Dividend Tax Is Increasing in 2026 – What Directors Should Know

From April 2026, the tax rates on dividends will increase by 2%. For many business owners and company directors who take income through dividends, this is an important change to be aware of.

While the increase may sound small, it can make a noticeable difference to your personal tax bill, particularly if you regularly take dividends from your company.

Here’s what’s changing — and what you may want to consider before the new rates take effect.

What Are the New Dividend Tax Rates?

From 6 April 2026, dividend tax rates will be:

• Basic rate: increasing from 8.75% to 10.75%

• Higher rate: increasing from 33.75% to 35.75%

• Additional rate: remaining at 39.35%

At the same time, the dividend allowance remains at £500, meaning most dividends will continue to be taxed once this allowance is used.

For many director-shareholders, this means reviewing how profits are taken from the company may be worthwhile.

Why This Matters for Directors

Dividends have traditionally been a tax-efficient way for company directors to extract profits from their businesses.

However, with tax rates rising and income tax thresholds frozen, it’s becoming increasingly important to make sure your remuneration strategy still makes sense.

The balance between:

• Salary

• Dividends

• Pension contributions

• Other tax planning opportunities

may need adjusting to ensure you are still extracting profits in the most efficient way.

Planning Ahead Before April 2026

With the higher dividend rates coming into effect in April 2026, there may be opportunities to review your position and plan ahead.

Accelerate Dividend Payments

If you are planning to withdraw cash from your company within the next 12–24 months, it may be worth considering taking some dividends before 6 April 2026 to benefit from the current lower tax rates.

Review Retained Profits

Dividends can only be paid if your company has sufficient retained profits available. It’s important to check your company’s position before making any decisions.

Revisit Your Salary and Dividend Balance

With income tax thresholds frozen for several years, reviewing your remuneration structure could help optimise your tax position.

Even small adjustments to how and when income is taken can make a meaningful difference over time.

The Importance of Forward Planning

Tax changes happen regularly, and the most effective way to manage them is through early planning rather than last-minute reactions.

Reviewing your position ahead of the April 2026 changes can help ensure you are making the most of the opportunities available.

If you’d like help reviewing your dividend strategy or understanding how these changes might affect you, it’s always worth speaking with your accountant sooner rather than later.

Lisa x

Team TaxTalks

Author: What Everyone Needs to Know About Tax — a straight-talking guide packed with practical tips to help business owners save tax, stay compliant, and feel confident about their finances.