The Autumn Budget has now confirmed what had been expected for weeks: from April 2026, the basic and higher dividend tax rates will each rise by two percentage points.
These changes directly affect individuals who draw income from their companies through a combination of salary and dividends.
Confirmed 2p dividend tax rise – basic and higher rate
From April 2026, the dividend tax rates will increase as follows:
- Basic rate: rising from 8.75% to 10.75%
- Higher rate: rising from 33.75% to 35.75%
- Additional rate: unchanged at 39.35%
- Dividend allowance: remains at £500
For many company owners, this marks a further tightening of the tax landscape and continues the gradual erosion of the traditional advantages of taking income via dividends.
A typical director taking a standard £12,570 salary and £37,700 in dividends will face roughly £750 more in dividend tax each year under the new rates.
The increase, taking effect from April 2026, is expected to raise approximately £2.1bn.
Current dividend tax rates (2025/26)
For reference, the current year’s rates remain:
- 8.75% – basic rate
- 33.75% – higher rate
- 39.35% – additional rate
The basic and higher rates will each rise by 2p from April 2026.
Dividends received within ISAs and pensions are unaffected.
Only dividends paid on ordinary shareholdings outside tax-advantaged wrappers are subject to the new rates.
The impact will mainly fall on company directors and individuals with sizeable investment portfolios held outside ISAs.
Why dividends continue to be targeted
Governments of recent years have repeatedly increased the tax burden on those receiving dividend income. Dividends remain a comparatively simple mechanism for raising additional revenue.
Adjustments to dividend tax rates do not affect employees, and the tax-free dividend allowance has been reduced dramatically—from £5,000 in 2016/17 to just £500 today, a level maintained for 2026/27.
Alongside Corporation Tax increases, these changes bring the overall tax position for company directors even closer to that of traditional employment.
Planning before April 2026
You may wish to consider bringing forward dividend withdrawals before the new rates apply. However, doing so may increase your tax liability for the current year depending on your other income.
Professional advice is essential before taking any action. It is also possible that the government will introduce further compliance measures alongside the rate changes, given recent tightening around close company reporting.
New close company dividend reporting rules now in force
From 2025/26 onwards, directors of close companies must provide additional dividend information in their Self Assessment returns, including:
- The amount of dividends received from their own company shown separately
- The company name and registration number
- The highest percentage shareholding held during the year
- A declaration confirming directorship of a close company
These requirements were introduced by the Income Tax (Additional Information to be included in Returns) Regulations 2025.
