April 2026 dividend tax: everything that changed

On 6 April 2026, dividend tax rates in the UK rose by two percentage points across every band. For Limited Company contractors, this is the most direct tax hit of the Autumn 2025 Budget — more predictable than IR35, harder to mitigate than employer NI, and already baked into every dividend drawn from April 2026 onwards. This guide explains exactly what changed, why HMRC made the change, and what it costs you in real pounds on a typical £115K gross contract income.

The exact rate changes

The dividend tax rates for 2026/27 are as follows, compared with 2025/26:

| Band | 2025/26 | 2026/27 | Change | |---|---|---|---| | Basic rate (up to ~£50,270) | 8.75% | 10.75% | +2pp | | Higher rate (£50,271–£125,140) | 33.75% | 35.75% | +2pp | | Additional rate (above £125,140) | 39.35% | 39.35% | unchanged | | Dividend allowance | £500 | £500 | unchanged |

The dividend allowance — the amount you can receive tax-free regardless of band — remains at £500. It was cut from £2,000 to £1,000 in 2023/24 and again to £500 in 2024/25; it has not been cut further.

The additional rate (39.35%) is unchanged. This applies to dividends drawn by taxpayers whose total income exceeds £125,140.

Why HMRC raised them — Autumn 2025 Budget context

The Autumn 2025 Budget set out the government's intention to align dividend taxation more closely with employment income taxation over time. The stated rationale is that the gap between the basic rate income tax (20%) and the basic rate dividend tax (now 10.75%) creates an incentive for owner-managed businesses to structure remuneration as dividends rather than salary — reducing NI receipts for the Treasury.

The two-percentage-point rise was projected to raise approximately £1.2 billion per year in additional receipts, primarily from higher-rate and additional-rate taxpayers in owner-managed businesses.

The rise compounds with two other changes that also took effect in the 2025–2026 period:

• Employer NI at 15% (from April 2025), with the secondary threshold at £5,000 — adding approximately £1,135/yr of employer NI for a director on £12,570 salary compared with the prior-year position.
• Personal Allowance taper (unchanged but biting harder) — above £100K adjusted net income, the £12,570 personal allowance reduces by £1 for every £2 of additional income, creating an effective 60% marginal tax rate band between £100K and £125,140.

Worked example: £115K gross Limited Company

Consider a contractor working 250 days per year at £460/day — roughly £115,000 gross invoiced to clients. They pay themselves a £12,570 director salary (the standard advice for 2026/27) and take the balance as dividends after corporation tax.

Company level:

• Gross receipts: £115,000
• Director salary: £12,570
• Employer NI on salary above £5,000 secondary threshold: (£12,570 − £5,000) × 15% = £1,136
• Accountancy / professional costs: £1,500 (estimated)
• Taxable profit: £115,000 − £12,570 − £1,136 − £1,500 = £99,794
• Corporation tax at 25% main rate (profits above £50K): £24,949
• Retained profit available for dividend: £99,794 − £24,949 = £74,845

Personal tax on dividends — 2025/26 (old rates):

• Director salary uses personal allowance in full (£12,570 salary = £12,570 PA)
• Dividend allowance: £500 tax-free
• Remaining dividend: £74,345
• First slice to fill basic rate band: £37,700 (£50,270 − £12,570) at 8.75% = £3,299
• Remaining higher-rate dividend: £74,345 − £500 − £37,700 = £36,145 at 33.75% = £12,199
• Total dividend tax (2025/26): £15,498

Personal tax on dividends — 2026/27 (new rates):

• Same structure, but rates are +2pp:
• Basic-rate slice: £37,700 × 10.75% = £4,053
• Higher-rate slice: £36,145 × 35.75% = £12,932
• Total dividend tax (2026/27): £16,985

The difference: £16,985 − £15,498 = £1,487 more dividend tax in 2026/27.

At slightly different income levels or with different salary choices, this gap runs from approximately £1,300 to £2,100 for contractors in the £90K–£130K gross range.

Impact across income levels — at a glance

The 2pp rise scales with the size of your dividend draw, but the marginal increase plateaus above ~£125K because dividends in the additional-rate band are unchanged at 39.35%. The table below assumes a standard £12,570 director salary with the balance taken as dividends, accountancy at £1,500, and corporation tax applied with marginal relief.

| Gross Limited Co income | Approx. dividend draw | 2026/27 dividend tax | 2025/26 dividend tax | Annual extra | |---|---|---|---|---| | £75,000 | £47,700 | £7,574 | £6,630 | +£944 | | £115,000 | £74,300 | £16,985 | £15,498 | +£1,487 | | £150,000 | £102,800 | £27,281 | £25,234 | +£2,047 | | £200,000 | £139,600 | £41,391 | £39,150 | +£2,241 |

The pattern: every additional £25K of dividend draw between the basic-rate ceiling (£50,270) and the additional-rate threshold (£125,140) costs an extra ~£500/yr in 2026/27 vs 2025/26. Beyond £125,140 of total income, the marginal cost of further dividends is unchanged — but you're now also dealing with no personal allowance at all (fully tapered above £125,140).

