BUDGET 2025: Tax to rise 2pc on savings, property income and dividends

The government has confirmed it will increase tax on savings interest, property income and dividend income by 2pc across the board.

In the Office for Budget Responsibility (OBR) Budget document, it said the government will “increase the tax rates on dividends, property and savings income by 2 percentage points, raising £2.1 billion.”

For property and savings income, this will increase basic rate income from 20% to 22%, higher rate from 40% to 42% and additional rate from 45% to 47%. Dividend tax rates are slightly different.

In her Budget, chancellor Rachel Reeves said that 90% of people will still pay no tax on their savings.

Our view

Savings income

This is bad news for anyone who has considerable money sat outside of ISA tax wrappers, and is a clear signal to savers that the government wants them to invest their money instead. We think this is incredibly unfair and penalises diligent savers who don’t want to take risk with their money, or who may need to keep it in cash for personal reasons.

Property income

Property income should be treated as any other income, and this could be yet another policy that drives landlords off the market.

Landlords are an easy target and this policy may not lose many voters, but landlords have already shouldered a lot of policy changes over the past few years, with the Renters’ Rights Act causing many to sell up and leave the buy-to-let the market.

This has already pushed up rents, with the average UK rent recently revealed to have hit a record high of £1,385 per month.

Further changes that will increase costs landlords will only exacerbate this problem, leading either to more selling up or those who choose to remain increasing costs for tenants.

The outcome either way is that it will drive up rental costs, meaning renters will bear the brunt of this policy.

Dividend income

This seems completely counterintuitive for a government that is signalling it wants everyone to invest. Dividends are a reward for investing, and increasing the tax on them detracts from this incentive.