UK Tax Update
Your £12,570 Allowance Is Not Being Cut — But the Rules Around It Are Changing
From April 2027, HMRC will fix the order in which your Personal Allowance is applied. Landlords, savers and investors face a real-terms increase as a result.
£12,570PA frozen to 2030
Apr 2027Rule change kicks in
2.4M+Landlords affected
£2.275bnRevenue by 2028–29
The Personal Allowance (PA) — the amount of income you can earn tax-free, currently £12,570 — is not being reduced. But from 6 April 2027, a new rule under the Income Tax Act 2007 amendment will force HMRC to apply it against your salary, trading profits or pension first, before it reaches your rental income, savings interest or dividends. That shift — combined with rising tax rates on those same income streams confirmed in the Finance (No.2) Bill 2025–26 — produces a real-terms tax increase for millions of landlords, savers and investors across the UK. The Personal Allowance remains frozen at £12,570 under the policy extended at the Autumn Budget 2025.
How the rule changes
Before vs After April 2027: The New Allocation Order
Switch between current and new rules to see exactly how HMRC applies your Personal Allowance.
1
Employment / Pension / Trading Income
The PA is typically applied here first, but under Section 25 of the Income Tax Act 2007, HMRC is required to allocate it in whichever way produces the lowest tax liability for you — meaning it can be shifted to other income streams if that saves you more.
Flexible — HMRC optimises automatically
✦
Property / Savings / Dividend Income — PA can be moved here
If allocating some or all of your PA against rental income, savings interest or dividends saves you more tax overall, HMRC applies it there. Taxpayers can also request this allocation directly.
PA shifted to where it saves you most
✓
Result: Lower overall tax for mixed-income earners
Those with salary plus investment or rental income benefit significantly from this flexibility — it can keep more income out of higher tax bands.
This flexibility is removed from April 2027
1
Employment / Pension / Trading Income — MANDATORY FIRST
From 6 April 2027, the full Personal Allowance must be set against employment, self-employment or pension income first. There is no discretion — you cannot ask HMRC to change this. Any remaining allowance then passes down the queue below.
🔒 Fixed — no flexibility
2
Property Income — only leftover PA reaches here
For most employed landlords whose salary already absorbs the £12,570 PA, none of it will reach rental income. That income is then taxed at the new 22% (basic), 42% (higher) or 47% (additional) rates from April 2027.
22% / 42% / 47% from April 2027
3
Savings Interest
After property income, any remaining PA is applied to savings interest. For most people in employment, this will be nil. Taxed at the new 22% / 42% / 47% rates from April 2027.
22% / 42% / 47% from April 2027
4
Dividend Income — last in the queue
Dividends are last to benefit from any remaining PA. For employed shareholders, dividends will likely receive no PA coverage at all. Dividend rates rose from April 2026 and remain at 10.75% (basic), 35.75% (higher) and 39.35% (additional).
10.75% / 35.75% / 39.35%
⚠️ Tax-free allowances that remain regardless of the ordering change: £500–£1,000 Personal Savings Allowance, £500 Dividend Allowance, £1,000 Property Allowance and £1,000 Trading Allowance.
Tax rate changes confirmed
New Rates on Asset Income: What Is Rising and When
All rates confirmed in the Finance (No.2) Bill 2025–26 technical note.
| Income Type & Band | Previous Rate | New Rate | From |
|---|---|---|---|
| Property & Savings — Basic Rate Up to £50,270 |
20% | 22% | April 2027 |
| Property & Savings — Higher Rate £50,271–£125,140 |
40% | 42% | April 2027 |
| Property & Savings — Additional Rate Above £125,140 |
45% | 47% | April 2027 |
| Dividends — Basic Rate | 8.75% | 10.75% | April 2026 ✓ Active |
| Dividends — Higher Rate | 33.75% | 35.75% | April 2026 ✓ Active |
| Dividends — Additional Rate | 39.35% | 39.35% — unchanged | — |
Interactive estimate
How Much More Could You Pay from April 2027?
Enter your income sources below for a side-by-side illustration using the confirmed 2027 rules. This is a simplified estimate — speak to a tax adviser for your personal position.
Estimated Tax Comparison
—Current bill (2026/27)
—Est. bill (2027/28)
—Extra per year
*Simplified estimate. Does not include NI, pension contributions or all allowances. Based on confirmed HMRC income tax rates.
