From 6 April 2026, dividend tax rates will increase for basic and higher-rate taxpayers. While the dividend allowance remains at £500 per tax year, the tax charged above this threshold will rise.
What’s changing?
Current dividend tax rates:
• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%
From April 2026:
• Basic rate increases to 10.75%
• Higher rate increases to 35.75%
• Additional rate remains at 39.35%
Why this matters to you
As a business owner or company director, you may prefer to take profits as dividends because they have traditionally been taxed at lower rates than salaries. However, rising tax rates are diminishing this benefit.
Example case study
Situation: A higher-rate taxpayer earning £20,000 in dividends above the £500 allowance.
What they will pay: Extra £400 in tax each year under the new rates.
Although this may not seem substantial on its own, the impact becomes more significant over time.
Planning opportunities before April 2026
Although tax changes are coming, there is still time to plan effectively. Consider:
1. Timing of dividends
Bringing forward dividends before the rate increase may be beneficial in certain circumstances.
2. Reviewing your remuneration strategy
Balancing salary, dividends, pension contributions and other allowances may help maintain tax efficiency.
3. Pension contributions
Company pension contributions can be a highly tax-efficient alternative to dividend extraction.
4. Spouse/family share planning
Where appropriate, ensuring dividend allowances across family members are used effectively.
Act early
Tax planning works best when it’s proactive, not reactive. Reviewing your strategy ahead of April 2026 could help reduce unnecessary tax.
If you would like to discuss how the changes may affect you, get in touch with your adviser today.
Sources and further reading:
Changes to tax rates for property, savings & dividend income – GOV.UK
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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