What the Autumn Budget 2025 means for anyone earning investment income

CREATED BY ROGER EDDOWES Published: 01/12/2025 @ 09:00AM #AutumnBudget2025 #InvestmentIncomeTax #SaversBeware #PropertyRentPenalty #TaxingInvestmentGains

The Autumn Budget 2025 didn't exactly deliver fireworks, unless you count the quiet hiss of millions of savers and small shareholders realising their tax bills are about to get a little heavier. For years, investment income such as dividends, interest and property rent has been treated more gently than wages ...

Investment income, Grows with each passing moment, Taxes rising now

According to Chancellor Rachel Reeves, that imbalance needed "modernising". According to everyone else, it should be left well alone. But here we are, I suppose. In simple terms, the government is raising taxes on three types of investment income:

• Dividends,
• Savings interest,
• Property income.

There are also a few changes to the rules that determine how tax is calculated. Nothing catastrophic, but certainly enough to make investors keep a closer eye on their tax planning over the next couple of years.

From April 2026, anyone who receives dividends
is going to notice a shift!

The basic-rate and higher-rate dividend taxes both rise by two percentage points. That pushes the rates to 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers. Additional-rate taxpayers keep their already high 39.35% rate.

But I do see some good news. The dividend allowance – the small tax-free slice of dividend income – isn't being touched. Oh, and the bad news - that allowance was already whittled down in previous years, so I think the phrase 'not touched' is a bit like bragging that they didn't steal the last biscuit.

For small business owners who pay themselves via dividends, the increase is particularly unwelcome. Many already feel pinched by freezes to tax thresholds and changes to the personal allowance taper. This nudges the pressure up another notch. Investors with share portfolios – especially outside ISAs – will also feel the bite.

Savings interest gets more expensive, too!

Moving to April 2027, savings interest also climbs by two percentage points across all bands. For years, savers have lived through miserable interest rates, only to finally see them rise – and now the Treasury has decided it wants a bigger slice of the pie.

This only affects interest earned outside tax-efficient wrappers. Anyone using an ISA is still safely shielded, but those with chunky emergency funds, fixed-term accounts or high-interest products may find more of their annual return leaking away.

Again, the personal savings allowance remains unchanged. But with interest rates far higher than they were a few years ago, many people – especially basic-rate taxpayers – are already creeping above that allowance without even realising it.

Property income gets its own tax bracket!

For landlords and property investors, the changes are even bigger. From April 2027, property income becomes its own separate category with its own rates: 22% (basic), 42% (higher), and 47% (additional). I see this is new territory, as historically, rental income was simply lumped in with wages and pensions.

Separating it out gives the government flexibility to adjust property taxes without touching the wider income tax system, which tells you everything about where this may be heading. For now, it simply means higher bills for anyone with rental income, from accidental landlords to those with small buy-to-let portfolios.

One of the most subtle changes is the adjustment to the 'order of income' when HMRC calculates tax. From April 2027 onwards, income is taxed in this sequence:

• Non-savings, non-dividend income (e.g. wages, pensions),
• Property income,
• Savings income,
• Dividend income.

Why does this matter? Because allowances and reliefs get used up first. A personal allowance consumed entirely by employment income leaves savings and dividends fully exposed. For people with mixed income streams, this change quietly increases their overall tax burden without changing a single headline rate.

It's a classic Treasury manoeuvre: move the furniture around, quietly charge more rent. The official reasoning is simple: investment income isn't subjected to National Insurance, so it's 'undertaxed' when compared to employment income.

Investment income isn't subject to National Insurance, so, as far as the government is concerned, it's 'undertaxed'. They want to 'address the imbalance' and 'make the system fairer'. Whether anyone outside Whitehall agrees is another matter. I certainly don't!

I would argue that this punishes savers, discourages investment and makes life harder for small business owners who pay themselves through dividends. Supporters say it aligns tax treatment more evenly and raises revenue without touching headline income tax rates.

Whatever you think of the logic, the practical outcome is clear enough: investment income becomes slightly less rewarding.

The Autumn Budget didn't bring a revolution, but it certainly tightened the screws.

Until next time ...

ROGER EDDOWES
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About Roger Eddowes ...
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach. Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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