If you’re a limited company director who balances a low salary with dividends, your “take-home” just got a little more expensive.
As of 6 April 2026, the cost of extracting profit has shifted. While the low salary + dividend strategy isn’t dead, the maths have definitely changed. Here is what you need to know to keep your remuneration tax-efficient.
What changed on 6 April 2026
Dividend tax rates have increased:
- Basic rate taxpayers will pay 10.75% on dividends (up from 8.75%).
- Higher-rate taxpayers will pay 35.75% (up from 33.75%).
- The additional rate stays at 39.35%.
The 2% increase to dividend tax rates might look small on paper, but it adds up quickly in your bank account. If you take £50,000 in dividends, you’re looking at an extra £1,000 going to HMRC every single year. This isn’t a one-off levy either, it’s the new cost of you taking dividends out from your business.
Don’t waste your £500 allowance
The tax-free dividend allowance is still frozen at £500. It’s use-it-or-lose-it and cannot be carried forward to the next year.
If you don’t declare at least £500 in dividends, you are essentially leaving a tax-free gift on the table for HMRC.
The “danger zones”
The old “low salary, high dividend” approach now requires a bit more finesse because of two main “cliffs”:
- The Corporation Tax Trap: Your company is already paying 19% to 25% tax on profits before you even touch the money.
- The 60% Stealth Tax: If your total income (salary + dividends) hits £100,000, your personal allowance starts to vanish. This creates an effective tax rate of 60% on the slice of income between £100,000 and £125,140.
Every decision about how much to pay yourself, when, and in what form interacts with all of these thresholds at once. So it’s worth talking to an accountant about the most tax-efficient way to do this.
One rule that never changes
You can only pay dividends from retained profits after Corporation Tax has been accounted for.
A healthy bank balance doesn’t always mean you can legally pay a dividend. If you get this wrong, HMRC can reclassify those payments as salary, leading to a nasty surprise of back-dated National Insurance and extra tax.
It’s also worth considering whether extracting profit is the right move at all. Leaving money in the company, particularly if you’re a higher rate taxpayer, can sometimes be more efficient than paying the personal tax cost of taking it out. This is especially relevant if you’re planning to reinvest in the business. Or considering an exit to an employee owned trust.
Better ways to extract value?
With dividend taxes rising, it’s time to look at the “sidekicks” to your main strategy:
- Pensions: Contributions are usually a deductible expense for your company, reducing your Corporation Tax while building your future. This is one of the most efficient ways to extract value from your company.
- ISAs: You can still shield up to £20,000 of investment income from tax entirely. However, next financial year, for under 65s, the maximum amount you can save each tax year in a Cash ISA will reduce from £20,000 to £12,000.
- Reinvestment: Sometimes, the most tax-efficient move is to leave the cash in the business to fund growth rather than taking the personal tax hit today.
Need a review?
The strategy that worked for you in 2024 might be costing you thousands in 2026. So if you haven’t reviewed your remuneration strategy recently, it’s worth looking at.
Get in touch today, and we’ll model your specific numbers to ensure you’re extracting profit in the smartest way possible.
At Jenner’s Tax & Business Advisers, we help you stay one step ahead and make sure you’re not missing opportunities or paying more tax than you need to.
📞 Call us on 01432 379988
Or contact us here to arrange a quick review.