Worked example: £200K gross — the high-earner picture

A contractor at £800/day × 250 days = £200,000 gross is a less common but important case because it spans all three dividend rate bands, and the personal allowance is fully tapered away.

Company level:

• Gross receipts: £200,000
• Director salary: £12,570
• Employer NI on salary above £5,000 threshold: (£12,570 − £5,000) × 15% = £1,136
• Accountancy: £1,500
• Taxable profit: £200,000 − £12,570 − £1,136 − £1,500 = £184,794
• Corporation tax (25% main rate with marginal relief on profits £50K–£250K): 25% × £184,794 − ((£250,000 − £184,794) × 3/200) = £46,199 − £978 = £45,220
• Retained profit available for dividend: £184,794 − £45,220 = £139,574

Personal tax — 2026/27:

• Adjusted net income: £12,570 + £139,574 = £152,144 → above £125,140 means personal allowance is fully tapered to £0
• Salary £12,570 fully taxable at 20% basic rate: £2,514
• Dividend allowance: £500 at 0%
• Basic-rate dividend slice (to £50,270): £37,200 × 10.75% = £3,999
• Higher-rate dividend slice (£50,270–£125,140): £74,870 × 35.75% = £26,766
• Additional-rate dividend slice (above £125,140): £27,004 × 39.35% = £10,626
• Total dividend tax (2026/27): £3,999 + £26,766 + £10,626 = £41,391
• Plus income tax on salary: £2,514

Personal tax — 2025/26 (old rates):

• Basic: £37,200 × 8.75% = £3,255
• Higher: £74,870 × 33.75% = £25,269
• Additional: £27,004 × 39.35% = £10,626 (unchanged)
• Total dividend tax (2025/26): £39,150

Delta: £2,241 more dividend tax in 2026/27.

Two things make the £200K case structurally different from £115K:

1. No personal allowance — at adjusted net income above £125,140, the PA is fully tapered to zero, so the £12,570 salary draws income tax of £2,514 it wouldn't have paid below £100K.
2. Additional-rate ceiling matters less — once dividends enter the 39.35% band, the +2pp rise stops biting. The Treasury chose to leave the additional rate unchanged.

The practical implication: above ~£125K of personal income, the marginal cost of each extra £1,000 of dividend is now £393.50 (39.35%) — the same as last year. The 2pp rise lands hardest on contractors in the £80K–£125K personal-income band, not the very top earners.

The compounding effect with employer NI and PA taper

The £1,487 additional dividend tax does not exist in isolation. When layered with the employer NI increase (which arrived in April 2025), the total additional cost since 2024/25 rates is:

• Additional employer NI per year: ~£1,135
• Additional dividend tax per year: ~£1,487
• Combined: ~£2,600/yr more tax than 2024/25

Above £100K personal income, the personal allowance taper adds a further sting. Every pound of dividend income between £100K and £125,140 of adjusted net income costs an effective marginal rate of around 53.75% under 2026/27 rules (35.75% dividend tax plus the lost personal allowance at an additional 20%). This makes the band between £100K and £125,140 extremely expensive and strengthens the case for employer pension contributions to reduce adjusted net income below £100K.

Mitigations available to Limited Company contractors

Employer pension contributions are the most powerful lever. A contribution of £20,000 from the company to a registered pension is:

• Deducted from company profit before corporation tax (saves ~25% in corp tax)
• Not subject to dividend tax (never passes through the personal tax system)
• Deferred to retirement, typically at a lower marginal rate

See our guide on contractor pension strategy for the full worked example.

Optimising salary to maximise corporation tax deduction while minimising employer NI is covered in our director salary guide.

Retained profit — leaving money in the company rather than extracting everything — defers the dividend tax hit. This makes sense if you will be in a lower rate band in a future year (e.g., winding down, taking a career break, or retiring).

HMRC source and rates verification

The 2026/27 dividend tax rates are published in the HMRC rates and allowances documentation. The corporation tax rates used in this guide are confirmed at gov.uk — Corporation Tax rates and allowances.

The full dividend tax rate schedule is verified against gov.uk — Tax on dividends.

Try the numbers on your own income

The worked example above uses £115K gross. Your numbers will be different — the personal allowance taper kicks in above £100K, and the basic/higher rate boundary shifts with salary level.

Use our dividend tax calculator to see your own band-by-band breakdown, or run the full three-way comparison (Outside IR35 Ltd, Inside IR35 Umbrella, Permanent) in the contractor calculator.

For quick reference at common dividend draws, we have dedicated breakdown pages: tax on a £30,000 dividend, £50,000 dividend, £75,000 dividend, and £100,000 dividend. For taxonomy by rate band rather than amount: basic-rate taxpayer, higher-rate taxpayer, additional-rate taxpayer. Definitions for any unfamiliar terms are in the glossary.

Summary

The April 2026 dividend tax rise is a straightforward 2pp increase across basic and higher rates, adding approximately £1,300–£2,100 per year for a typical £90K–£130K gross contractor. It compounds with the April 2025 employer NI rise to create a total post-2024/25 hit of roughly £2,600/yr before mitigations. Employer pension contributions remain the most tax-efficient mitigation available to Limited Company directors and are worth modelling before each tax year end.