Dividend Tax Is Increasing in April 2026: What You Need to Know

Dividend tax is changing, and if you’re a UK business owner, company director, or investor, it’s worth understanding what this means for you.

From April 2026, dividend tax rates will rise. While this won’t affect everyone, those who regularly take dividends from a limited company should review how they extract profits to remain tax-efficient.

This guide explains the dividend tax increase in the UK with no jargon, no confusion, and no scary tax talk.

From April 2026, UK dividend tax rates will increase by 2 percentage points.

There are no new dividend taxes being introduced, but existing rates are rising, meaning some taxpayers will pay more tax on dividends than they do now.

Understanding these changes early gives you time to plan ahead and avoid unnecessary tax.

Here’s how the updated dividend tax rates will look:

• Ordinary dividend rate is increasing from 8.75% to 10.75%
• Upper dividend rate is increasing from 33.75% to 35.75%
• Additional dividend rate is remaining unchanged at 39.35%

The rate you pay depends on your income tax band, not the size of the dividend itself.

A dividend is a payment made by a company to its shareholders from company profits.

If you run a limited company, dividends are often taken alongside a small salary and are usually more tax-efficient than taking all income as wages.

Dividends are taxed differently from salary, which is why they remain a key part of tax planning for UK company directors.

Not all dividends are taxable, and this is where smart planning can make a big difference.

Dividends are completely tax-free when held within:

• ISAs (Individual Savings Accounts) – All dividend income inside an ISA is 100% tax-free.
• SIPPs and pension schemes – Dividends earned within pensions are also tax-free.

Using these tax-efficient wrappers can significantly reduce, or even eliminate, dividend tax altogether.

Even if your dividends aren’t in an ISA or pension, you still benefit from the dividend allowance.

• The first £500 of dividend income each tax year is tax-free
• This is in addition to your £12,570 personal allowance

This means many people can receive a modest amount of dividends without paying any dividend tax at all.

For most people, the answer is no.

Over 90% of UK taxpayers do not pay any dividend tax, either because they don’t receive dividends or their income falls within allowances.

However, if you’re a business owner regularly taking dividends, even a small increase in tax rates can add up over time, especially as profits grow.

Despite the increase, dividends can still be a tax-efficient way to take money from your company.

The key is balance:

• Combining salary and dividends
• Making use of pension contributions
• Using ISAs where possible
• Reviewing profit extraction regularly

With the right strategy, you can continue to pay yourself efficiently while staying fully compliant with HMRC.

Dividend tax may be rising, but good tax planning still works.

If you’re taking dividends from your company, or planning to in future, now is the ideal time to review your approach.

Taking dividends from your limited company?

Let’s make sure you’re doing it tax-efficiently and confidently.

Our accountancy team is here to help you keep more of your hard-earned profits, legally and stress-free.

Get in touch with us today if you have any questions around dividend tax or anything else.

You can email us on info@future-cloud.co.uk

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