A significant tax change has taken effect, potentially leaving thousands of households paying an average of £600 more each year. Starting April 6, 2026, dividend tax rates have increased under HMRC oversight, affecting numerous Britons who earn income from dividends.
Tax compliance firm Qdos advises those impacted to review their finances before the new tax year. The changes are expected to hit freelancers, contractors, and small business owners hardest, as they often pay themselves through a mix of salary and dividends.
New Dividend Tax Rates
Under the updated rules, the basic dividend tax rate has risen from 8.75% to 10.75%. The higher rate has increased from 33.75% to 35.75%. Additional rates remain unchanged at 39.35%. These higher rates mean individuals using this income structure may see a noticeable rise in their tax bills.
Impact on Income Levels
According to Qdos, someone withdrawing around £50,000 annually from their business could pay roughly £600 more in tax each year. For those taking about £100,000 from their company, the increase could reach approximately £1,400 annually due to the higher rate changes.
Seb Maley, chief executive of Qdos, commented: "With just weeks to go until the new rates take effect, now's the time for company directors to review their remuneration strategy and potentially make use of the existing thresholds before they rise next month."
Maley added: "Many directors of small limited companies structure their income through a combination of salary and dividends, which is a compliant way to operate. For someone taking just over £50,000 a year from their business, the increase in the basic dividend tax rate from 8.75% to 10.75% could mean paying roughly £600 more in tax each year. This nearly triples for someone paying themselves around £100,000 a year, to around £1,400 as a result of the higher rate changes."
The tax adjustment is now in force, and affected individuals are urged to consult with tax professionals to mitigate the financial impact.
