16. May 2026

Increased Dividend Tax Rates - Are You Prepared?

From April 2026, dividend tax rates increased by 2 percentage points for basic and higher-rate taxpayers. The basic dividend rate rose from 8.75% to 10.75%, while the higher rate increased from 33.75% to 35.75%. The additional rate remained at 39.35%.

This change affects company directors, contractors, consultants, and landlords operating through limited companies. For many years, taking a low salary with dividends was one of the most tax-efficient profit extraction strategies. However, rising dividend tax rates and the reduced £500 dividend allowance mean the tax savings are now far smaller.

Business owners extracting larger dividends could now face significantly higher personal tax bills, especially when combined with corporation tax rates of up to 25%.

As a result, profit extraction planning is more important than ever. Directors should review whether their salary and dividend mix remains efficient and consider alternatives such as employer pension contributions, retaining profits within the company, or using a spouse’s tax allowances.

Without careful planning, many business owners may end up paying substantially more tax during the 2026/27 tax year.