Tax Planning
How the Upcoming Dividend Income Tax Changes Will Affect Investors in the UK
From 6 April 2026, the tax rate on dividend income will increase—this article explains the change, who it impacts and how investors can adjust strategies now.
By NomadicTax Research Team • 5-8 min read • April 18, 2026
## What’s Changing with Dividend Income Tax
In the UK Budget 2025, the government announced that **dividend income tax rates** will rise from **6 April 2026** for basic and higher rate taxpayers:
- Basic rate holders: from **8.75% to 10.75%**
- Higher rate holders: from **33.75% to 35.75%**
Additional rate stays at **39.35%**. These rates apply to dividends above the annual dividend allowance. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
Other changes include adjustments to **savings and property income** thresholds and rates—but these will take effect from **6 April 2027**. So for now, focus particularly on dividends. ([gov.uk](https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-and-dividend-income/change-to-tax-rates-for-property-savings-and-dividend-income-technical-note?utm_source=openai))
## Who Is Affected
- Investors who own shares outside ISAs and whose dividend income exceeds the dividend allowance.
- Those with significant dividend portfolios who currently benefit from the lower basic or higher rate dividend rates.
- Non-UK residents may also be impacted, depending on treaty positions and whether their income is taxed through UK self-assessment.
## Strategies to Mitigate Impact
- **Maximise ISA usage**: Dividends earned inside ISAs remain tax-free—if you can shift more investing into ISAs, that helps.
- **Consider timing of dividend income**: If possible, defer payoff to after 5 April 2026 if you're near next rate band and likely to benefit from lower rates for that tax year.
- **Use dividend allowance**: Currently the first £500 of dividend income is tax-free—plan so taxable dividends stay within this if possible.
- **Mix of sources**: Dividends from companies, unit trusts etc.—consider whether adjusting your mix or locations of investment could reduce higher rate exposure.
## Examples
- **Example 1 – Basic rate taxpayer**: Mary has £500 in dividend allowance and then £2,000 in dividends. Today she pays 8.75% on that £2,000 (~£175). From April 2026, she’ll pay 10.75% (~£215), a £40 increase.
- **Example 2 – Higher rate taxpayer**: John has £10,000 in dividends. Under current rate (33.75%) taxed on amount above allowance, post-2026 rate will mean roughly £40 more tax per £1,000 of taxable dividend income.
## Actionable Advice for Investors
- Review your **current dividend portfolio**: estimate how much dividend income you expect in the 2026/27 tax year.
- Use **tax wrappers** like ISAs, SIPPs where available and beneficial.
- Coordinate with your financial adviser to consider **dividend income across tax bands**, especially if you're on the edge of moving from basic to higher rate.
- Check whether a spouse or partner has unused ISA or dividend allowances and plan income splitting where legally possible.
## Long-Term Outlook & Risks
- With freeze on thresholds, you may drift into higher tax bands even without raises in income.
- Future changes hint at savings/property income becoming more burdened (from 2027). It’s smart to forecast ahead.
- Regulatory risk: changes in legislation, especially for non-UK residents or cross-border dividends, may further complicate planning.
## Summary
The dividend rate rise from **6 April 2026** marks a meaningful shift for dividend investors. For those with portfolios outside tax-free wrappers, tax bills will increase. But with judicious use of ISAs, thoughtful timing, and careful portfolio construction, it’s possible to soften the impact—and plan for longer-term rate changes on savings and property income in 2027.