Planning for UK Profit: Capital Allowances & Dividend Rate Changes Coming April 2026

What’s Changing in April 2026

Under Budget 2025, the UK government will introduce significant changes to:

• Capital allowances—new first-year allowance of 40% for qualifying expenditure on or after 1 January 2026; main writing-down allowance rates drop to 14% for Corporation Tax from 1 April 2026 (for Income Tax from 6 April).(gov.uk)
• Dividend tax rates will increase by 2 percentage points as of 6 April 2026 for UK taxpayers.(gov.uk)

Who is Affected Most?

• Companies investing heavily in plant, machinery, or qualifying assets—this impacts depreciation and cash flow. <br>
• Shareholders relying on dividend income—higher rates reduce net income post-tax. <br>
• Small business owners using mixed income streams (salary + dividends). <br>
• Investors in UK property and capital intensive sectors. <br>

Strategic Tax Planning Moves

Here are steps to adapt proactively:

1. Time your capital spendings. If possible defer non-urgent Capital expenditure until after 1 Jan 2026 to get the 40% first-year allowance. <br>
2. Accelerate asset purchases. If investments will be made before the rate drop, bring them forward.<br>
3. Dividend planning: consider paying dividends before April if cash flow allows and especially if already in lower tax bracket.<br>
4. Review entity form: Partnerships vs Ltd Companies vs Trusts have different implications under dividend and corporate tax changes.<br>

Practical Example

Say “GreenTech UK Ltd” plans to purchase £1 million of qualifying plant equipment in early 2026:<br>

• Purchases after 1 Jan 2026: eligible for 40% first-year allowance. <br>
• If instead purchase on 1 April 2026 or later: only 14% writing-down allowance. <br>

If a shareholder earns £50,000/year and takes £10,000 in dividends:<br>

• Current rate: say 8.75% on first £2,000 + basic/savings rate (for example). <br>
• With 2pp increase, effective tax paid rises proportionally. Need to recalculate net benefit.<br>

Actionable Advice

• Engage your accountant now to forecast the impact. <br>
• Use cash flow modelling to assess benefit of accelerating capital spends or pushing dividends. <br>
• Ensure depreciation schedules are updated and aligned with new allowances from April.<br>
• Consider grouping or splitting income to minimize the higher tax hit on dividends.<br>

Bottom line: UK businesses and individuals should prepare now for April 2026 to leverage capital allowances and mitigate increased dividend taxes.