The Chancellor, Rachel Reeves, has set out a range of reforms in the 2025 Budget aimed at increasing tax contributions from those with investment, property and savings income. Collectively, the new measures are forecast to raise £2.2 billion in extra tax from savings and property income, alongside £430 million per year from additional council tax on high-value homes.
Below is a breakdown of the major changes and what they mean for landlords, trustees and individuals with investment portfolios.
Dividend Tax Increases
From April 2026, the income tax rate applied to dividend income will rise by 2 percentage points:
- Basic rate: increases to 10.75%
- Higher rate: increases to 35.75%
- Additional rate: remains 39.35%
This change further increases the tax gap between earnings taken through dividends and other forms of income.
Higher Tax on Savings Income
From April 2027, tax on interest and other savings income will also rise by 2 percentage points:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
However, both the Personal Savings Allowance and the Dividend Allowance will continue unchanged. Thanks to these allowances and widespread ISA use, the government expects 90% of taxpayers to remain unaffected. For the remaining 10%, typically wealthier individuals, the impact could be significant depending on the level of investment income received.
Property Income Tax: A Separate System for Landlords
From April 2027, unincorporated landlords will be subject to a new set of tax rates specifically for property income:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
Mortgage interest and other finance costs will be deductible as a 22% tax credit.
The £1,000 property allowance and Rent-a-Room Relief remain unchanged.
Again, the government predicts that 90% of taxpayers have no taxable property income, meaning the changes fall primarily on active property investors.
Changes to Personal Allowance Allocation
Currently, taxpayers can choose where to allocate their personal allowances. From April 2027, this flexibility ends. Personal allowance must be set against:
- Pension income
- Employment income
- Trading income
Only after these categories can it offset other sources, such as savings, dividends or property income.
This restriction ensures that the newly increased rates for investment and property income will apply more frequently.
Impact on Landlords
Landlords have already faced multiple recent tax increases, including limitations on mortgage interest relief. The new property-specific tax rates add yet another layer of pressure.
Considering Incorporation
Some landlords may revisit the idea of incorporating their portfolios to benefit from corporation tax rates. However:
- Extracting profits from a company can trigger its own tax charges
- Structuring the incorporation properly is complex
- From 6 April 2026, Incorporation Relief for CGT will no longer be automatic—it must be claimed, which also increases the likelihood of HMRC scrutiny
Tax Changes Affecting Trusts
Trust income will also be subject to the additional 2% increase.
This means:
- Discretionary trusts will see the main trust rate rise from 45% to 47%
- Limited relief will remain for deductible trust management expenses
Higher tax rates will place extra pressure on trust tax pools, which are used to offset tax when distributing income to beneficiaries. Trustees will need to carefully plan:
- The timing and nature of distributions
- How dividend income interacts with trust pools
- The effect of increased tax on loans and capital payments to settlors
Since tax pools may become insufficient more frequently, beneficiaries may face additional tax charges when receiving income from trusts.
Council Tax Surcharge on High-Value Homes (“Mansion Tax”)
From April 2028, properties worth £2 million or more (valued as at 2026) will attract an annual council tax surcharge.
Proposed surcharge bands
| Property Value | Annual Surcharge |
| £2m – £2.5m | £2,500 |
| £2.5m – £3.5m | £3,500 |
| £3.5m – £5m | £5,000 |
| Over £5m | £7,500 |
The government expects this measure to raise around £430m per year.
A consultation will consider:
Possible exemptions
- Reliefs for those unable to pay
- The detailed framework for implementation
Increased International Reporting for Real Estate Income
The government has also confirmed that real estate income will be included in a new international information-exchange framework from 2029 or 2030.
Individuals with overseas property or cross-border financial arrangements should expect greater reporting obligations and increased compliance workloads.
Who Will Feel the Biggest Impact?
Wealthier individuals and landlords relying heavily on rental or investment returns will experience the greatest increase in tax.
Illustrative example:
Someone receiving:
- £50,000 pension
- £50,000 rental profits
- £50,000 interest or dividends
…could see their annual tax bill increase by around £2,000 under the new rules.
Individuals who have built income strategies around property or savings will need to reassess their long-term plans.
Planning and Advice
Given the scale of the reforms, early planning is crucial. Professional advice can help individuals:
- Restructure income efficiently
- Consider incorporation or alternative ownership models
- Manage the impact of trust taxation changes
- Adjust investment and savings strategies
- Prepare for the new high-value property surcharge
Book a 2025 Budget Tax Planning Review
Don’t wait until these changes show up on your clients’ tax returns. Speak to the specialist team at Accounting People to deliver practical, compliant and tax-efficient solutions that protect income and preserve long-term wealth.
Contact Accounting People today to arrange a tax strategy consultation.
