Dividend Tax Is Going Up in April 2026

Dividend Tax Rates Are Increasing

From 6 April 2026, dividend tax rates are rising by 2 percentage points across all bands. This is one of the most significant changes for director-shareholders; those who run limited companies and take income as a combination of salary and dividends.

The new rates from April 2026 are:

• Basic rate: 10.75% (up from 8.75%)
• Higher rate: 35.75% (up from 33.75%)
• Additional rate: Remains unchanged at 39.35%

To put that into context: if you're a higher-rate taxpayer and received £40,000 in dividends this year, your tax bill from April will be around £800 higher per year on that same income. It may not sound dramatic in isolation, but combined with the other changes below, the cumulative effect on take-home pay can be meaningful.

What Should Director-Shareholders Do?

If you haven't already reviewed your salary and dividend mix for 2026/27, now is the right time. The optimal split between salary and dividends depends on your personal tax position, any other income you have, and your company's performance. It's not a one-size-fits-all calculation.

The Dividend Allowance is the amount you can receive in dividends tax-free. This remains at £500 for 2026/27. That's already a significant reduction from the £5,000 allowance that existed just a few years ago, so it offers little protection for those taking meaningful income from dividends.

Employer National Insurance: The Cost of Employing People Has Already Gone Up

This one came into effect from April 2025, but many businesses are still absorbing the full impact as they move into the 2026/27 year. Employer National Insurance (NI) rose from 13.8% to 15%, and the threshold at which employers start paying it dropped significantly, from £9,100 to £5,000 per employee.

That lower threshold is frozen until at least 2031. In plain terms, employers are now paying NI on a larger portion of each employee's earnings, and at a higher rate. For a business with five employees each earning £30,000, the combined increase in employer NI costs is approximately £5,500 per year under the new rules.

The Employment Allowance has increased to £10,500 (up from £5,000), which helps smaller employers offset some of this cost. If you haven't checked whether you're claiming this correctly, it's worth doing.

The National Living Wage Rises Again in April 2026

From April 2026, the National Living Wage for workers aged 21 and over rises to £12.71 per hour. For younger workers, the National Minimum Wage rates also increase.

For businesses with part-time or hourly-paid staff, including those in retail, hospitality, care, and many trade businesses, the combination of higher wage floors and increased employer NI is a significant pressure on margins. If you haven't updated your payroll or reviewed your pricing in light of these changes, April is the moment to do it.

You can read more about this here.

Capital Allowances: A Change That Cuts Both Ways

From April 2026, the main rate of Writing Down Allowance (WDA) for plant and machinery is being cut from 18% to 14%. This affects the rate at which you can claim tax relief on assets like equipment and machinery that don't qualify for full expensing.

However, there is a partial counterbalance. A new 40% First Year Allowance (FYA) was introduced from January 2026 for main rate assets, including, for the first time, assets used for leasing. This means you can write off 40% of the cost of qualifying equipment in the year you buy it. The timing of any significant asset purchases is therefore worth careful consideration.

If you're planning to buy equipment, vehicles, or machinery, a conversation with us before you commit could make a meaningful difference to your tax position.

Business Asset Disposal Relief: Selling Your Business Just Got More Expensive

If you're thinking about selling your business or restructuring in the near future, the rate of Business Asset Disposal Relief (BADR) (formerly Entrepreneurs' Relief) has risen from 14% to 18% for disposals made on or after 6 April 2026.

On the sale of a business generating a £500,000 gain, that rate increase means an additional £20,000 in tax compared to a disposal before 6 April. It doesn't make selling the wrong decision, but it does make planning the timing and structure of any exit considerably more important.

Income Tax Thresholds: Frozen Until 2031

No announcement has changed this: the Personal Allowance and income tax bands remain frozen until April 2031. That's not a headline increase, but it's a stealth one. As wages and profits rise with inflation, more people are being pulled into higher tax bands without any change to rates. This is sometimes called fiscal drag.

For a sole trader whose profits have grown from £45,000 to £55,000 over the past two years, that additional £10,000 is now taxed at 40% rather than 20%, an extra £2,000 in tax that feels like it came from nowhere. Planning around this, whether through pension contributions, income timing, or business structure, is increasingly valuable.

So, What Should You Do?

None of these changes in isolation is a crisis. But taken together, higher dividend tax, increased employer NI, rising wages, changes to capital allowances, and frozen thresholds represent a genuine and growing tax burden on the kind of family- and owner-managed businesses we work with every day.

The good news is that proactive planning can make a real difference. Reviewing your salary and dividend split, making the most of pension contributions, timing capital expenditure carefully, and ensuring you're claiming every allowance you're entitled to - these are practical steps, not complicated ones.

If you'd like to talk through how these changes affect your specific situation, we're always happy to have that conversation, and as ever, there's no charge for an initial chat. Get in touch with the team at PG Owen in Midsomer Norton, Bath or Warminster and let's make sure your 2026/27 starts on solid ground.