Dividend tax changes from April 2026: What company directors and shareholders need to know
Company directors and shareholders should be aware of changes to dividend tax rates, which came into effect from 6 April 2026.
Dividends remain one of the most common ways for owner-managed businesses to extract profits. However, the increase in tax rates represents a continued shift in the tax treatment of investment and business income.
From April 2026, dividend tax rates increased to:
- 10.75% (basic rate)
- 35.75% (higher rate)
- 39.35% (additional rate – unchanged)
While the increases may appear modest in percentage terms, the cumulative impact can become significant over time, particularly for individuals regularly extracting profits through dividends.
A continued shift in profit extraction strategy
For many years, the combination of salary and dividends has formed the basis of remuneration planning for owner-managed businesses.
However, recent years have seen:
- Reductions in the dividend allowance
- Increases in dividend tax rates
- Higher corporation tax rates
- Greater scrutiny of profit extraction strategies
Taken together, these changes are gradually reducing the overall tax advantage of dividend-based remuneration.
This does not mean dividends are no longer effective, but it does mean that strategies which may have worked efficiently in the past may now need to be revisited.
What this means in practice
For company directors and shareholders, the changes may result in:
- Higher personal tax liabilities
- Reduced net income from dividend extraction
- Greater consideration around salary versus dividends
- Increased focus on pension contributions and retained profits
For some businesses, there may also be greater emphasis on:
- Timing dividend payments across tax years
- Reviewing shareholder structures
- Assessing whether profits should be retained or extracted
- Coordinating business and personal tax planning more closely
The right approach will depend on individual circumstances, including income levels, future business plans and wider financial objectives.
A more joined-up approach to remuneration planning
The changes reinforce the importance of looking at remuneration more holistically.
Decisions around:
- Salary levels
- Dividends
- Pension contributions
- Business reinvestment
- Family income planning
are increasingly interconnected.
At Ward Williams, we work with business owners to ensure remuneration strategies remain aligned with both commercial objectives and the evolving tax environment.
Timing and forward planning
Although the new rates are already in force, there is still value in reviewing how profits are extracted moving forward.
For some, this may involve relatively small adjustments. For others, particularly businesses with larger profits or multiple shareholders, the changes may justify a wider review of extraction strategy.
As with many tax changes, the objective is not simply minimising tax in isolation, but ensuring decisions remain appropriate within the wider context of the business and personal financial position.
Frequently asked questions
What has changed?
Dividend tax rates increased from 6 April 2026 across the basic and higher rate bands.
Who is affected?
Company directors, shareholders and individuals receiving dividend income.
Does the dividend allowance still apply?
Yes, although dividends above the allowance are taxed at the higher rates.
Should I still take dividends?
Possibly. Dividends can still be tax-efficient, but strategies may need reviewing.
Should I increase salary instead?
Not necessarily. Salary brings additional National Insurance implications and should be considered carefully.
Are pension contributions more attractive now?
For some individuals, pension contributions may become increasingly important as part of wider remuneration planning.
As the taxation of dividends and investment income continues to evolve, taking a more considered approach to profit extraction is becoming increasingly important.
If you would like to review how these changes affect your business or remuneration strategy, please get in touch.
Call 01932 830664, email enquiries@wardwilliams.co.uk or visit www.wardwilliams.co.uk to speak with a member of the team.
