From April 2026, dividend tax rates are set to increase by a further 2 percentage points.
That means:
- Basic rate at 10.75%
- Higher rate at 35.75%
- Additional rate at 39.35%
While 2% may not sound dramatic, for directors extracting significant dividends annually, this represents thousands of pounds in additional tax.
Why This Matters for Owner-Managed Companies
For years, the standard remuneration strategy has been:
- Low salary (often around NI thresholds)
- Balance extracted as dividends
The logic was simple: dividends were taxed more favourably than salary and weren’t subject to National Insurance.
Strategic Questions to Consider Now
With April 2026 approaching, business owners should be asking:
Should profit extraction be accelerated into 2025/26?
Is pension funding now more attractive?
Does retaining profits in the company make more sense?
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There is no one fits all answer to the above questions, every business owner will have a different scenario and a different best fit
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, the only commonality is that effective planning and tax strategy will benefit all
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