Dividend tax rates rising in April: What it means for company directors

Dividend tax rates are going up from 6^th April 2026. If you run your business through a limited company, this affects how much of your profit you keep after tax.

Most company directors pay themselves in two parts: a small salary and the rest as dividends, with dividends taken from company profits and taxed differently to salary.

What is changing is the amount of tax you pay on those dividends.

The increased taxation on dividends has steadily eroded the benefit of taking dividends over the past decade. The tax-free dividend allowance has fallen sharply, meaning more of a director’s profits are now subject to tax:

As this shows, the allowance was £5,000 just a few years ago, then cut to £2,000 in 2018–19, £1,000 in 2023-24 and now halved again to just £500.

There are two key things to be aware of.

The tax-free dividend allowance is now £500 per year, down from £1,000 in 2023–24. This means a larger share of your dividend income is now taxed.

Dividend tax rates are also now shifting. For basic-rate taxpayers, the rate rises from 8.75% to 10%, while the higher-rate falls slightly from 33.75% to 32.5%. Additional-rate taxpayers remain at 39.35%. 

While the higher rate falls slightly, the reduced allowance and higher basic rate mean more dividend income is now taxed overall.

If your business profits stay the same and you continue to pay yourself in the same way, your take-home pay will fall.

A simple example below helps show how.

For a director earning £50,000 in total income, with a salary of £12,570 and dividends of £37,430, the dividend tax bill has increased each year:

Compared to 2023–24, this director is paying £505 more in dividends in 2026–27, which is roughly £42 less per month in take-home pay.

Compared to 2025–26, the same director will pay £462 more in 2026–27 alone, equivalent to around £39 less per month.

These increases happen because the tax-free dividend allowance has been reduced to £500, meaning more income is taxable, and the basic dividend tax rate has risen from 8.75% to 10%, further increasing the overall tax bill.

For employees, tax is deducted automatically through PAYE. For company directors, income is more flexible but also more exposed to changes like this.

Dividends are a central part of how many directors structure their income. When the tax on dividends rises, it directly affects how much you can take out of your business.

At the same time, income is not always predictable. Work can vary month to month, and there is no guaranteed salary or employer support.

Review your salary and dividend split, estimate the extra tax for this year, and consider whether retaining more profit in the company or timing dividend payments differently could help manage your take-home pay.

It’s worth remembering that IPSE members can benefit from a free initial consultation with our independent financial advice partners, Chase De Vere.