The last Budget confirmed that dividend tax rates will increase from April 2026. The ordinary and upper rates of dividend tax will both rise by 2%.
For many small and medium-sized companies, dividends are central to how owners pay themselves. With the tax rates rising, you may need to take a fresh look at your pay and profit extraction strategies for 2026/27.
What’s 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 considered.
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
The information provided in this blog is for general informational purposes only and should not be considered professional advice. As far as we are aware, the content is accurate at time of publication. Torgersens assumes no responsibility for errors or omissions in the content or for any actions taken based on the information provided.
.jpg)
.png)
