Changes to Income Tax, ISAs and Capital Gains Tax
As had been widely telegraphed prior to today’s budget, there were no changes to the headline rates of income tax. Nevertheless, the chancellor did announce a number of smaller tweaks to both income tax and capital gains tax.
Thresholds
The income tax thresholds will remain frozen at their current levels for a further three years from April 2028 – April 2031. In summary, the Personal Allowance will remain at £12,570, the higher rate threshold at £50,270 and the additional rate threshold at £125,140 and these thresholds will remain in place until April 2031. The Chancellor confirmed that income tax and capital gains tax rates for individuals will not be changing in this Budget.
Income Tax Rates
The rate of income tax on dividends will be increased by 2 percentage points from 6 April 2026. Therefore, the ordinary rate will increase from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate will not change, staying at 39.35%.
The rate of income tax on savings income will be increased by 2 percentage points from 6 April 2027. The basic rate savings income will increase from 20% to 22%, the higher rate from 40% to 42% and additional rate from 45% to 47%.
The starting rate for savings income will remain at the limit of £5,000 until 5 April 2031.
ISAs
With regard to ISAs, from 6 April 2027, the £20,0000 annual subscription limit will remain in place, however the maximum amount to be held in a cash ISA will be £12,000, meaning that at least £8,000 of the ISA limit will be designated for investment. This does not apply to over 65s who will retain the full annual cash ISA limit of £20,000. All interest and dividends received on assets held in ISAs will continue to have tax-free status.
CGT
The most significant change to CGT is that the relief which applies to qualifying disposals to Employee Ownership Trusts will, from 26 November 2025, reduce from 100% to 50%.
