UK Dividend Tax Rise April 2026: Basic Up to 10.75%, Higher to 35.75% — What It Costs

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 the Finance (No.2) Bill 2024–26. 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

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

• 2025-26 dividend tax: ~£12,500
• 2026-27 dividend tax: ~£13,298
• Extra tax: ~£800 per year

Additional-rate senior — £100,000 dividends, £150,000 salary

All dividends land in the additional band at the unchanged 39.35%.

• 2025-26: £39,350
• 2026-27: £39,350
• 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). Roughly £50k of dividends lands in the higher band.

• 2025-26 dividend tax: ~£17,400
• 2026-27 dividend tax: ~£18,500
• Extra tax: ~£1,100 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 40% 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) remains a clear Ltd win: 25% + 75% × 39.35% = 54.51%, versus ~47% PAYE equivalent. The unchanged additional rate keeps this strategy intact for highly-paid directors.

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 32% employee-side hit (20% income tax + 8% NI + employer NI effectively reduces available dividend anyway), 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

1. Investors outside ISAs: review whether your dividend portfolio should move inside the ISA wrapper through Bed & ISA sales or fresh subscriptions.
2. Limited company directors: re-run the salary/dividend split in the director-salary-dividend-optimizer with 2026-27 rates selected.
3. Contractors considering structure change: the contractor comparison calculator now uses the new rates; re-check whether Ltd still beats Umbrella / PAYE at your rate.
4. Estimated dividend tax liability: use the dividend tax calculator to price your 2026-27 liability and compare to 2025-26.
5. 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.