April 2026 Dividend Tax Rise: Should Directors Take Dividends Early?
- Jamie Flook
- Jan 15
- 4 min read
TL;DR: Quick Answer for Business Owners and Directors
UK dividend tax rates are increasing by 2 percentage points from April 2026 for basic‑ and higher‑rate taxpayers.
For many directors, this makes 2025/26 the last tax year to extract dividends at the lower rates and needs to be done by 5th April.
Bringing dividends forward can be more tax‑efficient — but only if it doesn’t push you into a higher tax band now.
The £500 dividend allowance remains unchanged in 2026/27.
Lots of business owners and directors are asking us whether they should take more dividends now because of the confirmed tax rate rise.
What Directors Are Asking Right Now
“Should I take extra dividends before April 2026?”
“How much more tax will I pay if I wait?”
“Is the salary + dividends strategy still efficient?”
“Is the £500 dividend allowance changing?”
These are the right questions, and they’re time‑sensitive because the new rates apply from 6 April 2026.
Here's the clarity you need to decide whether to act now or not.
Dividend Tax Rise April 2026: What’s Actually Changing (Official)
The Government confirmed the following in Budget 2025 documentation and HMRC technical notes:
Ordinary (basic) dividend rate: 8.75% → 10.75%
Upper (higher) dividend rate: 33.75% → 35.75%
Additional rate: 39.35% (unchanged)
The dividend allowance remains at £500 per person irrespective of your marginal tax rate, meaning the first £500 of dividends received in a tax year remain tax free.
Why Many Directors Are Extracting Dividends Before April 2026
Simple logic: on the same pound of dividends, you’ll pay 2% more (basic/higher rates) if you wait until after 6 April 2026.
Bottom line: If you’ll need the cash personally anyway, taking it at 2025/26 rates will be more tax‑efficient, as long as it doesn’t push you into a higher band this year.
Why This Hits Directors Hardest
Dividends are a core part of most owner‑manager remuneration strategies.
The rate rise narrows the gap vs salary, especially with thresholds frozen (fiscal drag).
Parliament’s briefing and mainstream reporting both underline the direction of travel: higher tax on investment income from April 2026 and beyond.
The below chart shows this, with the rise in dividends being highlighted in pink, added on to the red, which is the current tax rate.
How Much More Will You Pay If You Wait?
If a higher‑rate director plans to extract £50,000:
2025/26 at 33.75%: £16,875
2026/27 at 35.75%: £17,875
An extra £1,000 purely due to the rate change (the exact impact depends on how much of your dividends sit in each band.)
Taking Dividends Early: When Bringing Dividends Forward Makes Sense
Should you take dividends early to beat the tax rise in 2026 - before the April 6 deadline?
Good fits:
You were going to withdraw the profits in the next 12–24 months
You have retained earnings and headroom in your current band
You’ll use funds for ISA/SIPP funding or other personal planning rather than just being wasted
You’re re‑balancing remuneration in 2026/27
Be careful if: pulling dividends forward will tip you into a higher band, trigger the personal allowance taper (effective 60% band), or clash with other planning you value more (e.g., pension carry forward).
What to Do Next (Practical Steps)
Step 1: Forecast your total income for 2025/26 and 2026/27
Identify your current band headroom before 5 April 2026, then model 2026/27 at the new rates.
Step 2: Check retained profits & distributable reserves
Only dividends from profits and ensure board minutes and paperwork are in order.
Step 3: Consider coordinated actions
If you’re moving cash personally, think about ISA and pension contributions alongside dividends.
Step 4: Build a 3‑year remuneration plan With rates rising and thresholds frozen until 2031 (per Budget coverage), plan dividends, salary, and pension strategy together.
We've been in touch with all of our business owner clients and been helping them make the most of this opportunity to draw dividends at lower rates. We know their wider financial plan and how their business operates, so we are well positioned to know if this is the right thing for them to do.
Compliance & Reporting Note
HMRC has been tightening oversight around how investment income is reported. Make sure your Self Assessment reflects dividend income accurately for the correct tax year and payer details. Keep tidy records and board minutes.
Further Reading
Want to learn more about building your wealth as a business owner?
Read how to save tax, build wealth and reduce risk here:
Jamie is Lab Financial Planning Managing Director, and a Certified Financial Planner™. He advises business owners and makes sure that their money, life and business are aligned in working towards their goals.
If you feel like you need help with your financial planning, why not get in touch to see if we can help?
Remember, there are no stupid questions. Everyone has a different level of knowledge about money and planning their finances.
We speak in plain English to help take away the fear and empower you to use your money well.
You can drop Jamie an e-mail: jamie@labfp.co.uk
Or, you can book in a free introductory call, to discuss your situation, here: https://calendly.com/labfp/intromeeting
FAQ: Dividend Tax Rise April 2026 (For UK Company Directors)
1) Are dividend tax rates increasing in April 2026?
Yes. HMRC confirms that the basic rate rises from 8.75% to 10.75% and the higher rate from 33.75% to 35.75% from 6 April 2026. The additional rate remains 39.35%.
2) Does the £500 dividend allowance change in 2026/27?
No. The dividend allowance stays at £500, as set out on GOV.UK and reiterated by Which?
3) Should directors take dividends before April 2026?
Often yes, if you were going to extract profits anyway: taking dividends before 6 April 2026 means they’re taxed at the current lower rates — as long as doing so doesn’t push you into a higher band this year.
4) How much more tax might I pay if I wait until after April?
Because the rates increase by 2 percentage points, a higher‑rate taxpayer could pay ~£1,000 more on a £50,000 dividend taken after the change (33.75% vs 35.75%).
5) Do these changes apply to Scottish taxpayers too? Yes. Dividend tax rates are UK‑wide, even though Scotland has different bands for earned income.
