Increase In Dividend Tax Rate From April 2026

Dividend Tax Rates Are Going Up — What It Means for You

From 6 April 2026, the amount of tax you pay on dividend income is increasing. If you run a limited company and pay yourself through a combination of salary and dividends — which many directors do — this change will affect your take-home pay. Here's what you need to know.

What's Changing?

The basic rate of dividend tax rises from 8.75% to 10.75%, and the higher rate increases from 33.75% to 35.75%. There is no change to the additional rate, which remains at 39.35%.

Here's a summary of the new rates for 2026/27:

Tax Band 2025/26 2026/27

Basic rate 8.75% 10.75%

Higher rate 33.75% 35.75%

Additional rate 39.35% 39.35% (no change)

What About the Dividend Allowance?

The dividend allowance remains at £500 for 2026/27 — the same as 2025/26. Dividends within this allowance are tax-free, but it's worth noting that the allowance still uses up part of the tax band in which it falls, which can push further dividends into higher rates.

It's also worth remembering how much the allowance has been cut in recent years — it was £5,000 as recently as 2018, and it's now just £500. The tax-free buffer is considerably smaller than it once was.

What Does This Actually Cost?

A basic or higher rate taxpayer will pay an extra £20 in tax for every £1,000 of dividends received. For a shareholder taking £50,000 of dividends a year, that's an additional £1,000 in tax compared to 2025/26.

That might sound like a small increase in percentage terms, but it adds up — especially for directors drawing substantial dividends each year.

Who Is Affected?

This change mainly affects:

• Limited company directors who pay themselves through a salary and dividend combination

• Investors holding shares outside of ISAs or pensions who receive dividend income

• Shareholders in family or personal companies

People whose dividends already fall entirely within the additional rate band will not see a rate change — but even so, family companies may still want to revisit how dividends are shared between shareholders.

Is There Anything You Can Do?

A couple of things worth thinking about:

• Use your ISA allowance. Dividends received within a Stocks and Shares ISA are not subject to dividend tax — so sheltering dividend-producing investments inside an ISA remains a very effective strategy.

• Review your salary/dividend mix. There is no longer a one-size-fits-all strategy for paying yourself from a limited company — the optimal approach depends on factors specific to your situation.

• Pension contributions. Increasing pension contributions can reduce your overall taxable income and potentially keep more of your dividends within the basic rate band.

In Summary

The 2% increase in dividend tax rates is not enormous on its own, but combined with the already-reduced £500 dividend allowance and frozen income tax thresholds, the overall direction of travel is clear — dividends are becoming a more expensive way to take money out of a company than they used to be. It's worth reviewing your income strategy sooner rather than later.

If you'd like to talk through how these changes affect your own situation, the Flow team is here to help. You can book a free discovery call with our tax team here: https://calendly.com/flowaccandtax/discoverycall

Stephen Kelly — Flow Accounting & Tax Advice