What changed for the 2026–27 tax year
For taxpayers in England, Wales and Northern Ireland, the standard Personal Allowance remains £12,570, while the basic-rate band remains £37,700 of taxable income after allowances. The higher-rate band runs from £37,701 to £125,140, and income above £125,140 is generally subject to the additional rate. The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000 and can fall to zero at £125,140.
Dividend taxation is more significant in 2026–27. The ordinary dividend rate increased from 8.75% to 10.75%, and the upper dividend rate increased from 33.75% to 35.75%. The additional dividend rate remains 39.35%. These rates apply to dividends above the available dividend allowance.
Practical planning example
Assume a shareholder-director receives salary and dividends from a UK company. If their non-dividend income already uses the basic-rate band, additional dividends may be taxed at the higher dividend rate. A dividend that might previously have generated £3,375 of tax at 33.75% could generate £3,575 at 35.75%, before considering any available allowance.
This does not automatically mean dividends should be accelerated or deferred. The correct decision depends on:
- Whether the individual is close to the £100,000 Personal Allowance taper;
- Whether the person expects lower or higher income in the following tax year;
- Available pension contribution capacity;
- The company’s distributable reserves and cash position; and
- The effect on payments on account under Self Assessment.
Action checklist
- Forecast total adjusted net income, not just salary.
- Model dividends alongside pension contributions and Gift Aid, which can affect adjusted net income calculations.
- Keep dividend vouchers and board minutes showing that distributions were lawful and properly declared.
- Compare the tax result for the current year with the next tax year before setting the payment date.
- Scottish taxpayers should use the Scottish income-tax bands for non-savings, non-dividend income; dividend taxation remains governed separately.
The key planning lesson is that frozen thresholds can create increasing exposure as earnings rise, while the 2026–27 dividend-rate increase makes informal or last-minute extraction decisions more expensive.