Time is tight. If you take dividends from your company, there is a small window to act before tax rates increase on 6 April 2026.

Here is what you need to consider before the deadline.

What is changing

From 6 April 2026, dividend tax rates for basic rate and higher rate taxpayers will increase, as follows:

Tax Band	Current Rate (until 5 April 2026)	New Rate (from 6 April 2026)
Basic Rate	8.75%	10.75%
Higher Rate	33.75%	35.75%
Additional Rate	39.35%	39.35% (No change)

What does this mean?

• Higher tax on the same level of dividend income – for example, if you take £20,000 in dividends as a higher-rate taxpayer, doing so after April 6 will cost you an extra £390 in tax compared to taking it now
• A higher personal tax bill for business owners who rely on dividends
• Less flexibility if no action is taken before the deadline

These changes follow a wider trend of increasing tax on investment income. We have already seen similar changes in recent years, including reductions to allowances and increases to Capital Gains Tax rates announced in late 2024 .

When were these changes announced

The increase in dividend tax rates forms part of the government’s ongoing approach to raising revenue from personal taxes.

While these changes were not introduced in isolation, the direction has been clear for some time:

• Dividend allowances have reduced over recent tax years
• Capital Gains Tax rates increased from October 2024
• Further tightening of reliefs and thresholds has followed

The April 2026 change is the next step in that approach.

Why this matters for you

If you are an owner managed business, dividends are often a key part of how you take income.

A higher tax rate means:

• You keep less of what you take out
• Timing becomes more important
• Planning ahead can make a significant difference

This is not about avoiding tax – it’s about ensuring you’re not paying more than you need to.

Impact on overdrawn director loan accounts

For many directors of close companies, the tax rate for Director’s Loan Accounts (S455 tax) is linked to the Dividend Upper Rate. This means the tax on overdrawn loan accounts will also likely increase to 35.75% from April 6, 2026. This is a “hidden” impact that could affect many business owners.

What you should consider now

With the deadline fast approaching, here’s what you may want to do: Declare dividends before 5 April 2026
If it fits with your cash flow and profit position, bringing forward a dividend could mean it is taxed at the current, lower rate.

To do this properly:

• Hold a board meeting and record the minutes.
• Issue dividend vouchers.
• Ensure the company has sufficient distributable reserves (retained profit after Corporation Tax).

2. Review your overall income position
Dividend tax sits alongside salary, other income, and allowances. A quick review of your total tax position can help you understand the bigger picture.

3. Checking available reserves
Dividends must be paid from retained profits. Ensure you have sufficient reserves in place before taking action.

4. Thinking beyond this year
This is not a one off decision. With tax rules continually evolving, it’s worth considering how to structure your income in the longer term. For example, accruing a bonus or making a pension contribution may be sensible alternatives, as these could be corporation tax-deductible (unlike dividends). These options should be part of a broader remuneration and profit-extraction strategy tailored to your specific circumstances.

A quick word of caution

Acting quickly does not mean acting without advice. Every business is unique, and what works for one owner might not be the right solution for another. The key is to make a decisions based on:

• Your current profits
• Your personal tax position
• Your long-term plans for the business

How we can help

If you are unsure what to do, now is the time to speak to us.

We will help you:

• Understand your current financial position
• Explore your options clearly
• Make an informed decision that makes sense for you and your business

Supporting your business through every stage means helping you stay on top of changes like this.

If you want to review your position before the deadline, get in touch with your local bk plus team today.