Dividend Tax Rate Increases: How UK Company Owners Can Minimize the Impact from April 2026

From 6 April 2026, dividend tax rates in the UK go up by 2 percentage points for most taxpayers. The basic rate rises from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate stays at 39.35%.

This change, announced in the Autumn Budget, affects company directors and shareholders who take profits as dividends. Many limited company owners use dividends as a tax-efficient way to extract money, but the higher rates mean an extra cost on amounts above the £500 dividend allowance.

The good news is you can take steps to soften the blow. With some forward planning, you can keep more of your hard-earned profits.

Know the New Rates and How They Apply

Dividends are taxed after your Personal Allowance (£12,570) and the £500 dividend allowance (which remains unchanged). The first £500 of dividends is tax-free, but it still uses up part of your tax bands.

  • Basic rate (up to £37,700 total taxable income): 10.75%
  • Higher rate (£37,701 to £125,140): 35.75%
  • Additional rate (over £125,140): 39.35%

For every £1,000 of dividends above the allowance in the basic band, you pay £20 more tax than before. In the higher band, it’s the same extra £20 per £1,000.

Many directors stay in the basic band by keeping total income (salary plus dividends) below the higher rate threshold.

Consider Timing Your Dividend Payments

If your company has retained profits, think about taking dividends before 6 April 2026 to use the current lower rates. This can save money if you were planning to extract funds anyway.

Be careful not to push yourself into a higher band this year or create other issues. Speak to an accountant to check your position.

Once April arrives, regular reviews help. Pay dividends quarterly or as needed to stay within lower bands.

Optimise Your Salary and Dividend Mix

The classic approach for directors remains popular: take a small salary to cover National Insurance credits or the personal allowance, then top up with dividends.

Common options include:

  • Salary of £12,570 (full personal allowance, no employee NI)
  • Or lower amounts like £6,500 to avoid employer NI thresholds

Dividends then fill the rest. With the rate rise, staying under the £50,270 higher rate threshold (including salary) keeps more in the 10.75% band.

Pension contributions from the company can also help. They reduce corporation tax and do not count as income for you, giving a tax-efficient way to build savings.

Use Allowances and Reliefs Wisely

Make full use of your £500 dividend allowance every year. If you have a spouse or partner who is a shareholder with unused allowances, consider splitting dividends to use their bands too.

ISAs remain a strong option for personal investments, as dividends inside them are tax-free. If you hold shares personally outside the company, moving them into an ISA can shelter future income.

For company owners, keeping profits in the business for reinvestment delays tax until extraction.

Stay Organised with the Right Tools

Good record-keeping makes all the difference when planning extractions or checking company status. Quick access to your limited company’s details, filings, and history helps you make informed decisions without delays.

The Companies House on the Go app is useful here. It lets you search for your company, view recent filings, check confirmation statements, and monitor changes on the move. No need to log into complex portals every time you need a quick fact.

You can get it on iOS: https://apps.apple.com/us/app/uk-companies-house-on-the-go/id6743302358

Or Android: https://play.google.com/store/apps/details?id=com.companiesonthe.go

Tools like this fit neatly into your routine, especially alongside accounting software.

For more on staying compliant and efficient with company admin, have a look at Companies on the Go.

Look Ahead and Get Advice

The dividend rise is part of wider changes, including frozen thresholds until 2030/31 and Making Tax Digital for income tax. Planning now avoids surprises later.

Review your setup with an accountant. They can model different scenarios, check pension options, and ensure everything aligns with your goals.

Small adjustments can add up to meaningful savings over time.

The tax landscape shifts, but with clear steps, UK company owners can navigate it effectively and keep more control over their finances. Start planning today for a smoother 2026 and beyond.