Dividend Tax Increases in 2026

By Christopher Taylor, Senior Accountant at MM Business and Tax Consultancy

Dividend Tax Increases in 2026: Implications for Company Directors and Investors

Dividend tax rates have risen by 2 percentage points for basic and higher rate taxpayers from April 2026, with basic rate now at 10.75% and higher at 35.75%. This change, alongside frozen thresholds, significantly affects owner-managed businesses. At MM Business and Tax Consultancy, we are helping clients reassess remuneration strategies in light of these updates.

Why the Change Matters

Dividends remain a popular extraction method post-corporation tax, but higher rates erode net receipts. Combined with National Insurance and other levies, effective tax burdens rise for many directors.

Christopher Taylor, Senior Accountant at MM Business and Tax Consultancy, observes: “Directors drawing substantial dividends now face a notable increase. Reviewing salary vs dividend balances, pension contributions, and company investments is more important than ever.”

Planning Opportunities

Strategies include:

  • Optimising the use of the dividend allowance (if any remains).
  • Increasing pension contributions for tax relief.
  • Considering bonus payments or benefits in kind.
  • Retaining profits in the company for growth or reinvestment.

For family companies, gifting shares or using trusts requires careful advice due to CGT and IHT implications.

At MM Business and Tax Consultancy in Canary Wharf, our approach integrates these changes with broader financial planning. We model various scenarios to minimise overall tax leakage while maintaining cash flow.

Interaction with Other Taxes

This dividend hike interacts with property income changes and MTD requirements. Landlords and investors holding shares must consider cumulative effects.

Christopher Taylor adds: “Our clients at MM Business and Tax Consultancy benefit from integrated advice covering corporation tax at 25%, VAT, and personal taxes. This holistic view prevents isolated decisions that create unexpected liabilities.”

Expert Recommendations

Businesses should forecast 2026/27 drawings early. Software updates for MTD will aid accurate tracking. Engaging professional support ensures compliance and optimisation.

The team at MM Business and Tax Consultancy stays abreast of HMRC guidance and legislative nuances to deliver timely, practical advice.

In summary, while the dividend tax rise presents challenges, strategic planning can mitigate impacts. Christopher Taylor and colleagues at MM Business and Tax Consultancy are here to support UK businesses through this evolving landscape.