Case studies to illustrate up-coming increases in income tax rates - 16th March 2026

How an individual’s tax position will increase as a result of up-coming tax rate rises.

With increases in the dividend tax rate for basic and higher rate taxpayers from 6 April 2026 and further increases for savings and property income for basic, higher and additional rate taxpayers from 6 April 2027, we look at how an individual’s tax position will increase.

From 6 April 2026, dividend income will be taxed at 10.75% from 8.75% for basic rate taxpayers and 35.75% from 33.75% for higher rate taxpayers. The rate for additional rate taxpayers will remain at 39.35%. There will be no change to the dividend allowance which remains at £500 per person. 

In addition, from 6 April 2027, savings income and property income will be taxed at 22% from 20% for basic rate taxpayers, 42% from 40% for higher rate taxpayers and 47% from 45% for additional rate taxpayers. 

Remember the personal savings allowance for a basic rate taxpayer is £1,000 and £500 for a higher rate taxpayer. An additional rate taxpayer is not entitled to a personal savings allowance. 

In this bulletin we look at some examples of how an individual’s tax position will change in light of these increased rates.

Case study 1

Cara works part-time in a bakery earning £15,000. A few years ago, she inherited a share portfolio from her late uncle which generates £4,250 in dividends. She also receives bank interest of around £676. 

After taking account of her personal allowance, personal savings allowance and dividend allowance her taxable income would be as follows: 

Earned income - £15,000 - £12,570 = £2,430
Bank interest £676 - £676 = £0
Dividend income £4,250 - £500 = £3750

Case study 2

Cliff has a salary of £72,060 and receives dividends of £5,000 from his share portfolio. Cliff is a member of his workplace group personal pension scheme. His employer pays 8% of his salary into his pension and Cliff also pays 8%.

His taxable income will be as follows:

Earned income £72,060 - £12,570 = £59,490
Dividend £5,000 - £500 = £4,500

*Basic rate tax band £43,465 (£37,700 + £5,764.80 [£72,060 x 8%])

Case study 3 

Jay has built up a property portfolio which provides him with rental income, after allowable expenses, of £42,500. His own property is mortgage free. He also receives bank account interest of £1,200 and dividends of £4,125. After taking account of his allowances, his taxable income will be as follows:

Rental income £42,500 - £12,570 = £29,930
Bank interest £1,200 - £1,000 = £200
Dividends £4,125 - £500 = £3,625

Case study 4

Damian earns £93,700. His other income comprises, bank account interest of £525, dividend income of £816 and rental income, after allowable expenses, of £12,600. 

As his total income is £107,641 he would lose part of his personal allowance.                

£107,641 - £100,000 = £7,641/2 = £3,820.50

£12,570 - £3,820 = £8,750

His taxable income would therefore be as follows:

Earned income £93,700 - £8,750 = £84,950
Rental income £12,600
Bank interest £525 - £500 = £25
Dividends £816 - £500 = £316

Source: Techlink Professional. This is a news bulletin and is up-to-date as of the date of publishing. Please check the publishing date at the top of the article.