On 6 April 2026 the UK basic and higher dividend tax rates rose by 2 percentage points — the first increase since April 2022. The additional rate was left unchanged. The rise was confirmed in the Autumn Budget 2025 and legislated in section 4 of the Finance Act 2026. This article walks through who’s affected, how the new rates bite at different income levels, and the planning options that remain open.
The new rates at a glance
| Tax band | 2025-26 | 2026-27 | Change |
|---|---|---|---|
| Dividend Allowance | £500 | £500 | no change |
| Basic rate (up to £50,270) | 8.75% | 10.75% | +2 pp |
| Higher rate (£50,271 – £125,140) | 33.75% | 35.75% | +2 pp |
| Additional rate (over £125,140) | 39.35% | 39.35% | unchanged |
The Dividend Allowance, Personal Allowance (£12,570), and band thresholds all stayed the same. Only the rates at which dividends above the allowance are taxed changed.
What it costs you in cash
Basic-rate investor — £10,000 dividends
Taxable dividends (after £500 allowance) = £9,500
- 2025-26: £9,500 × 8.75% = £831.25
- 2026-27: £9,500 × 10.75% = £1,021.25
- Extra tax: £190 per year
Higher-rate director — £40,000 dividends, £12,570 salary
The salary uses up the Personal Allowance; £37,700 of dividends fit in the basic-rate band (£500 at the allowance’s 0% rate, £37,200 taxed at the basic dividend rate), and the remaining £2,300 falls into the higher band.
- 2025-26 dividend tax: £37,200 × 8.75% + £2,300 × 33.75% = £4,031
- 2026-27 dividend tax: £37,200 × 10.75% + £2,300 × 35.75% = £4,821
- Extra tax: ~£790 per year
Additional-rate senior — £100,000 dividends, £150,000 salary
All dividends land in the additional band at the unchanged 39.35% (after the £500 allowance: £99,500 taxable).
- 2025-26: £99,500 × 39.35% = £39,153
- 2026-27: £99,500 × 39.35% = £39,153
- No change — the additional rate was explicitly left alone.
Limited-company director using low-salary-high-dividend model — £80,000 total drawn
Typical structure: £12,570 salary + £67,430 dividends (post-CT). £37,700 of dividends fit in the basic-rate band (£500 allowance + £37,200 at the basic dividend rate); the remaining £29,730 lands in the higher band.
- 2025-26 dividend tax: £37,200 × 8.75% + £29,730 × 33.75% = £13,289
- 2026-27 dividend tax: £37,200 × 10.75% + £29,730 × 35.75% = £14,627
- Extra tax: ~£1,339 per year, compounded against the unchanged £500 allowance
How the Ltd-vs-PAYE crossover moved
The rise narrowed the tax advantage of running a limited company for contractor-style income. At the new rates:
Basic band combined rate = 25% CT + 75% × 10.75% dividend = 33.06% (up from 31.56%)
Higher band combined rate = 25% CT + 75% × 35.75% dividend = 51.81% (up from 50.31%)
PAYE-equivalent marginal rates (including employee + employer NI in the agency-PAYE model contractors typically compare against) are roughly 37% basic and 50% higher. The Ltd structure still wins at basic band, but the margin is narrower; at higher band Ltd and PAYE are now within a percentage point or two for many contract rates.
Additional band (dividends above £125,140 in combined income): 25% + 75% × 39.35% = 54.51%, versus roughly 54% for the PAYE equivalent once employer NI is counted (45% income tax + 2% employee NI, with 15% employer NI on top). The two are effectively level, so the additional band is no longer a clear Ltd win.
Planning options still open
1. Max the Dividend Allowance every year
The £500 tax-free allowance didn’t move. Every dividend-receiving spouse in a household can claim it — a jointly-owned portfolio can shield £1,000 of dividends per year.
2. ISA-shelter new dividend-paying investments
Dividends paid inside a Stocks & Shares ISA are tax-free regardless of rate. The £20,000 annual ISA allowance is unchanged for 2026-27 — if you’re still holding dividend funds outside an ISA, the case for transferring (or new subscriptions going straight into an ISA) strengthened on 6 April 2026.
3. Pension contributions from a limited company
An employer pension contribution reduces Corporation Tax by 25% (main rate) and shifts extraction value from the dividend layer (now 33.06%–51.81% combined) to the pension layer (tax-free on the way in, taxed only on withdrawal at your retirement marginal rate, with 25% tax-free lump sum). The relative case for pension extraction over dividend extraction grew 2 percentage points on 6 April 2026.
4. Salary sacrifice inside a limited company
Running more through PAYE salary (rather than dividends) now loses a slightly smaller margin. For director-shareholders who have historically been reluctant to take more salary because of the 28% employee-side hit (20% income tax + 8% NI, with employer NI on top), the arithmetic shifted marginally toward salary.
5. Bring forward 2025-26 dividend declarations
This option is no longer available — the 5 April 2026 tax year cut-off has passed. If you declared dividends before that date they were taxed at the old rates; dividends declared after 5 April 2026 pay the new rates regardless of when the underlying profit was earned.
What the rise doesn’t touch
- Dividend Allowance — still £500
- Personal Allowance — still £12,570 (frozen until 2031)
- Corporation Tax — still 19% small profits, 25% main rate, marginal relief £50k–£250k
- Additional rate — still 39.35%
- Scottish income tax — unaffected; dividend tax remains the same rate across the UK
- ISA allowance — still £20,000
- Employee and employer NI rates — separate rate changes in Budget 2024/25, not affected by the Autumn Budget 2025 dividend decision
What to do now
- Investors outside ISAs: review whether your dividend portfolio should move inside the ISA wrapper through Bed & ISA sales or fresh subscriptions.
- Limited company directors: re-run the salary/dividend split in the director-salary-dividend-optimizer with 2026-27 rates selected.
- Contractors considering structure change: the contractor comparison calculator now uses the new rates; re-check whether Ltd still beats Umbrella / PAYE at your rate.
- Estimated dividend tax liability: use the dividend tax calculator to price your 2026-27 liability and compare to 2025-26.
- Self Assessment for 2026-27: the first return that will show the new rates is due 31 January 2028. Plan for a slightly higher balancing payment.
Summary
The 2 percentage-point rise in basic and higher dividend tax rates from 6 April 2026 costs a basic-rate investor about £200 per £10,000 of dividends and a higher-rate director about £200 per £10,000 crossing the higher band. Additional-rate directors are unaffected on their dividend layer. The case for ISA wrappers, pension extraction, and spouse-name allocation all strengthened on 6 April 2026 — and Self Assessment returns for the new tax year will show the new liability starting with filings due 31 January 2028.