Scale of impact
Who Is in the Frame? HMRC Estimates by Group
Landlords
2.4M
Buy-to-let owners whose salary already absorbs the PA will see all rental income pushed directly into taxable bands at the new 22–47% rates.
Savers
3.8M
Those earning savings interest above the Personal Savings Allowance will pay more as the PA lock leaves no coverage for savings income.
Dividend Investors
3.9M
Shareholders already face higher dividend rates from April 2026. The 2027 PA lock removes a further buffer — dividends are last in the priority queue.
Source: HMRC Technical Note — Finance (No.2) Bill 2025–26. These populations overlap and are not additive.
Key dates
A Timeline of What Is Happening and When
October 2024 — Autumn Budget
PA Ordering Change and Rate Rises Announced
The UK Government announces in the Autumn Budget 2024 that from April 2027, the Personal Allowance ordering rules will change and new tax rates will apply to property, savings and dividend income.
November 2025 — Autumn Budget 2025
Personal Allowance Freeze Extended; Finance Bill Introduced
The Autumn Budget 2025 extended the Personal Allowance freeze, keeping it at £12,570. The Finance (No.2) Bill 2025–26 is introduced, formally legislating the ordering rule and the 22%/42%/47% rate increases.
6 April 2026 — Now in effect
Dividend Tax Rates Rise — Already Active
Dividend tax rates rose from this date: basic rate is now 10.75% (up from 8.75%) and higher rate is 35.75% (up from 33.75%). The additional rate remains 39.35%. MTD for landlords and self-employed with turnover above £50,000 also begins.
6 April 2027 — Major Changes
PA Lock + Rate Rises + ISA Cap + Pension IHT — All Live
Four changes take effect: (1) PA mandatory ordering locks to earned income first; (2) Property and savings tax rates rise to 22%/42%/47%; (3) Cash ISA annual limit cut from £20,000 to £12,000 for under-65s; (4) Unused pension funds brought into Inheritance Tax scope at up to 40%. MTD threshold also drops to £30,000.
2028–29 — Revenue Target
Government Revenue Forecast: £2.275 Billion Annually
The HMRC policy paper projects the combined measures will raise £285m in 2026–27, £1.045bn in 2027–28 and £2.275bn in 2028–29, with around two-thirds of revenues coming from the top 20% of households.
Exchequer projections
Government Revenue from This Measure (HMRC Forecast)
From the HMRC policy paper accompanying the Autumn Budget 2024.
✅ Your Pre-2027 Tax Health Check
Check your Marriage Allowance eligibility — if one partner earns under £12,570, transferring £1,260 of their unused PA saves up to £252/year and you can backdate claims by up to four years.
Review your Cash ISA contributions before April 2027 — the annual limit for under-65s is being cut from £20,000 to £12,000. The £20,000 ceiling is maintained for Stocks & Shares ISAs.
If your adjusted net income exceeds £100,000, be aware the PA is already being withdrawn at £1 for every £2 earned above that — the 2027 ordering rules make this effective 60% trap harder to manage.
If your rental or self-employment turnover is above £30,000, register for Making Tax Digital now — the reporting threshold drops to £30,000 from April 2027.
Review your pension planning with an adviser — from April 2027, unused pension funds will be included in the value of your estate for Inheritance Tax purposes at up to 40%.
Consider maximising Stocks & Shares ISA contributions — the £20,000 annual ceiling is maintained, making it a key tax-efficient wrapper for investment income outside a pension.
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Expert views
What Accountants and the Treasury Say
“While I agree with the policy objective, the changes are just another tax increase contributing to the highest post-war tax burden. The objective is clear: the Government is trying to raise revenue without increasing tax for the working population. However, the changes will likely disincentivise saving outside ISAs and pensions and lead to increases in rent for tenants. Additionally, the changes will likely be felt most by those individuals who are asset-rich but cash-poor.”
“While many may be unaware of this change, they may not be surprised that there is an extra tax squeeze in store for those with income from savings and rental properties. It may be presented as a technical tweak to the rules but it might ultimately be seen by taxpayers as a further stealth tax rise.”
“We have the right economic plan — the fair and necessary decisions we made at the Budget mean we can deliver support for families and businesses, including cutting the cost of living. We are taking action to ensure income from assets is taxed more fairly, narrowing the gap with tax paid on work. Most taxpayers have no taxable savings or property income and ISAs and tax-free allowances will continue to protect those with small amounts of income from assets.”
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