From 6 April 2026, the way dividend income is taxed in the UK has changed. If you’re a limited company director who takes part of your income as dividends, your tax bill is going up. Here’s a look at what’s changed, who’s affected, and what to think about next.
What’s actually changed
The basic rate of dividend tax has risen from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate (payable on income above £125,140) is unchanged at 39.35%. The official details are on gov.uk, and the House of Commons Library briefing sets out the wider context.
These changes were announced in the November 2025 Autumn Budget and legislated through the Finance Act 2026. The Treasury expects them to raise around £280 million in the first year, rising to roughly £1.39 billion a year by 2030/31.
The dividend allowance, the amount you can receive in dividends each tax year before any tax is due, stays at £500. It hasn’t moved, which is worth noting given it stood at £5,000 as recently as 2017.
Who’s affected
The change lands most squarely on director-shareholders of small limited companies, where you pay yourself a modest salary (usually up to the National Insurance secondary threshold) and top up your income with dividends. It’s a structure the government has been chipping away at for nearly a decade, and this is the latest turn of the screw.
You’re also affected if you hold shares in a general investment account outside an ISA or pension and receive dividends above the £500 allowance.
You’re not affected if your dividend income sits inside a Stocks and Shares ISA or a pension. Those wrappers remain entirely tax-free for dividends, one of the reasons they matter more than ever.
What it costs in real terms
The numbers themselves aren’t catastrophic, but they add up. A higher-rate taxpayer receiving £20,000 of dividends outside an ISA in 2026/27 will pay around £390 more tax than they would have the year before. Scale that up across a director’s working life, or across a household where both partners draw dividends from a jointly-owned company, and the compounding effect is significant.
What to think about
A few things are worth reviewing before the tax year gets too far underway.
Your salary-dividend split. The optimal balance between salary and dividends shifts when the rates change. It’s worth running the numbers for 2026/27 specifically rather than relying on last year’s logic. Employer pension contributions, for example, become comparatively more attractive as a way of extracting profit, because they’re deductible for corporation tax, don’t attract employer National Insurance, and aren’t taxed as dividends.
ISA headroom. Every £20,000 of dividend-producing investments you can move inside an ISA wrapper shields future dividends from the new rates entirely. The full £20,000 ISA allowance is still available for 2026/27. Worth noting: from April 2027, only £12,000 can go into a cash ISA if you’re under 65 – the rest has to go into stocks and shares.
Pensions as a profit-extraction route. Employer pension contributions through your own limited company remain one of the most tax-efficient ways of moving money out of the business, particularly if you’re a higher-rate taxpayer. They don’t replace dividends entirely, but the balance has shifted.
Shareholder and keyman protection. If you’re a company director, the amount of value flowing through you personally (and through the business on your behalf) is worth reviewing alongside your tax planning. Shareholder protection, keyman cover and relevant life policies exist precisely to protect that value when the worst happens. A review of your tax position is a natural prompt to check your protection position too.
A quick note on what comes next
The dividend change isn’t happening in isolation. Savings and property income tax rates rise in April 2027, and from April 2027 unused pension funds start falling within Inheritance Tax.
None of this is a reason to panic. It is a reason to sit down with the numbers and make sure your structure still makes sense for where you are now, not where you were three years ago.
If you’d like to talk through how the changes affect your position, or review your protection arrangements alongside your tax planning, please get in touch.
