Savings Tax Is Rising to 49%: What to Do Now

The Autumn Budget of 28 October 2026 made headlines for what it didn't do: the planned cut to the cash ISA allowance was scrapped, and the full £20,000 a year survives. But behind that reprieve sat a quieter, bigger change — one that is now all over social media as the Budget's "hidden tax rise." From 6 April 2027, the tax you pay on savings interest outside an ISA is going up for everyone: basic-rate taxpayers to 24%, higher-rate to 44%, and additional-rate to a striking 49%.

If your savings live mostly in ordinary accounts, this change will bite. Here's exactly what's changing, what it costs in pounds and pence, and the steps to take before April 2027.

What exactly is changing

The Budget confirmed a two-percentage-point rise in income tax on savings interest, on top of the two-point rise already scheduled from last year's Budget. In total, rates climb four points from where they stood:

Taxpayer band	Current rate on savings interest	From 6 April 2027
Basic rate	20%	24%
Higher rate	40%	44%
Additional rate	45%	49%

The same 24/44/49 rates apply to property income. The change will be legislated in Finance Bill 2026-27 and applies across the UK. Two things did not change: the Personal Savings Allowance (PSA) stays at £1,000 of interest a year for basic-rate taxpayers, £500 for higher-rate, and nothing for additional-rate — and the anti-circumvention measures that would have penalised cash held inside stocks and shares ISAs have been reversed entirely.

What it costs in real money

The rise in percentage points sounds small; in pounds it adds up. Calculations from AJ Bell show:

• £1,000 of taxable savings interest costs an extra £40 a year versus today — that's true at any band, since the increase is two points on top of last year's planned rise (the combined four-point increase works out to £40 per £1,000).
• £5,000 of taxable savings interest costs an extra £200 a year (bills rise to £1,200 basic, £2,200 higher, £2,450 additional).
• £15,000 of taxable savings interest costs an extra £600 a year.
• Over ten years, a £50,000 savings pot earning 4% would face £603 more tax for a higher-rate taxpayer — and £437 more for a basic-rate one.

The cash ISA reprieve grabbed the headlines. The savings tax rise is the detail that will quietly cost ordinary savers hundreds — and it starts in 2027, not now.

The good news: ISAs just became more valuable

Every percentage point added to savings tax is another reason to shelter interest inside an ISA, where interest stays tax-free. The Budget's ISA news was genuinely good for savers:

• The cash ISA allowance stays at £20,000 a year. The planned cut to £12,000 for under-65s has been dropped.
• The cash-in-a-stocks-and-shares-ISA penalty is gone. The proposed 22% charge on interest earned on cash inside an S&S ISA — plus limits on money market funds — has been reversed.
• A new Starter ISA for first-time investors is being developed, with details to follow.
• A First Time Buyer ISA arrives in April 2029 with a 25% government bonus towards a first home.

For a basic-rate taxpayer earning 4% on £50,000 outside an ISA, sheltering that pot in ISAs over time could mean the difference between hundreds of pounds lost to tax each year and none at all.

What to do before April 2027

The tax rise doesn't bite for another 17 months, so this is planning time, not panic time. Work through this list:

1. Use your £20,000 ISA allowance this tax year — and plan to do the same next year. ISA allowance doesn't roll over; whatever you don't use by 5 April is gone.
2. Move taxable cash into an ISA first. Savings earning interest outside an ISA above your PSA are exactly what the 24/44/49 rates hit.
3. Know your PSA status. With the best easy-access ISAs near 4.87% and fixed accounts above 5%, a basic-rate saver only needs about £25,000 of taxable cash to breach the £1,000 allowance. Do the maths on your own balances.
4. Review fixed-rate deals maturing after April 2027. A fixed bond taken out now could mature into a higher-tax world — consider the after-tax return, not just the headline rate.
5. Check who earns the interest. Couples can each use their own PSA and ISA allowance; splitting cash so both allowances are used can legally reduce the household tax bill.
6. Get advice for large cash holdings. Retirees keeping a year's expenses as a cash buffer outside an ISA will feel this most; a conversation with an accountant or financial adviser is worth it before 2027.

Frequently asked questions

Will I pay more tax if my interest stays within my Personal Savings Allowance?

No. The PSA is unchanged — the first £1,000 (basic rate) or £500 (higher rate) of savings interest each year stays tax-free. The higher rates only apply to interest above your allowance.

Does the 24%/44%/49% apply to dividends too?

No — dividends had their own separate rise: dividend tax rates went up two points from 6 April 2026 (ordinary rate to 10.75%, higher to 35.75%). The 2027 change covers savings and property income.

Can I still put the full £20,000 in a cash ISA?

Yes. The planned £12,000 cap on cash ISA contributions for under-65s was dropped, so the full £20,000 a year can go into cash, stocks and shares, or a mix of ISAs.

What is the new Starter ISA?

The Budget announced the government will create a new Starter ISA aimed at first-time investors. Details — eligibility, allowances, and launch date — have not been published yet; watch the Finance Bill 2026-27 for more.

I have savings in a fixed account maturing in 2027. Should I worry?

Not worry — plan. When the account matures, interest paid from 6 April 2027 is taxed at the new rates. Compare the after-tax return of your current account against moving into an ISA once it matures.

The Budget gave UK savers a reprieve with one hand and a tax rise with the other. The smart response isn't complicated: keep as much of your interest inside tax-free wrappers as the rules allow, and make 2027's changes arrive to find you already prepared. Your next step: check this year's ISA contributions — there's still time before 5 April to shelter another £20,000.