Dividend Tax Rises 6 April 2026: 10.75% / 35.75%

What Is Changing?

The Autumn Budget 2025 confirmed a 2 percentage point increase to dividend tax rates, taking effect from 6 April 2026. This is part of the government's stated aim to narrow the gap between tax on employment income and tax on investment income.

The £500 dividend allowance remains unchanged for 2026/27.

What Does This Actually Cost You?

The impact depends on how much dividend income you receive above the £500 allowance. Here are three realistic scenarios for a Ltd company director paying themselves a salary of £12,570 plus dividends:

Assumes salary of £12,570 and no other taxable income. Figures rounded to nearest pound.

Should You Pay Dividends Before 5 April?

Declaring a dividend before 5 April 2026 means it falls in the 2025/26 tax year and is taxed at the current, lower rates. This is the single most obvious planning opportunity — but it comes with caveats.

The timing trade-off: a dividend declared on 5 April 2026 is taxed at the lower rate, but the tax becomes due on 31 January 2027 (through Self Assessment). A dividend declared on 6 April 2026 is taxed at the higher rate, but the tax isn't due until 31 January 2028. You pay less tax, but you pay it a year earlier.

For most directors, the saving outweighs the timing difference. On £50,000 of dividends, you save roughly £990 by declaring before 5 April — that is real money, even accounting for the earlier payment date.

Three Things to Check Before Declaring

1. Sufficient distributable reserves. You can only pay dividends from accumulated profits after Corporation Tax. Paying dividends without sufficient reserves is unlawful and HMRC can reclassify them as salary (triggering PAYE and NI).

2. Your total income for 2025/26. Pulling forward dividends increases your total income for the current tax year. If this pushes you above £50,270, some dividends will be taxed at 33.75% rather than 8.75%. If it pushes you above £100,000, you start losing your Personal Allowance (£1 lost for every £2 over £100,000), creating an effective marginal rate of over 60%.

3. Cash flow. Dividends must actually be paid or made available to you. A board minute declaring a dividend you cannot fund from the company bank account is not effective planning — it is a compliance risk.

The Bigger Picture: Is the Salary + Dividend Model Still Worth It?

Even with the rate increase, the combined Corporation Tax plus Dividend Tax burden remains lower than the equivalent Income Tax plus National Insurance cost for most income levels. The classic strategy of paying yourself a salary at the NI Primary Threshold (£12,570) and taking the rest as dividends still works — it just works less well than it did.

At £50,000 of total income, the effective tax saving of a Ltd company versus a sole trader narrows to around £2,000–£3,000 per year. Once you subtract accountancy fees of £1,200+, the real advantage is slim for lower earners. Our Sole Trader vs Limited Company guide covers this in detail.

What About Pension Contributions Instead?

Employer pension contributions remain one of the most tax-efficient ways to extract money from a Ltd company. They are deductible against Corporation Tax, are not subject to Income Tax or NI for the director, and are not affected by this dividend rate change. The annual allowance for 2025/26 is £60,000, with up to three years of unused allowance available to carry forward.

If you have headroom, making an employer pension contribution before 5 April could be more efficient than accelerating dividends — especially if your dividends would fall in the higher rate band.