Dividend Tax Changes for Business Owners: What You Need to Know

Property income tax changes and savings income tax changes are also on the way from April 2027. Here is how they fit together and what to consider now.

At the 2025 Autumn Budget, the UK Government confirmed changes to dividend tax rates that will take effect from 6th April 2026, directly affecting many business owners who extract income through dividends. Alongside these dividend tax changes, further property income tax changes and savings income tax changes will follow from April 2027. For individuals with significant investment and business income, these reforms have the potential to increase income tax liabilities over the next two tax years.

While the changes are phased in, the opportunity to plan is already here. For higher earners in particular, understanding how the new rules interact with existing income streams is key to protecting returns and avoiding unnecessary tax exposure.

This article explains what the property income tax changes involve, how dividend tax changes fit into the wider picture and what this could mean for you in practical terms.

What Has Changed and Why It Matters

The Government’s aim is to bring the tax treatment of income from assets closer to that of employment income. Income from property, savings and dividends is not subject to National Insurance Contributions, which can result in a lower overall tax burden compared to earnings from employment.

The result is a new set of tax rates which directly affect property income, savings income and dividend income. Although the changes take effect over the next two tax years, their impact is likely to be felt most by those with multiple income streams or higher levels of investment income.

Jenny Brown, Director of Private Client Services, comments:
“These property income tax changes and dividend tax changes are not unexpected, but the lead time is important. For those with rental profits, dividend income or taxable savings, early planning allows you to view the full picture and put sensible strategies in place well before the new rates apply.”

Dividend Tax Changes from April 2026

From 6 April 2026, the rates of tax on dividend income will increase:

• The ordinary dividend tax rate will rise from 8.75% to 10.75%.
• The upper rate will increase from 33.75% to 35.75%.
• The additional rate will remain unchanged at 39.35%.

Example

A higher rate taxpayer receiving £30,000 of dividends in the 2026-27 tax year will pay £10,725 of income tax on these. Under the current rates, the liability would have been £10,125. Whilst this is not a huge difference, this can soon add up over the years for those individuals who regularly receive substantial dividends.

For business owners who draw substantial dividends each year, this may be an appropriate moment to review your overall remuneration strategy.

In some cases, it may be worth considering whether a greater proportion of income should be taken as salary rather than dividends, depending on the wider tax position and National Insurance implications. The right balance will vary from one individual to another, but the forthcoming rate increase makes this review timely.

There may also be circumstances where accelerating dividend payments before 6th April 2026 is beneficial. Although this would bring forward the associated tax liability, it may secure a lower tax rate than if the same dividend were paid after the new rates take effect.

As always, careful modelling is key. A structured review ahead of April 2026 can help ensure decisions are aligned with both short-term cash flow and longer-term tax efficiency.

Property Income Tax Changes and Savings Income Tax Changes from April 2027

From 6 April 2027, new standalone income tax rates will apply to both property income and savings income:

• Basic rate taxpayers will pay 22%, up from 20%.
• Higher rate taxpayers will pay 42%, up from 40%.
• Additional rate taxpayers will pay 47%, up from 45%.

Previously, property income tax and savings income tax followed the main income tax rates. These changes introduce a separate structure, increasing the marginal tax cost for many landlords and investors.

Example

A higher rate taxpayer earning £30,000 in net rental profits in the 2027-28 tax year would pay £12,600 in income tax. Under the current rates, the liability would have been £12,000. While the difference may appear modest in isolation, the effect can become more significant across multiple properties, or over several years.

For property investors, these property income tax changes may prompt a review of ownership structures and longer-term investment plans.

Changes to Allowances and Reliefs from April 2027

Alongside the new tax rates, there will be a change to how allowances and reliefs are applied. From April 2027, allowances will be set against other income first, before being applied to property income, savings income or dividend income.

For individuals with a mix of employment income, rental income and investment returns, this adjustment can subtly shift more income into higher tax bands.

What the Property Income Tax Changes Mean in Real Terms

These changes are not just technical updates. In practice, they may affect:

• Property investors: Higher property income tax rates could reduce net rental yields and influence future investment decisions.
• Those with savings outside tax wrappers: Savings income tax changes will make taxable interest less attractive over time.
• Business owners and shareholders: Dividend tax changes increase the importance of forward-thinking dividend tax planning.

It is also worth noting that these changes sit alongside continued freezes to income tax thresholds and allowances, which can gradually increase tax exposure even where income levels remain steady.

Preparing Early Makes a Difference

Although the property income tax changes and dividend tax changes are still some way off, effective tax planning for high net worth individuals often takes place well before new rules come into force, while there is still time to review structures carefully and consider options in full. Early reviews allow time to consider tax efficient wrappers, ownership structures and income timing in a measured and informed way.

Jenny Brown adds:
“Those who engage early benefit from having options. That flexibility allows you to plan with confidence and avoid rushed decisions once the new rates are already in place.”

If you receive income from property, dividends or savings and would like tailored tax planning advice, our team, led by Jenny Brown, is always happy to help. As personal tax advisers, we work closely with property investors and business owners to provide clear, practical tax advice that reflects both current rules and what is coming next.

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