operation of the allowance is complicated. Pensioners will have a notional tax credit of 20% of the difference between their pension and the personal allowance, covering the liability at the basic rate. If they have other income as well, the credit will be reduced by £1 for every £3 above the State pension. As most of those affected will not have a tax adviser, it is to be hoped that HMRC’s systems will cope with the calculations.
Savings income and property income
The personal savings allowance remains £1,000 for basic rate taxpayers, £500 for 40% taxpayers and nil for 45% taxpayers. People with savings income above these limits may have to declare it in order to pay tax. As income covered by these allowances uses up the basic rate band, even income below the allowance may affect a taxpayer’s total liability.
The savings rate band remains at £5,000. Non-dividend income (including property income) in excess of the personal allowance is deemed to use up the savings rate band. If any of the £5,000 band is not used by these types of income, it can be set against savings income, which is then taxed at a nil rate.
In 2025 Rachel Reeves announced an increase in the tax rates applicable to income from property and savings to apply from April 2027. Chancellor Healey doubled the increase in his speech, apparently without most commentators noticing until later. The basic, higher and additional rates on rental and savings income will all rise by four percentage points in 2027/28 to 24%, 44% and 49% respectively. The tax relief for interest paid on residential let property will be fixed at 24% (up from 20%), to match the basic rate tax charge.
From 2027/28, the personal allowance, basic rate band and higher rate band are allocated in the following order: general income (such as salary and self-employed profits), then property income, then savings income (mainly interest), then dividends.
These tax increases make tax-free Individual Savings Accounts even more attractive, as any income or gains arising within an ISA are wholly tax-free.
Dividend income
The dividend allowance exempts some dividend income from tax, although that income still counts towards the higher rate thresholds. For 2027/28, the allowance is unchanged at £500. As HMRC does not routinely receive information about dividends received by taxpayers, this low limit is likely to require people to file tax returns to declare even small tax liabilities on dividends.
In 2027/28, the basic, higher and additional rates on dividend income over £500 are unchanged at 10.75%, 35.75% and 39.35% respectively.
The higher rate also applies to tax payable by close companies (broadly, those under the control of five or fewer shareholders) on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period.
Dividends arising in an ISA or a qualifying Venture Capital Trust (VCT) are not taxed and do not count towards the allowance.
Complexity of rates
The changes from April 2027 increase the complexity of tax calculations even further. Different tax rates apply to different types of income; some types are subject to NICs as well as income tax; different allowances operate in different ways; and tax reliefs have to be offset in a particular order. In addition to those complications, there are different thresholds which trigger changes in rates – the higher rate threshold, the points at which the High-Income Child Benefit Charge starts and finishes, the £100,000 ‘cliff edge’ where personal allowances begin to be tapered away and childcare benefits are lost, and the additional rate threshold (£125,140).
All this means that two people with similar levels of total income can have very different tax liabilities. It is particularly difficult to plan for those who have choices about how they receive their income, such as those who own their own company. It will be necessary to rethink and recalculate, and plans that have worked in the past may have to be changed for the future.
Scottish and Welsh rates – 2027/28 (Table A)
The Scottish government has the power to set its own income tax rates for Scottish taxpayers for non-savings, non-dividend income; from 2026/27, it can also set its own rates for property income. Many Scottish taxpayers now pay at higher rates of income tax than those elsewhere in the UK, although some low earners pay less. The Scottish Budget, which will confirm the rates for 2027/28, will take place on 3 December 2026.
The Welsh government has similar powers for Welsh taxpayers but has not yet varied the main UK rates. The draft 2027/28 Welsh Budget will be published on 17 November 2026, with the final Budget scheduled for 16 February 2027.
The new rates on savings income will apply across the UK.
Winter fuel payments
The annual winter fuel payment to pensioners will still be clawed back if income exceeds £35,000. By contrast, Chancellor Healey announced a new energy support payment of £100 to be paid to ‘households’ in Council Tax bands A to D in England. The devolved governments will be given funding to make similar payments. The payments will be made directly to the recipients’ bank accounts in January 2027. At over £2.6 billion in total, this is the single largest measure in the government’s budget forecasts.
Foreign domiciled people
Foreign domiciled people have been able in the past to claim the ‘remittance basis’ on their foreign income and gains (FIG), under which they would not pay tax until and unless the FIG were brought to the UK. This was replaced by a new system for 2025/26. FIG which were the basis of a remittance basis claim before then will be taxed when remitted to the UK, but for the first three years of the new system, a ‘Temporary Repatriation Facility’ applies a lower rate of tax to nominated unremitted FIG. Such amounts can then be remitted to the UK without any further tax charge. This rate has been 12% in 2025/26 and 2026/27, but will rise to 15% for 2027/28.