Overview
- HMRC guidance for 2026/27 confirms the Personal Allowance stays at £12,570 and sets the Personal Savings Allowance at £1,000 for basic-rate taxpayers, £500 for higher-rate, and £0 for additional-rate, with a separate starting rate for savings of up to £5,000 based on other income.
- From April 2027 the Personal Allowance must be used against wages, self‑employment and pensions before it can cover interest, rental income or dividends, ending today’s more flexible, tax‑efficient allocation for people with mixed incomes.
- Further changes in 2027/28 raise taxes on non‑earned income, with property and savings taxed at 22% for basic‑rate payers and 42% for higher‑rate payers, while dividend rates rise to 10.75% and 37.75% for basic and higher bands.
- Modeling by tax advisers shows mixed‑income households face higher bills running to hundreds of pounds, with one example attributing about £182 of the increase to the new allowance rule on top of higher property, savings and dividend rates.
- Advisers point to ISAs, the Rent‑a‑Room relief of £7,500 tax‑free that can lift total tax‑free income to £20,070, and HMRC’s starting‑rate and PSA rules, while warning fixed‑rate savers can breach allowances with modest sums, such as about £3,500 on a 5% three‑year deal for higher‑rate payers.