From 6 April 2026, the way dividends are taxed in the UK has changed for the first time since 2022. The basic rate has risen from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%, both confirmed at the Autumn Budget 2025. The additional rate, which applies to income above £125,140, remains unchanged at 39.35%.
For director-shareholders who draw their income through a low salary and a top-up of dividends, the change is small per pound but meaningful in cash terms across a full year. The dividend allowance also remains at just £500, and personal allowances and tax thresholds continue to be frozen until 5 April 2031, which means more directors will see more of their dividend income drift into the higher rate band over time even where their underlying drawings have not changed.
The personal tax team at Hamlyns has put together a short guide explaining the new rates, what they mean in real terms, and the planning options that company directors might reasonably consider in response.
The New Dividend Tax Rates
From 6 April 2026, dividend income is taxed at the following rates, after the £500 dividend allowance is applied:
- Ordinary (basic) rate: 10.75%, up from 8.75%.
- Upper (higher) rate: 35.75%, up from 33.75%.
- Additional rate: 39.35%, unchanged.
In practice this means an extra £20 of tax for every £1,000 of dividend income that falls in the basic or upper rate band. The change applies to all dividend income, but in real terms it is most directly felt by owner-managed company directors who declare dividends as their main source of profit extraction.
A Worked Example
To put the change into context, take a director who pays themselves a salary of £12,570 (covering their personal allowance) and draws a further £40,000 in dividends. The numbers below assume no other income and use the standard UK personal allowance and rate bands, both of which are frozen at their 2025/26 levels.
| 2025/26 | 2026/27 | |
| Salary | £12,570 | £12,570 |
| Dividends drawn | £40,000 | £40,000 |
| Tax on salary (covered by personal allowance) | £0 | £0 |
| Dividend allowance (first £500, taxed at 0%) | £0 | £0 |
| Dividends in basic rate band (£37,200) | £3,255.00 (at 8.75%) | £3,999.00 (at 10.75%) |
| Dividends in higher rate band (£2,300) | £776.25 (at 33.75%) | £822.25 (at 35.75%) |
| Total dividend tax | £4,031.25 | £4,821.25 |
| Annual difference | — | +£790.00 |
On the same drawings, this director pays £790 more in dividend tax in 2026/27 than they did in 2025/26. The same exercise for a director drawing £100,000 in dividends on top of a £12,570 salary produces an annual difference of more than £1,500, simply because more of the dividend income sits in the upper rate band.
Planning Options Worth Considering
There is no single right answer, and any change to the salary–dividend mix needs to be considered alongside corporation tax, National Insurance, employer pension contributions, your wider household income, and your longer-term retirement plans. That said, three areas are worth a structured conversation in 2026/27.
- Pension contributions
Employer pension contributions made by the company are generally an allowable expense for corporation tax and do not attract income tax or National Insurance for the director. With dividends now slightly more expensive to extract, redirecting some profit into pension contributions can be a particularly efficient way of deferring income, especially for directors who are already in the upper dividend rate band.
- Salary and dividend rebalancing
For directors of small companies, the dividend route is still typically more tax-efficient than salary, even at the new rates, because dividends do not attract employer or employee National Insurance. However, the gap has narrowed, and for some directors a slightly higher salary (combined with the use of the Employment Allowance, where available) is worth modelling. The right answer depends on your company’s circumstances and other shareholders.
- ISAs and timing
Dividends received within an ISA are not taxable, so directors with significant share portfolios outside their company should review whether they are making full use of their annual ISA allowance. Where you have genuine flexibility over when a dividend is declared, the timing of declarations across the tax year can also matter, particularly for shareholders close to a band threshold.
How Hamlyns Can Help
Profit extraction is rarely about a single number. It sits across personal tax, business tax, pensions, household finances and longer-term planning, and the right mix changes as the rules and your own circumstances change. Our personal tax and business tax teams work together with director-shareholders to model the alternatives properly, so that the salary–dividend question is decided on numbers rather than habit.
If you would like a structured review of your 2026/27 drawings or simply want to understand how the new rates affect your specific position, please get in touch with the Hamlyns team. We are happy to walk through the options in plain English and identify any quick wins before the new rates fully embed in next year’s tax bill.
