As the tax year draws to a close, directors of personal and family companies should consider whether it is worthwhile taking a dividend before 6 April 2026. However, it is only possible to pay a dividend where the company has sufficient retained profits from which to pay it. Also, where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings.
Unused allowances
Where a shareholder has not used their dividend allowance (set at £500 for 2025/26) or their personal allowance in full, consideration should be given to paying a dividend before the end of the tax year to mop up unused dividend and personal allowances. This allows profits to be extracted from the company without an additional tax liability. Where the company has an alphabet share structure, dividends can be tailored to the shareholder’s circumstances.
Beat the dividend tax rise
Once the dividend and personal allowances have been used up, dividends are currently taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band. From 6 April 2026, the dividend ordinary rate is increased from 8.75% to 10.75% and the dividend upper rate is increased from 33.75% to 35.75%. There is no change in the dividend additional rate which remains at 39.35%.
Where dividends fall in the basic or higher rate band, an additional 2% will be payable in tax if the dividend is paid on or after 6 April 2026 compared to a dividend paid before that date. Where retained profits allow, consideration could be given to accelerating a dividend payment so that it is made before 6 April 2026 rather than on or after that date. This will save £20 in tax for every £1,000 paid as a dividend. However, if a dividend will be taxed at the ordinary dividend rate if paid in 2026/27 and at the upper dividend rate if paid in 2025/26, there is no point accelerating the dividend – 10.75% is a lot less than 33.75%.
