If you take profits from your company via dividends, the Autumn Budget 2025 quietly changed your 2026 plans.
From 6 April 2026, the UK’s dividend tax rates increase by 2 percentage points for basic and higher rate taxpayers — while the dividend allowance stays put.
This guide explains what’s changing, who it hits, and the practical decisions directors and shareholders should consider before the new tax year begins.
| Quick note: This is general information, not personal tax advice. If you want us to sanity-check your numbers, we can run the scenarios.
What exactly changed in the Autumn Budget on dividends?
Dividend tax rates are rising (from 6 April 2026)
The government announced a 2% increase to dividend tax on:
- the ordinary rate (typically paid by basic rate taxpayers)
- the upper rate (typically paid by higher rate taxpayers)
The government confirmed that from 6 April 2026 the ordinary dividend rate will increase to 10.75% and the upper rate to 35.75%, as outlined in the official HMRC dividend tax update.
Here is an official summary confirming the new rates from April 2026:
- Ordinary rate: 8.75% → 10.75%
- Upper rate: 33.75% → 35.75%
- Additional rate: unchanged at 39.35%
The dividend allowance stays the same
The dividend allowance remains £500., as confirmed by HMRC.
Meaning: the first £500 of dividend income is taxed at 0%, then the new rates apply above that.
Because dividend income is taxed as the top slice of your earnings, your overall personal and corporate tax position matters more than ever. Reviewing this in isolation can create inefficiencies — especially if you’re not aligning it with your broader Personal & Corporation Tax strategy.
Who will feel this most?
This change tends to land hardest on:
- owner-managed businesses where dividends are a core part of take-home pay
- directors who sit in (or are close to) the higher rate band
- households where both partners aren’t using their allowances/bands efficiently
Also worth clocking: dividend income is generally taxed as the “top slice” of your income — so your salary and other income determines how your dividends are taxed.
Are dividends still tax-efficient vs salary after April 2026?
Often, yes — but the gap narrows.
Dividends typically remain attractive because they don’t carry employee/employer National Insurance in the same way salary does, but once you factor in:
- corporation tax on company profits, and
- higher dividend tax rates from April 2026,
…the “best mix” becomes more dependent on your company’s profit level and your personal income position. This is exactly why many advisors are pushing “run the numbers, don’t guess” after the autumn budget was released.
Practical takeaway: for many directors, the optimal plan becomes a balanced mix: salary up to certain thresholds + dividends + (sometimes) pension contributions.
Should you pay dividends before 6 April 2026?
There’s no one-size answer — but the question is smart.
Because the higher dividend rates start on 6 April 2026, dividends paid (and correctly documented) before then may be taxed under the earlier rates, depending on timing and your wider income picture. The key is doing it properly: board minutes, dividend vouchers, and ensuring distributable reserves exist.
What we typically review with clients:
- Are there sufficient retained profits to declare dividends?
- Are you accidentally creating a director’s loan problem instead?
- Would a dividend push you into a worse band (and cost more overall)?
- Would a pension contribution achieve the same goal more efficiently?
If you’re thinking “I’ll just dividend everything in March” — pause. Optimisation is about the total tax outcome, not just beating a date.
The overlooked knock-on: directors’ loans and “loans to participators”
The Budget technical note flags that the rate charged under the loans to participators regime is linked to the dividend upper rate — and will also increase when the upper rate rises.
If you’ve got director’s loan balances in play, this is a good time to tidy them up and avoid surprises.
Practical dividend planning moves for business owners
These are the common, legitimate planning angles we’re discussing with owner-managers ahead of April 2026:
1) Review your profit extraction strategy (salary vs dividends vs pension)
If you haven’t revisited this since the allowance drops of recent years, now’s the time. (Dividend allowance is already tight at £500, so every extra pound matters.)
2) Consider household planning
If you operate as a couple-shareholder setup, the efficiency gains can be meaningful when structured correctly (share classes, commercial reality, paperwork done right).
3) Check your dividend cadence
Quarterly vs annual dividends can change how controllable your tax bands are, especially if your income fluctuates.
4) Make sure dividends are “real dividends”
We still see directors paying themselves “dividends” with no reserves or no paperwork. That can turn into reclassifications and headaches you don’t need.
Dividend tax rates from April 2026: the simple table
From 6 April 2026:
- 10.75% ordinary rate
- 35.75% upper rate
- 39.35% additional rate (unchanged)
- Dividend allowance: £500
FAQ’s
No. The dividend allowance remains £500.
The new rates apply from 6 April 2026.
Ordinary rate becomes 10.75%, upper rate becomes 35.75%, and the additional rate stays 39.35%.
Often, yes — but it depends on profits, your band, and the corporation tax position. The Budget narrows the difference, so it’s worth modelling your specific numbers.
