New tax raid on your savings: what you need to do now

The Autumn Budget 2026 was light on reforms to personal taxes, but one that was announced could prove punishing for savers.

In a surprise move that only received a brief mention in the speech, Chancellor John Healey doubled the planned hikes on savings income from April 2027, with rates across the board set to rise by a hefty four percentage points.

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The decision to reverse cuts to the cash individual savings account (ISA) limit was well received in most quarters, however some may argue the government has given with one hand and taken with the other. Under the fresh changes, high earners may lose almost half their hard-earned interest to the taxman.

Let’s break down what’s shifting from the new tax year, outline who it will impact, and offer tips on how to mitigate the raid.

A new 49% tax rate

When you earn interest from things like bank and building society accounts, savings bonds, or general investment accounts (GIA), you might pay tax on what you receive.

From the new tax year, the government will carve out a new regime for savings income. Rates are currently equalised with the income tax framework but will jump four percentage points in around five months’ time.

Here are the current and upcoming tax rates on savings income and the bands they apply to:

Source: gov.uk.

To add more meat to the bone, any savings income, when added to other taxable income that exceeds your personal savings allowance (more on that further down), is taxed with the rate determined by which bracket it falls into. From 6 April, this could be either nothing, 24%, 44% or 49%.

The upshot is that higher earners could lose almost half their savings interest to the taxman, every year.

Getting to grips with the savings allowance

On a brighter note, most people can earn a certain amount of interest every year, tax free, under the savings allowance, which could be as high as £6,000 or as low as nothing. The rates and who they apply to are below:

• If your total income is at or below £12,570, you qualify for the starter rate, which is £5,000
• For every £1 you earn above £12,570, the starter rate drops by £1, meaning it’s fully withdrawn once income hits £17,570
• On income between £17,570 and £50,270, the savings allowance is £1,000
• On income between £50,271 and £125,140, the savings allowance is £500
• If you earn above £125,140, you don’t get savings allowance

To clarify, anyone who qualifies for the starter rate can also enjoy the £1,000 basic rate, meaning their combined savings allowance could total £6,000. This is in addition to any spare personal allowance.

As you can see, a central aspect of the savings allowance is that it becomes less generous as your income rises. With the top savings accounts currently paying around the 5% mark, this means basic-rate taxpayers can hold around £20,000 in savings without facing a tax bill, but this falls to around £10,000 for those in the higher rate.

Minding the new 64% tax trap

The 60% tax trap has gained its fair share of column inches in recent years, with more people tripping into it with the threshold frozen since it was introduced in 2010-11.

How does it work? For every £2 of income above £100,000, £1 of your tax-free personal allowance is withdrawn, meaning it disappears once income hits £125,140.

The combination of lost or reduced personal allowance and 40% income tax, creates a rather nasty 60% effective rate – rising to 62% if you’re working, are under state pension age, and pay 2% national insurance (NI).

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However, it’s not just earnings that are considered in the tax trap calculation – dividends, rental income and savings interest are included, too.

With the higher rate on savings jumping from 40% to 44%, any taxable interest that exceeds your £500 savings allowance and lands between £100,000 and £125,140 will face a new, even nastier 64% effective rate from next April.

And tax traps aren’t the only thing to watch out for. With tax thresholds on hold until 2030-31, savings income could trip basic-rate taxpayers into the higher-rate bracket, halving your tax-free allowance and almost doubling your HMRC bill on any interest above.

The ISA-type consideration

One of the most effective ways to legally avoid tax on savings income is to shelter your money in an ISA as HMRC can’t touch any interest you receive, while investment gains and dividends are also protected. The £20,000 annual ISA allowance hasn’t budged for several years but remains generous, and we now know the cash ISA limit won’t face an £8,000 cut from April 2027.

But filling up a cash ISA isn’t always possible. The annual ISA limit applies across all types. If you’ve stuck the full £20,000 sum into a stocks and shares ISA, there’s nothing spare for the cash type.

The pitfall for any additional rate taxpayers in this situation is that all savings income will face a 49% tax rate, as there are no savings allowances available.

Clearly, tax isn’t the sole driver when choosing a home for any surplus savings or disposable income, but it’s always a big consideration.

Not all is lost, however. Here are some further tactics and strategies to protect your individual or household savings from the upcoming raid.

• Plan as a couple

The £20,000 annual ISA allowance is available to any UK resident aged 18 and over, so if you’re married or in a civil partnership, you can double up and harness a combined £40,000.

Beyond this, holding savings in a lower earner’s name can be savvy. Not only could the holdings attract a smaller tax rate but also enjoy a bigger personal allowance. Let’s say you’re a higher-rate taxpayer and your spouse pays the basic rate, keeping enough savings to use up your £500 savings allowance and holding the rest in their name, could lead to an extra £1,000 of tax-free interest while anything above would face 24% instead of 44% tax.

If your spouse has no earned income, because for example they’re a stay-at-home parent, it’s possible they could enjoy £18,570 a year in savings interest (£12,570 personal allowance + £5,000 starter rate + £1,000 basic rate) and pay no tax on it.

• Consider Premium Bonds

Premium Bonds are an incredibly popular account, housing a whopping £137 billion of Brits’ savings.

Not everyone’s a fan of them. Critics argue that instead of chancing returns on prizes which aren’t guaranteed, savers are better served with accounts that pay an agreed rate of interest.

That may be true, but I personally think there can be a place for Premium Bonds, and the four-percentage point hike to savings rates has made the product instantly more attractive as the prizes, should you win any, are tax free.

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Everyone can hold up to £50,000 in Premium Bonds and they might be a prudent home for savers who’ve exceeded their savings allowance and maxed out their ISA – especially higher earners who could lose a big chunk to tax - and need security and certainty for this money.

The case for investing

The tips above outline strategies for any short-term monies, like those needed for near-term spend or emergencies. For savings you don’t plan to use within the next five years, history suggests investing in the stock market offers better odds at growing your wealth than stashing it in cash.

Beyond ISAs, there are other options when it comes to investing.

With a pension, the tax advantages often trump those offered by ISAs, as not only do gains and income generated inside the account escape HMRC’s mitts, but you also get relief on contributions at your marginal rate – a big attraction for higher-and-additional-rate taxpayers.

Just be mindful the earliest most people can access their pension(s) is age 55, rising to 57 in 2028, so only commit funds you’re prepared to tie up until this point. Most people can pay the lower of £60,000 or 100% of earnings into a pension every year and get tax relief.

Another option is a GIA. While any gains and dividends are taxable, every year the first £3,000 of the former and £500 of the latter are tax free. Beyond these allowances, gains are taxed at either 18% or 24%, while dividends are taxed at either 10.75%, 35.75% or 39.75%.

As capital gains tax (CGT) rates were untouched at the Budget, the gap between investing and savings taxes will widen further from April 2027.