The new 2% tax — what it is, when it applies, and what it means for you

Posted: December 1 2025

The 2025 Autumn Budget delivered a series of tax changes — not headline increases in the main income tax bands, but a targeted “top-up” on income from assets. In short: a new 2 percentage-point increase in the rates applying to dividends, savings (interest), and — from 2027 — property income.

Key points:

1.Dividend income: the basic and higher rates rise by 2 points, from 8.75% to 10.75% and 33.75% to 35.75% respectively, from 6 April 2026.

2.Savings income (e.g., interest): there will be a 2% increase across all bands, with new rates to apply from 6 April 2027 (savings basic rate to 22%, higher to 42%, additional rate to 47%).

3.Property income (rent, distributions from REITs, etc.): from 6 April 2027, there will be a separate “property income” tax regime. New property rates will be 22% (basic), 42% (higher) and 47% (additional).

Crucially, the ordering of how different income types are taxed will change. Under the revised rules, “non-property, non-savings, non-dividend” income (e.g. employment, trading) will be taxed first; then property income; then savings; then dividends. This ordering may affect how allowances and personal tax bands are utilised.

The Government justifies the change as an effort to reduce the disparity between “earned” income (which is already subject to National Insurance) and “unearned” income, which previously faced lower overall taxation.

Disparity

Interestingly the extra 2 percentage-point “top-up” applies differently across income types.

Here’s how it works (according to the announcements):

-For Dividend income: the 2% increase only applies to the ordinary (basic) rate and the higher rate. The additional-rate dividend tax remains unchanged.

-For Savings income (e.g. interest) and Property income (e.g. rental income), the 2% surcharge applies “across all bands” — including the additional-rate band. So the additional rate on these income types increases by 2 points.

So in short: additional-rate (top-band) taxpayers will pay 47% on savings or property income (up from 45%), but for dividend income their top dividend rate remains at 39.35%

Why timing and phasing matter — the practical difficulty

1.The staggered introduction — 2026 for dividends, 2027 for savings and property — presents a significant challenge for taxpayers.

2.Transitional complexity. Many individuals and families may have income from multiple sources (employment, dividends, savings, rental). The phased implementation means that for the next 12 to 24 months the interaction of old and new rules may distort effective tax rates.

3.Cash-flow and planning uncertainty. For businesses, especially owner-managed or family companies distributing profits via dividends, the rise may make existing remuneration plans (salary + dividends) less tax-efficient. For landlords, rental income taxed under a new separate property income regime may affect net yields — especially as reliefs (e.g. mortgage interest relief) are applied differently.

4.Record-keeping and compliance burden. With new ordering rules and distinct rates for property, savings and dividends, individuals (and their advisers) will need to track the source of each pound — especially for mixed-income households, trusts, or those with multiple income sources. As ever, “the devil will be in the detail.”

5.Behavioural impacts and “bunching”. Many may try to accelerate or defer dividend, interest or rental income around the effective dates (or even restructure ownership) — which could lead to income bunching, unexpected tax spikes, or liquidity issues.

Who will be most affected

-Owner-managed companies and entrepreneurs: Those taking a meaningful proportion of remuneration via dividends will see reduced post-tax returns — making dividends less attractive relative to salary (though salary remains subject to NICs).

-Landlords and property investors: Rental income from 2027 will be taxed at the new property rates, which may reduce net yields — particularly once finance cost reliefs are applied at the new, higher property basic rate.

-Savers and individuals living off interest/dividends: For those relying on savings interest or dividend income rather than earned income, the extra 2 points reduces the appeal of holding large cash/savings deposits — especially given that some historic tax “advantages” are being eroded.

-High-net-worth individuals, trustees, estates: Because some of the extra revenue is expected to come from the top 20 % of households, higher earners and those with substantial property or financial wealth will bear the brunt. GOV.UK+2MoneyWeek+2

What clients can — and should — do now to plan

The changes do not all take effect at once, which gives taxpayers a valuable — but narrow — opportunity to plan ahead.

Given the phased rollout and new rules, there are several practical steps clients should consider now:

1. Review remuneration structures for owner-managed companies. For clients paying themselves (or family) dividends, running cash-flow forecasts under the new dividend rate regime is essential. Consider whether there may be a more tax-efficient mix of salary and dividends — noting the impact of NI on salary.
2. Examine property holdings and rental income assumptions. Landlords should re-run profitability models under the new property-income rates, especially if financing costs (mortgages) are significant. If rental yields become marginal, alternative structures (e.g. property held in company) might be worth revisiting — depending on broader investment and estate planning goals.
3. Check savings, investment and dividend income portfolios. For those with substantial savings or dividend-paying investments (outside tax wrappers), it may now make sense to consider ISA wrappers (or other tax-efficient structures) where possible. Also — first-time investors or those rebalancing — consider timing distributions to manage tax liability.
4. Reassess overall household tax planning, allowances and income “bunching.” Given the new ordering rules for how different income types are taxed, households with mixed income should model different “income mix” scenarios across years. This is particularly important for families, couples, or those expecting variable income (dividends, rentals, interest).
5. Engage professional advice early. The changes add complexity — especially for trusts, estates, mixed-income households, and owner-managed businesses. Early advice will help mitigate unintended tax consequences, cash-flow problems or compliance pitfalls once the new regime kicks in.

Conclusion — A shift in the balance between “earned” and “unearned” income

The additional 2% levy on dividends, savings, and property income marks a clear shift in the UK tax landscape: a move towards taxing wealth and asset-derived income more akin to earned income. By phasing in the increases from 2026 and 2027, the government has given taxpayers a window to prepare — but the complexity introduced means that, for many, this will be anything but straightforward.

At RJP LLP, we anticipate these changes will drive a wave of tax-planning reviews over the coming months, especially among entrepreneurs, property owners and trustees. Now is the time to take stock, model the impact, and make informed decisions — before the new rules apply.

By acting now, clients can:

-avoid higher tax charges when the new rules start;

-bring forward or delay income to reduce exposure;

-revise investment or property structures before rates increase;

-protect cashflow for themselves and their business.

Call RJP on 020 8339 1930, or email us at partners@rjp.co.uk.