The Dividend Tax Rise From April 2026: What It Costs Property Company Directors

Most property company directors already know that getting profit out of a company is a second tax decision, not a formality. From 6 April 2026 that second decision gets a little more expensive. Autumn Budget 2025 raised the basic and higher rates of dividend tax by two percentage points, and for a director who draws most of their profit out as dividends each year, that is a real, recurring cost rather than a one-off.

What actually changed

From 6 April 2026, the dividend tax rates that apply above the £500 tax-free dividend allowance rise as follows:

• Basic rate: 8.75% rises to 10.75%
• Higher rate: 33.75% rises to 35.75%
• Additional rate: stays at 39.35%, unchanged

The £500 dividend allowance itself is not touched. Every director still receives the first £500 of dividend income each tax year free of dividend tax before any of the rates above apply. The additional rate staying flat means the increase is felt most by directors whose total income sits in the basic or higher rate bands, not by the highest earners.

Why the government moved on this specifically

Dividend tax has sat well below the equivalent Income Tax rates on employment income for years, which is exactly why paying yourself through a company rather than as an employee or sole trader has always carried a tax advantage on top of the commercial reasons for incorporating. This rise, alongside the parallel increase in property income tax from April 2027, is explicitly aimed at narrowing that gap between income from work and income from capital. Treasury costings put the extra revenue at roughly £1.2 billion a year once fully in effect. It is not a one-off adjustment; it is a direction of travel.

What it actually costs, in numbers

The dividend rate is only half the equation for a company director. The other half is the Corporation Tax already paid before profit reaches the dividend stage, so the number worth tracking is the combined effective rate on £100 of company profit, not the dividend rate in isolation.

Take a small property SPV paying Corporation Tax at 19%, with a director whose other income keeps them in the basic rate band. On £100 of profit, £19 goes in Corporation Tax, leaving £81 available to distribute. Under the old 8.75% rate, dividend tax on that £81 was £7.09, for a combined effective rate of 26.1%. Under the new 10.75% rate, dividend tax rises to £8.71, taking the combined effective rate to 27.7%.

Now take a larger company paying the full 25% rate, with a director in the higher rate band. £75 remains after Corporation Tax. At the old 33.75% rate, dividend tax was £25.31, a combined rate of 50.3%. At the new 35.75% rate, dividend tax rises to £26.81, a combined rate of 51.8%. The percentage point increase looks small in isolation, but applied every year to profit that gets drawn out, it compounds into a meaningful sum over the life of a portfolio.

It only bites when profit actually leaves the company

The rise changes nothing for profit that stays inside the company. Corporation Tax is paid regardless, but the second layer of tax, dividend, salary or otherwise, only applies when money is actually extracted into a director's own hands. A development company reinvesting profit into the next site, or an investment SPV building up reserves rather than distributing them, does not feel this change at all until the day that cash is eventually drawn out.

That makes the rise most relevant to directors who have settled into a habit of drawing a large, regular dividend each year regardless of what the company actually needs to retain. It is a good prompt to revisit whether that habit still makes sense, alongside the other extraction routes, salary, directors' loans and pension contributions, covered in our guide to extracting profit from a property company.

Does this change the case for a company at all?

Not on its own, and it is worth being precise about why. The comparison between buying property through a limited company and holding it personally was never just about the dividend rate. It also turns on the Corporation Tax rate itself against an individual's Income Tax rate, and on the fact that Section 24 denies individual landlords full relief for mortgage interest, while a company still deducts finance costs in full against profit. A two percentage point rise in dividend tax nudges the sums slightly, but it does not remove the underlying reasons a geared, growing portfolio is often better held through a company. What it does is sharpen the case for a genuinely deliberate extraction plan, rather than a dividend paid on autopilot because that is what happened last year.

Directors who also use a directors' loan account to smooth cash flow between dividends should note the dividend rate rise does not touch the separate rules on Section 455 or the beneficial loan benefit in kind. Those charges run on their own terms and are worth reviewing alongside, not instead of, the dividend rate change.

Common questions

What are the new dividend tax rates from April 2026?

From 6 April 2026, the basic rate of dividend tax rises from 8.75% to 10.75% and the higher rate rises from 33.75% to 35.75%. The additional rate stays at 39.35%. The change was announced at Autumn Budget 2025 and applies UK-wide, since dividend tax is not a devolved Scottish rate.

Does the dividend tax rise affect the dividend allowance?

No. The £500 tax-free dividend allowance is unchanged for 2026/27. Every director still receives the first £500 of dividend income each tax year free of dividend tax before the new 10.75%, 35.75% or 39.35% rates apply to the rest.

How much extra tax will a property company director pay under the new dividend rates?

For a small company paying Corporation Tax at 19% with a basic-rate dividend recipient, the combined effective tax on £100 of profit rises from about 26.1% to 27.7%. For a company paying the full 25% rate with a higher-rate dividend recipient, the combined effective tax rises from about 50.3% to 51.8%. The exact cost depends on the company's Corporation Tax rate and the director's other income.

Does the dividend tax rise change whether I should hold property through a company?

Not on its own. The comparison between personal and company ownership depends on Corporation Tax rates, Section 24 mortgage interest restrictions for individual landlords, and how much profit is actually extracted versus reinvested. A company still defers the second layer of tax entirely on profit left inside it, so the rise mainly affects directors who draw most of their profit out as dividends each year rather than reinvesting it.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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