Dividend tax is going up. Your business owner clients need to know.
From April 6, 2026, dividend tax rates across all bands increase by 2%. This is not a dramatic headline-grabbing change, but for business owners who extract significant profits via dividends, it adds up quickly.
The dividend allowance has already been slashed from £2,000 to £500 over recent years. Combined with the rate increase, business owners are paying meaningfully more tax on the same level of profit extraction than they were just three years ago.
| Feature | Rate to April 5, 2026 | Rate from April 6, 2026 |
|---|---|---|
| Basic rate (up to £50,270) | 8.75% | 10.75% |
| Higher rate (£50,271 - £125,140) | 33.75% | 35.75% |
| Additional rate (over £125,140) | 39.35% | 41.35% |
| Dividend allowance | £500 | £500 (unchanged) |
How much difference does 2% actually make?
For a basic-rate taxpayer taking modest dividends, the impact is small. For a higher-rate taxpayer extracting £80,000 or more in dividends annually, the numbers become significant.
Additional annual tax (£)
A business owner taking £100,000 in dividends will pay an additional £2,000 per year. Over five years, that is £10,000 in extra tax on the same level of extraction. Not catastrophic, but enough to warrant a conversation about whether their current structure is still optimal.
The salary vs dividend calculation is shifting
For years, the standard advice for owner-managed businesses has been to pay a small salary up to the NI threshold and extract the rest as dividends. That calculus has been shifting with each Budget, and the April 2026 changes push it further.
Combined effective tax rate %
The gap between the effective tax rate on dividends and salary has been narrowing steadily. For some clients, particularly those whose income falls mainly in the higher-rate band, the traditional salary-plus-dividends model may no longer be the most efficient approach.
This does not mean every business owner should switch to salary. Corporation tax, employer NI, and the client's specific circumstances all factor in. But it does mean the conversation needs to happen.
What should advisers be discussing with clients?
Step 1
Review current extraction strategy
Is the salary/dividend split still optimal for each business owner client? Run the numbers for 2026/27 using the new rates. For some, increasing salary and reducing dividends may save tax overall.
Step 2
Consider pension contributions
Employer pension contributions remain corporation tax deductible and free of NI. For business owners not maximising pension contributions, redirecting some dividend income into pension can be more tax-efficient than ever.
Step 3
Explore salary sacrifice arrangements
Where the business owner also employs staff or family members, salary sacrifice into pension saves both employer and employee NI. The maths is particularly compelling at higher income levels.
Step 4
Time dividends around the tax year
If a client was planning a large dividend in early April, bringing it forward to before April 5 saves 2% on the entire amount. For a £50,000 dividend, that is £1,000 saved by acting a few days earlier.
Step 5
Review the company structure holistically
For clients with multiple income streams, property income, or investments held personally, the dividend tax increase may tip the balance on whether a holding company or different wrapper structure would be more efficient.
The pre-April 5 window
There is a short-term opportunity here that clients should be aware of. Any dividends declared and paid before April 5, 2026 are taxed at the current (lower) rates. For clients who were planning to take dividends in the coming months anyway, accelerating them into the current tax year saves money.
£1,000
saved by taking a £50,000 dividend before April 5 rather than after
This is particularly relevant for clients with retained profits in their company. If they were planning to extract those profits at some point, doing it before April 6 rather than after is straightforward and saves real money.
Your website should be talking about this now
Business owners are aware that tax rules change every April. Many will be searching for information about the dividend tax increase right now. "Dividend tax 2026" and "salary vs dividend 2026" are terms people are actively typing into Google.
If your website has nothing to say on this topic, those prospects will find their information elsewhere. If it has a clear, helpful article and a way to ask follow-up questions, you have a chance of capturing their attention at exactly the moment they are thinking about tax planning.
As we covered in How to Get Your IFA Website Ranking on Google, writing about the questions your clients actually ask is the foundation of good SEO. Right now, your business owner clients are asking about dividend tax. Make sure your website has the answer.
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