State pensioners hit with new savings taxes after Budget

State pensioners hit with new savings taxes after Budget Households face new higher tax rates of savings under Andy Burnham. Share Article Share Article Facebook X LinkedIn Reddit Bluesky Email Copy Link Link copied Add us as preferred source Comments By Alex Evans , Deputy Audience Editor 10:44, Mon, Oct 26, 2026 Updated: 10:45, Mon, Oct 26, 2026 Andy Burnham will oversee three new savings tax rate rises (Image: Getty) Savers including state pensioners are set to be hit with new tax rate rises following the Budget on Wednesday and taking effect from next April, marking the second year in a row which has seen those trying to save losing more money to the taxman. Tax and financial planning firm Blevins Franks and Paragaon Bank have both set out how savings taxes are set to increase from April 2027, policies first introduced by now-ex Chancellor Rachel Reeves but which are due to come into force under new Chancellor John Healey and Prime Minister Andy Burnham and confirmed again in Wednesday's Budget documents. Article continues below ADVERTISEMENT Blevins Franks explains: “The basic and upper rates of tax on dividend income increased by 2 percentage points from 6 April. A similar tax increase on savings income will take effect a year later [from April 2027].” In April 2026, the savings income rate for dividends was increased for those on the basic tax rate and the higher tax rate, from 8.75% to 10.75% for those paying 20% tax, and from 33.75% to 35.75% for those on the higher rate. Get the latest politics news - straight from our team in Westminster and more I would like to receive emails from the Daily Express featuring our latest products, services, offers, and promotions from across the Reach Plc family . Subscribe Invalid email You agree you are 18 or over. We use your sign-up to provide content in ways you've consented to and to improve our understanding of you. This may include adverts from us and third parties based on our knowledge of you. You can unsubscribe at any time. More Info . From April 2027, the savings tax rate will increase for all savings, from 20% for a basic rate taxpayer to 22%. Article continues below ADVERTISEMENT For 40% taxpayers (earning £50,270 or more), the rate increases from 40% to 42%, and for additional rate taxpayers (earning £125,140), the rate moves from 45% to 47%. Article continues below ADVERTISEMENT Savings tax applies to the interest on savings which sits outside your annual Personal Savings Allowance (PSA), the exact amount depending on your income. Paragon Bank says that this tax rise could lead to tax increases for some households. It explains: “From April 2027, the tax rates applied to savings income outside of ISAs are set to increase. “The savings basic rate will rise to 22%, the higher rate to 42%, and the savings additional rate to 47% for the 2027 to 2028 tax year. Despite these changes, the Personal Savings Allowance (PSA) is staying in place, this means: “Basic-rate taxpayers can still earn up to £1,000 of savings interest each tax year, outside of an ISA, before tax may be due. “Higher-rate taxpayers receive a £500 allowance, while additional-rate taxpayers do not receive a personal savings allowance.” Costing this out, for those earning under £50,270, you usually have £1,000 PSA, which means you can earn £1,000 interest on savings tax-free. Then, anything above that threshold is taxed at 20%. From April 2027, that will be 22%. So, for example, for someone earning £2,000 of savings interest, a basic rate taxpayer faces a £200 bill on £1,000 of interest, which becomes £220. This will apply to state pensioners too. Though state pensioners and everyone over 65 will retain their full £20,000 Cash ISA limit, any savings generating in excess of £1,000 interest outside of an ISA will be liable to tax. There are some instances where a pensioner can save more than this without tax, for example a state pensioner on a low income could use the Starting Rate for Savings to generate as much as £5,000 of tax-free savings interest. But other state pensioners who are still working or still receiving a larger income, such as through savings, investments or property income, will not be able to use this allowance. Santander confirms £829 cash for customers with date set for payments Older state pensioners missing out on new £489 triple lock boost Paragon Bank adds: “A practical first step is to check your latest savings statements and estimate how much interest you expect to earn over the tax year. If it looks likely to exceed your allowance, you may want to consider moving some of your savings into a cash ISA, where interest is tax-free. Paragon’s range of ISAs is also flexible, so any withdrawals can be replaced within the same tax year without affecting your annual ISA allowance.” Blevins Franks also sets out recommendations for savers. It adds: “Now is the time to make sensible adjustments over the coming months so you are well‑placed for the significant reforms arriving in April 2027 and beyond. "Given the breadth of UK tax changes over recent years and the complexity they introduce, obtaining personalised, professional guidance is increasingly important. Understanding how the reforms apply to your situation, and how best to position your assets, can help you avoid unnecessary tax exposure and protect your family’s long‑term interests.” Andy Burnham Savings Taxes HMRC Share Article Share Article Facebook X LinkedIn Reddit Bluesky Email Copy Link Link copied Add us as preferred source Comments