Finance Bill 2025-26 briefing: practical consequence of increased tax rates for savings income

The ATT has produced a Finance Bill 2025-26 briefing on a practical consequence of introducing higher rates of income tax on savings income from 2027/28. 

Clause 5 of the Finance Bill increases the tax rates for savings income to 2% above the non-savings, non-property rates for all taxpayers with effect from 6 April 2027. 

From 2027/28, the tax rates on savings income will become 22% for basic rate taxpayers, 42% in the higher rate band, and 47% for those paying additional rates of income tax on their savings. The ATT is concerned that this differential in tax rates compared with non-savings income will complicate the collection of tax payable on savings income for PAYE taxpayers. 

Where an employee or private pension recipient has tax to pay on savings income, that liability can be collected via an adjustment to their PAYE code. The tax rates applicable to savings interest are currently the same as those applicable to salaries and pensions, making the required PAYE code adjustment easy for the taxpayer to check against the amount of taxable savings interest received. 

Increasing the rates of tax on savings income from April 2027 will result in a mismatch between those rates and the tax rates which apply to employment and pension income, making the PAYE code adjustments needed to collect tax on savings interest harder for taxpayers to reconcile.

Please see our full Finance Bill briefing for further details.