Savings and dividends are banded without the property income below them (ITA 2007 s. 16) #2351

What the law says

ITA 2007 s. 16 treats savings and dividend income as the highest part of a person's total income. Dividends are the higher part of that (s. 16(5)). This decides:

• how much savings income falls under the starting rate limit (s. 16(1)(a));
• the rate on savings income above it (s. 16(1)(aa)-(ab));
• the rate on dividend income (s. 16(1)(b)).

Property income is neither savings nor dividend income, so it sits below both and uses up the bands first. That holds in 2026-27, and from 2027-28 too, when Finance Act 2026 gives property income its own rates.

What the model does

earned_taxable_income subtracts taxable_property_income (it is in gov.hmrc.income_tax.earned_taxable_income_exclusions, since #1408), because property_income_tax taxes property income separately. But the savings and dividend band variables use earned_taxable_income as the "other income" the savings or dividends sit on top of:

• basic_rate_savings_income_pre_starter, basic_rate_savings_income, higher_rate_savings_income, add_rate_savings_income;
• savings_starter_rate_income;
• dividend_income_tax.

So savings and dividends are banded as if the property income were not there.

Minimal reproduction

policyengine-uk main at c6d15c8, 2026, a single adult in England:

With £40,000 of property income, taxable non-savings income is £27,430. The £500 dividend allowance and £9,770 of dividends then fill the basic-rate band at 10.75% (£1,050.28), and £9,730 is at 35.75% (£3,478.48), totalling £4,528.75. The model charges all £19,500 at 10.75%.

from policyengine_uk import Simulation
sit = {"people": {"p": {"age": {"2026": 45}, "property_income": {"2026": 40_000}, "dividend_income": {"2026": 20_000}}},
       "benunits": {"b": {"members": ["p"]}}, "households": {"h": {"members": ["p"], "country": {"2026": "ENGLAND"}}}}
Simulation(situation=sit).calculate("dividend_income_tax", 2026)  # [2096.25]; law 4528.75

Savings income is affected the same way, both its band and the starting-rate taper. #1799's taper bug currently masks the starting-rate part.

Where it showed up

PolicyBench UK round 2, scenario 069: a Scottish taxpayer with £13,194 of other taxable income, £11,858 of property income and £30,813 of dividends. The model's dividend tax is £4,835.40; with the property income in the band base it is £7,799.90. Three of six models gave £12,852 of Income Tax, against the reference's £9,887.09. The £2,964.50 gap is exactly this.