Recent changes to the dividend tax rates mean more people are now paying tax on dividend income than ever before. Whether you are a company director, a small business owner, or an individual investor, it is important to understand how these changes may affect you, and what planning opportunities are still available. Dividend tax rates are increasing from 6 April 2026, if you’re a company director who is also a shareholder, now is a good time to review your dividend strategy. From 6 April 2026, dividend tax rates will increase:

Basic rate: 8.75% → 10.75%

Higher rate: 33.75% → 35.75%

Dividends taken before 5 April 2026 will still be taxed at the current lower rates, which could make a meaningful difference to your overall tax bill.

What has changed? 

Over the last few years, the tax-free dividend allowance has been reduced significantly. This allowance is the amount of dividend income you can receive each tax year before any tax is due.

 

As a result of these reductions, many individuals who previously paid no tax on dividends are now required to declare dividend income and pay tax through Self Assessment.

Dividend tax rates themselves depend on your income tax band:

  • Basic rate taxpayers pay a lower rate
  • Higher and additional rate taxpayers pay progressively more

While dividend tax is still lower than income tax on salary, the gap has narrowed, making careful planning more important.

Who is affected? 

These changes particularly affect:

  • Company directors who are also shareholders, who take income through dividends
  • Shareholders with investment portfolios outside ISAs or pensions
  • Individuals whose overall dividend income now exceeds the reduced dividend allowance (currently £500)

In many cases, people are being brought into Self Assessment for the first time purely because of dividend income.

Do dividends still make sense? 

For many owner-managed businesses, dividends remain a tax-efficient way of extracting profits when compared with salary alone. However, the overall tax cost is higher than it was in the past, and the balance between salary and dividends should be reviewed regularly.

What worked a few years ago may no longer be the most efficient approach.

Planning opportunities to consider

Although the rules have tightened, there are still legitimate ways to manage dividend tax exposure, including:

  • Making full use of ISA allowances for investments
  • Reviewing the timing of dividend payments across tax years
  • Considering pension contributions as part of a wider tax strategy
  • Reviewing shareholdings between spouses or civil partners where appropriate

The right approach depends on your wider income, business profits, and long-term plans.

What should you do next? 

If you receive dividend income, it is important to:

  • Keep clear records of dividends received
  • Check whether you need to register for Self Assessment
  • Review your tax position annually, rather than assuming previous advice still applies

Tax rules continue to change, and small adjustments can make a meaningful difference over time.

How we can help 

At Bell’s Accountants, we help clients understand how tax changes affect them in real terms and provide clear, practical advice tailored to their circumstances. If you are unsure how the dividend tax changes impact you, or whether your current approach remains tax-efficient, we would be happy to help. Contact us here