By David Prosser | 29th October 2026
John Healey billed his first Budget since taking over as Chancellor of the Exchequer as “breathing space for today, hope for the future”. But for savers and some borrowers, there are some tougher times ahead, with tax rises due to come into force next April.
It’s not all bad news, with a positive change-of-heart announced on cash Individual Savings Accounts (ISAs) Nevertheless, if you hold savings outside of these tax-free accounts, or if you’re a landlord with a buy-to-let mortgage, the Budget has significant consequences you’ll need to think about carefully.
A reprieve for cash Isas
The Chancellor has abandoned plans unveiled in last year’s Budget by his predecessor, Rachel Reeves, to reduce the annual cash ISA allowance for most people to £12,000, starting in the 2027-28 tax year. Healey has decided this move won’t prompt more investment in British companies, as Reeves had hoped.
Savings providers have welcomed the Chancellor’s change-of-heart, amid fears a lower cash ISA allowance could hit deposits. But many savers will also be happy: the u-turn not only creates the potential to save more – and all interest paid within a cash ISA is tax-free – but also provides some welcome simplicity.
In 2027-28, the overall individual savings account allowance will remain at the current £20,000 level. You’ll be able to use the full £20,000 within a cash ISA or within a stocks and shares ISA; or you’ll have the option of splitting the allowance between these two alternatives – or even putting some of it into other types of ISA.
For those trying to build up their cash savings, this is particularly handy, particularly given higher taxes to come on savings income outside of a cash ISA. United Trust Bank currently pays interest of up to 5.1% a year on its range of cash Isas. Over the five-year term of its most generous account, the ability to invest an extra £8,000 a year will save a basic-rate taxpayer around £500 of income tax, rising to around £900 and around £1,000 for higher- and additional-rate taxpayers respectively.
More tax to pay on savings interest
Outside of a cash ISA, meanwhile, savers are set to lose out. The Government had already planned to introduce new rates of income tax for savings interest in the 2027-28 tax year, setting these at 2 percentage points above the usual rates. But the Chancellor has now announced the new income tax rates on savings will actually be 4 percentage points higher – with basic-, higher- and additional-rate taxpayers paying 24%, 44% and 49% respectively from 6 April 2027.
It’s a blow. If you’re a saver with £10,000 in, say, United Trust Bank’s Easy Access Account, you’ll earn interest of £375 over the 2027-28 tax year assuming the current 3.75% annual interest rate remains unchanged. Basic-rate taxpayers will now have to pay £90 tax on that money, up from £75 this year; higher-rate taxpayers will get a bill for £165, up from £150; and additional-rate taxpayers will pay £183.75 compared to £168.75 this year.
The personal savings allowance offers some comfort, enabling most people to earn a certain amount of interest before income tax is due. Basic-rate taxpayers get a £1,000 allowance each year – in an account paying 4% annual interest, say, savers on the basic rate of tax would therefore need to have a deposit of at least £25,000 before they have to worry about tax on interest.
However, the personal savings allowance for higher-rate taxpayers is only £500, meaning deposits of more than £12,500 in the same account could generate a tax liability. And additional-rate taxpayers don’t get any personal savings allowance at all.
Pause for thought in the property market
If you’re a private landlord investing individually rather than through a company, it’s time to do some sums. Income tax rates on income from renting out a property are being raised by four percentage points, in line with those on savings interest. From next April, basic, higher and additional-rate taxpayers will pay 24%, 44% and 49% respectively on this income.
The UK’s tax system no longer allows landlords to offset mortgage interest costs directly against rental income, so many will be worse off following these changes. One option would be to raise rents by more than you previously planned next year. But also look at whether you can reduce your costs by remortgaging – United Trust Bank’s fixed rates on buy-to-let mortgages, for example, start at 4.19%, depending on factors such as the size of the loan compared to the value of the property, the fee you’re happy to pay, and the length of the term of the fix.
At the other end of the market, the Budget also included more support for first-time homebuyers, including the resurrection and updating of the previous Government’s Help to Buy scheme. This will be relaunched as ‘Your First Home’ and target buyers struggling to get a mortgage they can afford because they don’t have much of a deposit.
The Government is also promising additional help through the First Time Buyer ISA, a new type of ISA to be launched in 2029. It will replace the Lifetime ISA (LISA) but will similarly pay Government-financed savings bonuses to first-time buyers as they join the property ladder.
In the meantime, the Chancellor has announced a small but significant change to LISAs, axing the withdrawal penalty currently paid by first-time buyers who are purchasing homes above the scheme’s current £450,000 property price limit. Those in this position will still lose their Government bonuses but will at least get their contributions back in full.
Keep an eye on interest rates
Overall, the Chancellor’s Budget was more or less fiscally neutral, with the cost of giveaways such as support for energy bills paid for by higher taxes – including those on banks and gamblers, as well as savers and private landlords. The inflationary impacts of the announcement will therefore be minimal; that means the Budget, in and of itself, should not make the Bank of England’s Monetary Policy Committee (MPC) any more likely to raise interest rates. That said, the Office of Budget Responsibility’s latest forecasts, published alongside the Budget, paint a picture of inflation that will be higher than previously expected – and more enduring. That’s largely because of the energy price shock caused by conflict in the Middle East and Ukraine. As a result, many economists are sticking with predictions that the MPC will raise rates before the end of the year – and possibly in November – with knock-on effects for many savers and mortgage borrowers alike.
This article is provided for general information only. References to outsourced finance services are illustrative and are not intended to promote or recommend any specific provider. Although this article may contain helpful information and tips these are not intended to be advice and you should seek advice from a qualified advisor if you are unsure what’s best for your own circumstances. Views expressed in this article are those of the authors and not necessarily of United Trust Bank.
