Landlords and savers face a further tax rise from April, after the Budget added two percentage points to the rates announced last year. The new rates will be 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers.
The increase applies to income from property and savings. For people who rely on rent or interest to supplement their income, it will reduce the amount they keep after tax. The actual impact will depend on how much of their income is taxable and which tax band it falls into.
A further two percentage points
Last year’s increase had been due to take the rates to 22%, 42% and 47%. The latest change adds another two percentage points to each band, bringing the rates to 24%, 44% and 49%.
That is an increase of £20 in tax for every £1,000 of income taxed at the new rates, compared with the rates previously due to apply. For someone with £5,000 of taxable income in one band, the additional tax would be £100, assuming no other changes to their circumstances.
The 49% rate applies to income in the additional rate band. It does not mean that every landlord or saver will pay 49% on all their property or savings income.
Landlords may need to reassess rental returns
For landlords, the higher rates will reduce the after tax return from taxable property income. The effect will vary according to rental income, allowable expenses, other income and the tax band that applies.
Those who depend on rent to cover mortgage payments, maintenance or other property costs may find their margins tighter. A landlord considering a purchase, sale or change in rent may want to revisit the expected return after tax.
The change concerns income from property. It is not a tax on the value of a home or on the proceeds from selling one.
Savers could keep less of their interest
The higher rates will also apply to taxable savings income. The tax is charged on interest, not on the amount held in a savings account. The change may therefore matter most to people with larger balances, higher interest earnings or other income that places them in a higher tax band.
The amount due will depend on the individual’s taxable interest and applicable allowances or exemptions. Money held in tax exempt accounts remains subject to the rules for those accounts.
Check the effect on income after tax
The Budget’s increase changes the return people receive from some assets. A two percentage point rise may appear modest, but it can add up for landlords and savers with substantial taxable income.
The useful figure to calculate is not the headline rate alone, but the amount of property or savings income that will actually be taxable and the band into which it falls. Reviewing that figure ahead of April can help households understand how the change may affect their plans.
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