The 2025 Budget confirmed a rise in dividend tax rates from April 2026, which is likely to affect many company owners who rely on dividends as a central part of their remuneration strategy.

With these changes on the horizon, now is the time to take stock of how you extract profit from your business and assess whether your current approach remains the most tax-efficient.

What’s changing from April 2026?

From the 2026/27 tax year, the following rates will apply:

• The dividend ordinary tax rate increases from 8.75% to 10.75%.
• The dividend upper tax rate rises from 33.75% to 35.75%.
• The dividend additional tax rate remains at 39.35%.
• The tax-free dividend allowance remains at £500.

These rates apply to dividend income only. Other forms of income, such as salary, bonuses and savings, are taxed differently.

The rate you pay will depend on your total income and how your dividends sit alongside other earnings.

What does this mean for directors and shareholders?

For many directors and shareholders, a combination of low salary and higher dividends has long been a tax-efficient route. However, as dividend tax rises, the gap between salary and dividend efficiency is narrowing.

That does not mean the strategy is redundant. But it does mean it may be time for a closer look.

Every situation is different. Your income, pension contributions, profit levels and future plans all play a role in shaping the most effective strategy.

With that in mind, it may be worth considering:

• Whether a different balance of salary and dividends is now more appropriate
• Bringing forward dividends before April 2026, where it makes commercial sense
• The cash flow impact of switching to a higher salary

Reviewing your options

Getting your remuneration right is not just about tax. It is about clarity, confidence and control over how you reward yourself for the work you do and the risks you take.

If you want to understand how these changes affect you, we are here to help. Our team can walk you through the options and build a profit extraction strategy that fits your wider goals.