Dividend Tax Has Risen for 2026/27: What Kent Company Owners Should Do Now

If you take your income from a company as a mix of salary and dividends — as most owner-directors across Kent do — your tax bill has quietly gone up this year. Dividend tax rates rose from April 2026, and a separate change made selling a business more expensive too. Neither was headline news, but both matter to how you should plan for the 2026/27 tax year.

What changed with dividend tax

Following the Autumn Budget 2025, dividend tax rates increased by 2 percentage points from 6 April 2026:

• Basic rate: up from 8.75% to 10.75%.
• Higher rate: up from 33.75% to 35.75%.
• Additional rate: unchanged at 39.35%.

The tax-free dividend allowance stays at just £500 for 2026/27, so the higher rates bite on almost all of a typical director’s dividends. Dividends held inside ISAs or pensions remain unaffected — only dividends taken outside those wrappers are caught.

For a director-shareholder drawing a meaningful dividend on top of a small salary, the extra two points is a real, recurring cost. On £40,000 of dividends taxed at the higher rate, for example, the rise adds £800 a year — every year it applies.

The salary-versus-dividend balance has shifted

For years the standard advice for owner-managers was a small salary topped up with dividends. That structure still works, but the maths behind it has moved. With dividend rates up and employer National Insurance also higher than it once was, the optimal split is genuinely worth recalculating rather than assuming last year’s plan still holds. The right answer depends on your profit level, whether your spouse is a shareholder, and your pension position — it is not one-size-fits-all.

Selling up also costs more: BADR at 18%

If your longer-term plan involves selling your business, note a second change. Business Asset Disposal Relief (BADR, the relief formerly known as Entrepreneurs’ Relief) has risen again. The rate on qualifying gains, which was 10% until April 2025 and 14% for 2025/26, is now 18% from 6 April 2026.

The relief still applies to the first £1 million of qualifying lifetime gains, but the cost of using it has climbed. On a full £1 million qualifying gain, the move from 10% to 18% means roughly £80,000 more capital gains tax than a founder would have paid a couple of years ago. If a sale is on your horizon, the timing and structure now deserve careful thought — and anti-forestalling rules mean you cannot simply backdate a contract to lock in the old rate.

Sensible steps for 2026/27

1. Recalculate your salary and dividend split. Do not roll forward last year’s figure. The efficient mix has changed for many owners.
2. Use family allowances where genuine. If a spouse or partner is a legitimate shareholder or could take a salary for real work, unused allowances and lower bands may reduce the household bill.
3. Make the most of pensions. Employer pension contributions from the company remain one of the most tax-efficient ways to extract value, and they sidestep dividend tax entirely.
4. Plan any exit early. If selling is on the cards, model the 18% BADR position now and take advice before you commit to anything.

Don’t just pay more by default

The temptation is to shrug and accept a bigger bill. But profit extraction is one of the areas where a short planning conversation genuinely pays for itself. The changes are modest individually; left unreviewed across salary, dividends, pension and any future sale, they add up to a lot of avoidable tax.

How MCC Partners can help

We help company owners across Gravesend and Kent take money out of their business in the most efficient way — recalculating the salary and dividend balance on the 2026/27 rates, making proper use of pensions and family allowances, and planning ahead for any eventual sale so BADR is used to best effect. A single review a year usually saves far more than it costs.