Following the recent Budget, the ordinary and upper rates of dividend tax will both rise by 2% from April 2026.
For many small and medium-sized companies, dividends are central to how owners pay themselves. With the tax rates rising, your pay and profit extraction strategies will likely need a fresh look for 2026/27.
What’s Actually Changing
From April 2026:
- The dividend ordinary tax rate increases from 8.75% to 10.75%.
- The dividend upper tax rate rises from 33.75% to 35.75%.
- The dividend additional tax rate remains at 39.35%.
- The tax-free dividend allowance remains at £500
The rate you pay on your dividends will depend on the amount of your total income and the source of your income. These rates apply only to dividends - salary, bonuses and savings are taxed differently.
What the Changes Mean for Profit Extraction
As dividends have usually offered a tax advantage over salary, many directors/shareholders adopt a mix of a low salary and higher dividend income.
However, with dividend tax rising, the balance is shifting slightly. The best extraction strategy for one director may look quite different for another, especially when factors like income levels, other earnings, pensions and company profits are taken into account.
It may therefore be worth reviewing:
- Whether a different mix of salary and dividends is now more efficient for you.
- Bringing forward dividends before April 2026, where appropriate.
- The impact on cash flow if you switch to taking a larger salary instead of dividends.
If you want to review how you take money from your company, or see how the upcoming dividend tax changes could affect your take-home pay, get in touch. We can guide you through the options and help you make sure your remuneration is as tax-efficient as possible.