8th February 2026
A seemingly modest 2% tax rise announced by Chancellor Rachel Reeves is set to ripple through the UK economy from 2026-2027, affecting renters, savers and investors alike. While each change may look minor on its own, together they form what critics are calling a "2% squeeze" on household finances.
Rents: why tenants could pay more
From April 2027, the government plans to increase the tax rates on rental income by 2 percentage points. This means landlords will pay more tax on the profit they make from rent:
Basic rate: 20% → 22%
Higher rate: 40% → 42%
Additional rate: 45% → 47%
Landlord groups warn that higher taxes raise costs, and in a market where demand already exceeds supply, many landlords are likely to pass those costs on through higher rents or sell up altogether. Either outcome risks putting upward pressure on rents, particularly in cities and high-demand areas.
Savings: lower take-home interest
The same 2% rise will also apply to savings interest from April 2027. Any interest earned above the Personal Savings Allowance will be taxed more heavily:
Basic rate savers: 20% → 22%
Higher rate savers: 40% → 42%
Additional rate savers: 45% → 47%
For people with modest savings inside ISAs, the impact may be limited. But for those with cash savings outside tax-free wrappers, especially pensioners and middle-income savers, the change means keeping less of the interest they earn.
Dividends: investors hit first
Dividend income will feel the squeeze earlier, from April 2026, when dividend tax rates rise by 2 percentage points:
Basic rate: 8.75% → 10.75%
Higher rate: 33.75% → 35.75%
Although the £500 dividend allowance remains, many small investors and company directors who rely on dividends for income will see higher tax bills, unless their investments are held in ISAs or pensions.
Why the government is doing it
The Treasury argues that income from property, savings and dividends should be taxed more like wages, since they do not attract National Insurance. The changes are also intended to raise billions to help repair public finances.
Why critics are worried
Opponents say the policy risks unintended consequences:
Higher rents for tenants
Reduced incentives to save and invest
Fewer rental properties as landlords exit the market
A 2% rise may sound small, but across rent, savings and dividends, it adds up. For renters, it could mean higher monthly costs. For savers and investors, it means less return for the same effort. The full impact won't be felt immediately but from 2026 and 2027, the 2% squeeze will be hard to ignore.