Dividend Tax Rise 2026: What It Means for Property Company Owners

Introduction

Property companies are often seen as a tax-efficient structure for landlords. While upcoming property tax increases will not affect incorporated landlords directly, changes to dividend tax rates from April 2026 mean that shareholders could still face higher personal tax liabilities. Understanding how these changes work is essential for effective tax planning.

Are Property Companies Affected by Property Tax Rises?

Property companies will not be impacted by the higher property tax rates that apply to unincorporated landlords from 6 April 2027. Rental profits earned within a limited company will continue to be subject to corporation tax, with current rates remaining unchanged.

However, tax exposure arises when profits are withdrawn from the company.

How Property Company Profits Are Extracted

Although profits are taxed at the company level, shareholders must extract funds for personal use. Common profit extraction methods include:

• Paying a salary up to the personal allowance

• Withdrawing additional income as dividends

Dividends are typically more tax-efficient than salary, but this advantage is reduced due to rising dividend tax rates.

Dividend Allowance for 2026/27

The dividend allowance will remain at £500 for the 2026/27 tax year. Dividends within this allowance are taxed at 0%, although they still count towards an individual’s income tax bands.

Dividends above this allowance are taxed based on the shareholder’s marginal tax rate.

Dividend Tax Rate Increases from April 2026

From 6 April 2026, dividend tax rates will increase for basic and higher-rate taxpayers:

• Basic rate: increases from 8.75% to 10.75%

• Higher rate: increases from 33.75% to 35.75%

• Additional rate: remains unchanged at 39.35%

Dividends are taxed as the top slice of income, meaning they are taxed after other income has been considered.

What the Changes Mean for Shareholders

The increase in dividend tax rates will result in:

• An additional £20 of tax per £1,000 of dividends for basic and higher-rate taxpayers

• A shareholder withdrawing £50,000 in dividends paying £1,000 more in tax

This makes forward planning more important than ever for property company owners.

How to Reduce Dividend Tax Before April 2026

If a property company has retained profits, it may be beneficial to declare dividends before 6 April 2026 to take advantage of the lower current tax rates, where commercially appropriate.

For companies with multiple shareholders, using an alphabet share structure can help:

• Maximise each shareholder’s dividend allowance

• Utilise basic rate tax bands efficiently before higher rates apply

Alternative Tax-Efficient Profit Extraction Options

Instead of relying solely on dividends, property companies may also consider:

• Employer pension contributions

• Tax-free or low-tax employee benefits

• Reimbursing allowable business expenses

These strategies can help reduce overall personal tax exposure.

Final Thoughts

While property companies are shielded from upcoming property tax increases, rising dividend tax rates will directly affect shareholders from April 2026. Reviewing profit extraction strategies now can help minimise future tax liabilities and improve long-term tax efficiency.

Source:
UK Government guidance on tax rate changes for property, savings, and dividend income
www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-and-dividend-income

                                                 For more information, Book a Free Consultation