Dividend Tax Rates Rising from April 2026

What Does It Mean for Profit Extraction?

The recent Budget confirmed that dividend tax rates will increase from April 2026, marking an important change for company directors and shareholders who rely on dividends as a key source of income.

For many small and medium-sized businesses, dividends form a central part of profit extraction strategies. With higher tax rates on the horizon, now is a good time to review how and when profits are taken from the company.

What’s Changing from April 2026?

From 6 April 2026, the following dividend tax rates will apply:

• Ordinary dividend rate increases from 8.75% to 10.75%

• Upper dividend rate increases from 33.75% to 35.75%

• Additional dividend rate remains unchanged at 39.35%

• The tax-free dividend allowance remains at £500
  

The rate you pay will depend on your total taxable income and your other sources of income. These rates apply only to dividends. Salary, bonuses, pensions and savings income are taxed under different rules.

What Does This Mean for Profit Extraction?

Historically, dividends have offered a tax-efficient way for directors to extract profits, often alongside a modest salary. While dividends will still play an important role, the increase in tax rates slightly reduces their advantage.

As a result, the most effective strategy will increasingly depend on individual circumstances. What works well for one director may not be appropriate for another, particularly where factors such as the following differ:

• Overall income levels

• Other employment or investment income

• Pension contributions

• Company profitability and cash flow

  
  

Planning Opportunities to Consider

Ahead of April 2026, it may be worth reviewing:

• Whether a different mix of salary and dividends could now be more tax-efficient

• Whether it is appropriate to bring forward dividends before the rate increase

• The cash flow impact of increasing salary rather than dividends

• How changes may affect National Insurance, pension planning and personal tax liabilities
  

Early planning can help ensure you are not paying more tax than necessary.

How We Can Help

At SJC, Chartered Accountants, we work closely with directors and shareholders to design remuneration strategies that are both tax-efficient and commercially sensible.

If you would like to review how you extract profits from your company, or understand how the dividend tax changes could affect your take-home pay from April 2026, please get in touch. We would be happy to advise on the options available to you.