Dividend Tax Rates increase from April 2026 – What it means for business owners and investors
JANUARY 2026
The UK government has confirmed that tax rates on dividend income will increase from 6 April 2026, following the Autumn Budget 2025. This change means that many company shareholders, investors and owner-managed businesses will pay more tax on dividend income received in the 2026/27 tax year.
What’s Changing?
From 6 April 2026, the rates of tax on dividend income will rise by two percentage points for both basic-rate and higher-rate taxpayers:
- Basic-rate taxpayers: dividend tax increases from 8.75 % to 10.75 %
- Higher-rate taxpayers: dividend tax increases from 33.75 % to 35.75 %
- Additional-rate taxpayers: remains at 39.35 %
- The £500 dividend allowance is unchanged.
This increase aligns dividend taxation more closely with other forms of income subject to income tax, narrowing (but not eliminating) the tax advantage of dividend extraction versus other remuneration methods.
Why the Change Matters
Dividends are a common way for business owners and shareholders of private companies to extract profits. The planned increase means:
- Higher tax bills: Individuals taking significant dividend income may see a noticeable rise in tax due. For example, a shareholder taking £50,000 in dividends could pay around £1,000 more tax in 2026/27 compared with 2025/26.
- Remuneration review: The balance of salary vs dividends vs pension contributions may need revisiting. While dividends generally remain tax-efficient (because they avoid National Insurance Contributions), the margin of benefit is reduced.
- Dividend planning: There may be merit in considering the timing of dividend payments and overall profit extraction strategies before the new rates take effect.
Key Actions for Clients
Businesses and individual shareholders should consider:
- Reviewing planned dividends for 2025/26: Where possible, paying dividends before 6 April 2026 could lock in lower tax rates.
- Assessing overall profit extraction: Look at the blend of remuneration methods — salary, dividends and pensions — to maximise tax efficiency under the new regime.
- Updating cashflow forecasts and tax planning: Incorporate the increased tax liability into forecasts and client planning discussions.
Summary
The April 2026 dividend tax increase means that many clients who extract profits from their companies as dividends will face higher personal tax bills. While dividends remain a useful part of a tax-efficient remuneration strategy, the increase underscores the importance of proactive planning ahead of the new tax year.
If you’d like help modelling the impact for your personal situation or reviewing your remuneration strategy, our team is here to assist. Please don’t hesitate to call us on 01642 606003.