Rachel Reeves’ new law from 6 April 2026 sees ‘triple taxation’

Tax experts focus on the changes that will come into effect next week that will affect those who hold investments. Tax rates on dividends exceeding an annual income of £500 will rise by two per cent for basic and higher income tax payers on investments held outside the tax-free environment.

Revealed by Chancellor Rachel Reeves in last November’s Budget, the standard rate paid to HMRC will go from 8.75 per cent to 10.75 per cent and the top rate from 33.75 per cent to 35.75 per cent from 6 April 2026, which marks the start of the new tax year. The additional rate will remain unchanged at 39.35 percent. The changes are expected to generate as much as £280 million in new tax receipts in the next tax year (2026-27) for HM Treasury, according to experts at JP Morgan.

JP Morgan explained how the situation has changed in the last decade. It said that, following the replacement of the tax credit system in 2016, the UK has reduced tax-free annual earnings by 90 per cent, from £5,000 per tax year to £500, attracting more investors and business owners to pay dividend tax.

From the initial allowance of £5,000, the allowance has been reduced three times to £2,000 in 2016, then £1,000 in 2023, and to the current level of £500 in April 2024. At the same time, the rates of profit tax are gradually increasing.

In 2016-17, basic rate taxpayers faced a 7.5 per cent charge on excess dividend income, while higher and additional rate taxpayers would be charged 32.5 per cent and 38.1 per cent respectively. This has risen by 1.25 per cent across all bands in the 2022-23 tax year and will rise by two per cent for basic and higher rate taxpayers next tax year.

Impact on investors

For a basic rate taxpayer who generates £10,000 of deductions out of their tax-free investment portfolios, they would have seen an almost three-fold increase in tax paid on this amount over the past decade, said JP Morgan. In 2016-17, a basic taxpayer earning £10,000 in dividends outside tax-free packages would have paid £375 in this income. This has risen to £831.25 in the current tax year (2025-26) and will jump to £1,021.25 from 6 April 2026.

Research from JP Morgan Personal Investing found that more than four in 10 (44%) UK investors said changes to dividend tax in the next tax year (2026-27) would affect their investment portfolios. This fear rises to 59% among those holding more than £250,000 in investable assets.

Charlotte Wheeler, director of wealth and financial planning employed at JP Morgan Personal Investing, said: “Over the past decade, changes in capital gains tax have been a popular tool to raise new tax receipts, attracting more investors to pay tax on their investments.

“For investors, it is important not to ignore the tax rules when building wealth as this can reduce the return on investments focused on income generation if not managed properly. For those who have investments held outside of tax-efficient wrappers, it is important to be aware of the new tax rates that will come into force from the new tax year as these changes will affect people with large investments above £50. portfolios will be affected, there is a wider impact on investors as time goes on to the new tax year.

“New people who have taken a tax-free pension may have less options to remedy this as they may want to consider prioritizing their ISA for the growth investments needed down the line. There is a trade-off that long-term investments with good returns may be liable for Capital Gains Taxes (CGT) if held outside of an ISA. to protect their growth-oriented investments from CGT.

“The tax-free Capital Gains limit is £3,000, but the tax rate above the threshold is 18 per cent for taxpayers and 24 per cent for those in the higher and additional tax brackets. In the short term, some may consider moving income-generating investments into their ISA when their annual allowance is renewed on 6 April.

“A Stocks and Shares ISA is tax-efficient as you don’t pay tax on withdrawals, shares, or any income that the investments in the ISA make. It’s important to think about your financial goals and how you use your investment returns. For example, if any profits are paid directly into your bank account, it’s important to consider whether your savings allow you to keep any profits or which one.”

Bed and ISA plan

Charlotte said: “The ‘Bed and ISA’ method has evolved over the years and has become a common step for investors who want to bring their investments into the tax-free investment cycle. This process works by selling investments outside the tax-free package and moving the funds into an ISA or pension, which benefits from CGT-free payments. Some will do this at the start of the tax year when their tax year starts.

“For investors, this method can be attractive when the financial system is a tax-free investment package that reduces the possible tax liabilities from Capital Gains or taxes on shares later, although this process is not always easy. For example, it is important to be aware of the fluctuations of the market that affect the value of your investments when you try to sell and buy again in the market in a tax-free package.

“In addition, investors should familiarize themselves with the thresholds for CGT approval if they sell investments at a profit before transferring them to an ISA or pension. If you are not sure about the ‘bed and ISA’ method, it is important to speak to an expert so that you can make sure that you make the right decision according to your circumstances.”

JP Morgan’s research was based on an Opinium survey of 1,000 UK investors conducted from December 3 to 10, 2025. Opinium Research is a member of the British Electoral Council and adheres to its rules.