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Outlining changes to the application of these thresholds
The Chancellor has announced that the freeze in personal tax and employer National Insurance contributions thresholds will be extended for a further three years from 2028/29 to 2030/31. Taken together, this means the thresholds have remained frozen for a decade since 2021.
As a result of this, more lower earning people will be brought into paying income tax for the first time from April 2028, and income taxes for higher and additional rate payers will increase. This measure, also known as fiscal drag, causes more people to fall into the higher and additional rates of tax as their income increases over the years, but the frozen thresholds mean more of it is taxed at higher rates than would be the case if the thresholds increased in line with inflation.
In addition to threshold freeze, the other key changes introduced for taxpayers are:
- From April 2026 – an extra 2% tax payable on dividend income, ie individuals will be paying 10.75% and 35.75% (increased from 8.75% and 33.75%) for the ordinary and higher rates of tax. There is no change to the dividend additional rate, and they will continue to pay 39.35%
- From April 2027 – an extra 2% tax payable on property income, ie landlords will be paying tax at 22%, 42% and 47% for basic, higher and additional rate bands respectively
- From April 2027 – an extra 2% tax payable on savings income, ie individuals will be paying tax at 22%, 42% and 47% for basic, higher and additional rate bands respectively.
Ordering of income tax reliefs and allowances
It is proposed that in Finance Bill 2025/26, the government will change income tax rules so that reliefs and allowances deductible at steps two and three of the income tax calculation will only be applied to property, savings and dividend income after they have been applied to other sources of income. These will be implemented from 6 April 2027 once legislated.
Applicable income tax rates for England, Wales and Northern Ireland will be:
| (Non-dividend income) | 2026/27 | 2025/26 |
| 0% starting rate for savings only | Up to £5,000 | Up to £5,000 |
| 0% on personal allowance (subject to any clawback) | £0-£12,570 | £0-£12,570 |
| 20% basic rate tax | £12,571-£50,270 | £12,571-£50,270 |
| 40% higher rate tax | £50,271-£125,140 | £50,271-£125,140 |
| 45% additional rate tax | Above £125,140 | Above £125,140 |
Personal allowances are subject to the £100,000 income limit, which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit, down to zero.