Government quietly confirms change to key tax deduction

The news that income tax rates for property, interest and dividend income are to be increased was already bad news for taxpayers. However, once the Budget documents were published, a further blow was confirmed. Currently, it is possible for taxpayers to specify the order in which the personal allowance (currently £12,570 until at least 2031) is offset against different types of income. This is going to change from April 2027. The rules concerning the tax calculation will be amended so that general reliefs and allowances will only be applied to property, savings and dividend income after they have been applied to other sources of income. Reliefs and allowances for specific types of income will still apply to those types of income first where relevant.

Note. As well as the personal allowance, this also applies to reliefs and allowances deducted at step 2 or 3 of the calculation, so the Blind Person’s Allowance and Married Couple’s Allowance. It will also apply to trading losses and some types of pension contribution.