If you are a shareholder, from 6 April 2026, the tax you pay on dividends is increasing
- from 8.75% to 10.75% for basic rate taxpayers
- from 33.75% to 35.75% for higher rate taxpayers
Those of you who pay dividend tax at the additional rate, your dividend tax rate remains at 39.35%
For shareholders of owner-managed companies, dividends are still one of the most tax-efficient ways to take money out of the company. But with these tax increases coming in, it will be worth taking a fresh look at your extraction strategy.
Using 2025/26 allowances and rates
There are a few days left before the 2025/26 tax year ends.
Where the timing of dividends can be controlled, it may be beneficial to accelerate the payment of dividends before 6 April 2026.
Salary v dividends in 2026/27
While there are several options for drawing profits from a company in a tax-efficient way, it often comes down to a combination of salary and dividends.
For many individuals, taking a small salary equal to the £12,570 personal allowance and then taking dividends can still be a good approach.
This will continue to apply for next tax year (2026/27), even though the tax on dividends will be higher. However, the additional tax payable may mean you need to increase the amount of your dividends to retain the same amount of income as before.
There are situations where taking a higher salary could be advisable, including where the employment allowance is available to offset any Employer’s National Insurance on salaries. If you would like to discuss how you extract income from your business, please call CKLG on 01223 810100
