If you’ve worked hard to build up savings, the Chancellor’s recent Budget announcement may have caught your attention – and not for the right reasons.
From 6 April 2027, the tax on savings income is set to rise, and the rules around cash ISAs will change for many savers. While these changes are still a little way off, understanding them now gives you time to plan and protect your money.
Let’s break it down in plain English.
How savings income is currently taxed
Savings tax in the UK isn’t straightforward, and that’s before the new rules arrive.
There are two key allowances to be aware of.
The personal savings allowance
This depends on your income tax band:
- Basic rate taxpayers can earn up to £1,000 of savings interest tax-free
- Higher rate taxpayers get £500
- Additional rate taxpayers don’t get an allowance at all
This sits on top of your personal allowance, where available.
The savings starting rate band
There’s also a 0% starting rate on up to £5,000 of savings income. However, this reduces pound for pound once your non-savings income goes over your personal allowance.
If your non-savings income is £5,000 or more above your personal allowance, you won’t benefit from this band at all.
Any savings income not covered by these allowances is currently taxed at the normal income tax rates of 20%, 40% or 45%, depending on your tax band.
What’s changing from April 2027?
From 6 April 2027, savings income will no longer be taxed at standard income tax rates.
Instead, new savings tax rates will apply – and they’re 2% higher than current income tax rates:
- 22% for basic rate taxpayers
- 42% for higher rate taxpayers
- 47% for additional rate taxpayers
There’s another important shift too. The income tax ordering rules are changing, meaning your personal allowance will be used first against employment, trading and pension income, rather than savings income. This could push more of your savings interest into higher tax rates.
For many savers, this means a larger tax bill without earning a penny more interest.
What’s happening to cash ISAs?
ISAs remain one of the most tax-efficient ways to save, and that’s set to become even more valuable as savings tax rates rise.
However, there’s a catch.
From 6 April 2027:
- The overall ISA allowance stays at £20,000
- Savers under 65 will be limited to £12,000 in a cash ISA
- If under 65 and using the full allowance, at least £8,000 must go into a stocks and shares ISA
- Savers aged 65 and over can still put the full £20,000 into a cash ISA
The good news? Existing ISAs aren’t affected, so anything you already have remains exactly as it is.
Why planning ahead matters
With higher savings tax rates on the way and tighter cash ISA limits for some, now is the time to review how and where your savings are held.
Are you making full use of tax-free options?
Could your savings be structured more efficiently?
Will these changes increase your tax bill in future years?
A small change today can make a big difference over time.
Need help making sense of it?
If you’re unsure how these changes might affect you, or you’d like help putting a more tax-efficient savings strategy in place, we’re here to help.
Get in touch with Jon or the team at Jon Davies Accountants for clear, practical advice tailored to your circumstances.
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Any questions?
If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant
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