Date posted: 16th Dec 2025
The UK’s Autumn Budget 2025 raised dividend tax rates by 2 percentage points from April 2026, marking the anticipated dividend tax increase April 2026. This change shifts the basic rate from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate remaining at 39.35% – prompting company directors to reassess how they withdraw profits from their company.
Dividends stay tax-efficient after corporation tax (19-25%) with no NI contributions, but the dividend tax increase narrows the gap versus salary, especially alongside frozen income tax thresholds until 2031.
Updated Tax Rates: Dividend Taxes to increase from April 2026
- Basic rate taxpayers: Dividend tax rises to 10.75%.
- Higher rate: Rises to 35.75%.
- Additional rate: Fixed at 39.35%.
Salary vs Dividends Tax Comparison Table (2026/27 Onward)
Optimal Strategies: Tax Planning for Company Directors
In general, taking a low salary and dividends to meet any other income needs, remains tax efficient for most owner managers, although the saving is significantly reduced. For a £100k salary package compared against a similar strategy of small salary and dividends, saves around £2k for the latter (keeping the cost to the company the same) so there are still savings to be made but nowhere near the savings ten years ago or more. The break-even point is around £300k pure salary where, again, keeping the cost to the company the same, the net after tax position is the same for a pure salary and small salary and dividends.
Often, this is quite a basic position and there are other considerations such as:
- Does the director undertake R&D activities for the company?
- Is the company loss making or struggling?
- Is there a director’s loan account on which interest could be paid?
- Should disincorporation be considered?
- Can an alphabet share structure be used?
As ever, bespoke tax advice is required. Should you have any queries, please do call us.
