Limited company directors face 2p dividend tax hike from April 2026

The Autumn Budget has now confirmed what had been widely trailed for weeks. From April 2026, basic and higher dividend tax rates will increase by two percentage points.

These changes directly affect limited company directors who pay themselves via a mix of salary and dividends.

Confirmed 2p dividend tax rise – basic and higher rate

From April 2026, the dividend tax rates will rise as follows:

• Basic rate: increasing from 8.75% to 10.75%
• Higher rate: increasing from 33.75% to 35.75%
• Additional rate: unchanged at 39.35%
• The £500 dividend allowance remains unchanged.

For many limited company owners, this represents yet another tightening of the tax system that has steadily eroded the traditional benefits of operating through a company.

For a typical contractor on the standard £12,570 salary and drawing down £37,700 in dividends, the rise means around £750 more in extra dividend tax each year.

The tax hike, which takes effect from April 2026, is expected to raise £2.1bn.

Current dividend tax rates (2025/26)

For reference, the rates for the current tax year remain:

• 8.75% – basic rate
• 33.75% – higher rate
• 39.35% – additional rate

The basic and higher rates will rise by 2p from April 2026.

Read our guide to dividend tax here and try out our 2025/26 dividend tax calculator.

Dividends received within ISAs and pensions are unaffected.

Only dividends paid on ordinary shareholdings held outside tax wrappers are subject to the new rates.

Clearly, the impact falls mainly on company directors and investors with larger portfolios held outside ISAs.

Why dividends continue to be targeted

Successive governments have increased the tax burden on company directors, and dividends remain one of the easiest levers to pull when additional revenue is needed.

Unlike changes to income tax rates, adjustments to dividend rates do not affect employees.

The tax-free dividend allowance has been reduced from £5,000 in 2016/17 to just £500 today. It remains at this level for the 2026/27 tax year.

Corporation Tax has risen sharply for many small companies. With this latest increase, overall taxation for company directors moves even closer to parity with traditional employment.

Planning before April 2026

If you can, you might consider extracting additional dividends before the rate changes take effect. However, this could also increase your tax bill for the current year, depending on your income position.

As always, speak to your accountant before acting. The government may also introduce new compliance rules alongside these rises, given the recent tightening of reporting requirements for close companies.

New close company dividend reporting rules already in force

New regulations for 2025/26 onwards now require directors of close companies to provide enhanced dividend information in their Self Assessment returns. As we reported here, these include:

• The amount of dividends received from their own company is reported separately
• The company name and registration number
• The highest percentage shareholding held during the tax year
• A mandatory declaration confirming whether they were a director of a close company

These rules were introduced via the Income Tax (Additional Information to be included in Returns) Regulations 2025.