If you run your business through a limited company, dividends are likely part of how you pay yourself.
From April 2026, dividend tax rates are increasing for many directors. This does not mean dividends are suddenly inefficient or that your structure is wrong. It simply means that being intentional matters more than it used to.
This guide explains:
- What is changing
- What it means in real £ terms
- Where the increases start to show up
- Practical ways directors can stay tax-efficient
Plain English, no panic, just clarity.
Who this guide is most relevant for
This guide will be most useful if you:
- Run a UK limited company
- Take most of your income as dividends
- Earn between £12,570 and £100,000 via salary and dividends
- Have not revisited your extraction strategy in the last couple of years
If that sounds like you, the changes from April 2026 are worth understanding properly.
What is changing in April 2026?
From 6 April 2026, the following dividend tax rates will apply:
| Dividend tax band | 2025/26 rate | From April 2026 |
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
In summary:
- Basic and higher rate dividend tax increases by 2 percentage points
- Additional rate dividends remain unchanged
- The dividend allowance stays at £500
- Income tax thresholds remain frozen
None of these changes on their own are dramatic. Taken together, they make it sensible to review how and when profits are taken from your company.
Assumptions used in the examples below
To keep the figures realistic and comparable, the examples assume:
- You are a director of a UK limited company
- You take a £12,570 salary
- The remainder of your income is paid as dividends
- You are UK resident and taxed at England rates
- The dividend allowance is £500
- Dividends are taxed across basic and higher rate bands where applicable
These figures show personal dividend tax only. Corporation tax is calculated separately at company level.
What does this look like in real £ terms?
| Total income | Dividends paid | Taxable dividends | Dividend tax 2025/26 | % of income | Dividend tax 2026/27 | % of income | £ difference |
| £20,000 | £7,430 | £6,930 | £606 | 3.03% | £745 | 3.73% | £139 |
| £30,000 | £17,430 | £16,930 | £1,481 | 4.94% | £1,820 | 6.07% | £339 |
| £40,000 | £27,430 | £26,930 | £2,356 | 5.89% | £2,895 | 7.24% | £539 |
| £50,000 | £37,430 | £36,930 | £3,231 | 6.46% | £3,970 | 7.94% | £739 |
| £60,000 | £47,430 | £46,930 | £6,539 | 10.9% | £7,477 | 12.46% | £939 |
| £70,000 | £57,430 | £56,930 | £9,914 | 14.16% | £11,052 | 15.79% | £1,139 |
| £80,000 | £67,430 | £66,930 | £13,289 | 16.61% | £14,627 | 18.28% | £1,339 |
| £90,000 | £77,430 | £76,930 | £16,664 | 18.52% | £18,202 | 20.22% | £1,539 |
| £100,000 | £87,430 | £86,930 | £20,39 | 20.04% | £21,777 | 21.78% | £1,739 |
This shows a gradual increase, not a cliff edge. The impact becomes more noticeable as income rises, particularly once dividends fall into the higher rate band.
A simple worked example
Sarah runs a small design studio through a limited company.
She pays herself:
- £12,570 salary
- £47,430 in dividends
- Total income of £60,000
In 2025/26, Sarah pays £6,539 in dividend tax.
From April 2026, that increases to £7,477.
That extra £939 a year is not business-critical on its own. But over five years, if nothing changes, it adds up to nearly £5,000.
This is where planning starts to matter more than habit.
So what should directors actually do?
The key message here is not that dividends no longer work.
It is this:
Dividends work best when they are part of a plan, not a habit.
Here are the main options directors should be aware of.
1. Pension contributions become even more valuable
Company pension contributions remain one of the most efficient ways to extract value:
- Corporation tax relief
- No dividend tax
- No income tax
- No National Insurance
For directors who do not need all profits personally right now, this can be a powerful long-term tool.
2. Being deliberate about dividend timing
In some cases it may make sense to:
- Bring forward dividends before April 2026
- Smooth dividends across tax years
- Avoid large one-off dividends that push income into higher bands
This is about cashflow awareness and forward planning, not aggressive tax strategies.
3. Keeping an eye on key thresholds
Small changes in income can still have a disproportionate tax effect around:
- £50,270, where higher rate tax starts
- £100,000, where the personal allowance begins to taper
Staying just below a threshold can sometimes be more efficient than crossing it by default.
4. Sharing income within the household
Where shares are structured correctly, dividends paid to a spouse or civil partner can:
- Use more basic rate bands
- Reduce overall household tax
- Create better balance and flexibility
This must be set up properly, but when done correctly it remains a legitimate planning option.
5. Retaining profits is not a failure
Not all profits need to be taken out immediately.
- Retained profits can fund growth
- Support future investment
- Be taken later when your personal tax position changes
Flexibility is one of the key advantages of operating through a limited company.
A quick sense-check for your own position
It may be time to review your approach if:
- Your profits have increased over the last two years
- You are regularly into the higher rate band
- You take large dividends once or twice a year
- You do not have a pension strategy in place
- Your personal or family circumstances have changed
None of these are problems. They are simply signals that your business has evolved.
The bigger picture
April 2026 does not mark the end of tax-efficient planning for directors.
What it does mark is a move away from one-size-fits-all approaches.
The directors who tend to do best are those who:
- Understand their numbers
- Review their position regularly
- Align tax decisions with both business and life goals
That is not pessimistic. It is practical, empowering and entirely manageable with the right support.
Need help working out what makes sense for you?
We’ve recently updated our limited company packages to better reflect the level of support our clients need at different stages, including regular check-in sessions at intervals that match the support you require.
If you are on one of our new plans we will automatically discuss this with you at your next check in & challenge session, which you are invited to book two months before your year end if on the Mini plan or each quarter if on the Midi plan.
You can view our updated packages here.
Some clients are currently on our legacy packages, which did not include the Check-In & Challenge sessions. We are working through these clients gradually to discuss whether moving to our Mini Transformation package or above would be helpful.
That said, if you would like to explore this sooner or talk through which level of support feels right for you, please don’t hesitate to get in touch. We’re always happy to chat things through.