Dividend Tax Changes April 2026

If you take dividends from your limited company, you may already have a habit of transferring some of each payment into a personal savings account for the tax bill. It is a simple way to make sure you have your tax liability saved and available to pay HMRC when due.

Dividend tax increased from 6 April 2026. It’s a small change but it’s a good idea to revisit your calculations and make sure you’re putting enough aside to cover your tax bill.

What changed?

The £500 tax free dividend allowance has not changed. The rate you pay on dividends above the allowance depends on your other income and where the dividends fall within the tax bands.

As an example, £20,000 of taxable dividends falling entirely within the basic rate band would attract £2,150 of dividend tax in 2026/27, compared with £1,750 in the previous year. That is an extra £400. The increase is also £400 if all £20,000 falls within the higher rate band.

Unlike employees on PAYE, company owners obviously do not have tax automatically deducted from drawings.  We must do this ourselves and its easily forgotten.  Company owners will often draw £5k in dividends and make the mistake of not allowing for the future tax liability.   

A useful habit is to move an appropriate share of each dividend into a personal savings account as soon as you draw it. When your Self-Assessment payment falls due, the money is already there.

If you have been using the same percentage for several years, check it now. For dividends taxed at the basic or higher rate, the rate has risen by two percentage points. Your savings percentage may also need to allow for dividends crossing into a higher band, other taxable income and any payments on account. Simply adding two points to an old rule of thumb will not give everyone the right figure.

We are already partway through 2026/27, so compare what you have put aside with the dividends you have taken since 6 April. If there is a shortfall, you have time to adjust the amount saved from future drawings.

In many cases, yes. The dividend tax increase does not automatically make taking all your income as salary the better option. Salary and dividends are taxed differently, and salary can also create employee and employer National Insurance costs. Dividends, meanwhile, are paid from company profits after Corporation Tax.

The best mix depends on your company’s profits, your other income and your personal circumstances. If you are considering changing how you pay yourself, speak to your lead accountant so we can compare the options using your figures.