UK investors spooked by tax hikes on dividends and savings
Rachel Reeves’ Budget decisions have raised alarm bells among DIY investors after they were hit with tax hikes and cuts to incentives, despite the Chancellor’s aim to push more funds into public markets.
Over 70 per cent of investors said they were concerned about the increased basic and higher rates of taxes on dividends, property and savings, according to analysis from wealth management firm Charles Stanley.
Under Budget measures, from April 2026, tax on dividends will increase by two percentage points for both basic rate and higher rate taxpayers.
Basic rate taxpayers, who earn between £12,571 and £50,270, will have to pay a tax rate of 10.75 per cent, up from 8.75 per cent, on dividends, while higher rate taxpayers, who earn between £50,271 and £125,140, will be slapped with a 37.75 per cent charge, up from 33.75 per cent.
Basic rate taxpayers will also be charged 22 per cent on their savings and property from April 2027, while higher rate taxpayers will face a 42 per cent charge.
Meanwhile, 71 per cent voiced concern about the cash ISA cut to £12,000, while 66 per cent were worried about the income tax threshold freeze being extended until 2031.
With the threshold freeze, 920,000 more Brits will be dragged into the 40 per cent tax band by 2031.
Respondents also expressed concerns about changes to salary sacrifice pension schemes in 2029, which will cap tax-free contributions at £2,000 per year.
Rob Morgan, chief investment analyst at Charles Stanley, said: “No one was expecting a quiet Budget and so it proved.
“This year, the chancellor’s objective was to calibrate raising tax revenue without impinging economic growth or stoking inflation.
“While there was a little more pressure applied to businesses with an increase in pay for younger workers, it was moderate to high earners and wealthy individuals who were most in the firing line this time.”
Prepare for the tax changes
There is still time to make changes to your saving arrangement before the tax changes come into force next year.
Brits who own shares outside tax-free wrappers could look to move capital into accounts such as pensions or a stocks and shares ISAs.
Dividends in pensions can accumulate without incurring dividend or capital gains tax and do not count toward the £500 allowance. However, in most instances, investors are unable to access the funds until they reach 55.
Dividends in stocks and shares ISA accounts are shielded from income tax up to £20,000, while also being free from the dividend allowance.
Those who hold funds in a cash ISA may also look to take advantage of a stocks and shares ISA due to the higher tax free ceiling.
Morgan said: “Speaking to a financial adviser can help in understanding what these mean for individuals and their finances to keep them in the best position possible.”