Dividend Tax rates just went up. Here’s how to beat them

In addition to your regular income, you may receive dividends through your business or investments, which are taxed at a lower rate than a salary.

In last year’s Budget, the government announced increases to both the basic and higher rates of Dividend Tax, which came into effect in April.

With these changes now in place, it’s a good idea to review your income and wider financial plan to ensure they remain as tax-efficient as possible.

Read on to find out more about the rate changes and explore ways you can maintain tax efficiency in light of the new rules.

Dividend Tax rates increased in April

As of 6 April 2026, the new Dividend Tax rates are:

• 10.75% for the basic rate (up from 8.75%)

• 35.75% for the higher rate (up from 33.75%)

• 39.35% for the additional rate (unchanged)

The Dividend Allowance, which is the amount of dividend income you can receive tax-free, remains the same at £500.

4 strategies to help you remain tax-efficient under the new rules

The following strategies can help you beat the rising rates, though it’s a good idea to take advice first to ensure your approach is carefully managed.

1. Top up your or your loved one’s Stocks and Shares ISA

Any dividends you receive from investments held within your Stocks and Shares ISAs aren’t liable for Dividend or Income Tax and don’t count towards your dividend allowance.

In 2026/27, you can invest up to £20,000 across your ISAs, and you can also transfer money between your accounts. This means you could move money held in your Cash ISAs into a Stocks and Shares ISA if you have surplus savings and want to reduce tax on your investment returns.

Additionally, if your partner hasn’t used their full allowance, you could invest some of your money in their account to improve your collective tax efficiency.

Moreover, you could adopt a strategy known as ‘Bed and ISA’, which can be useful if you hold investments outside an ISA and you haven’t used your full ISA allowance.

To do this, you sell your existing investments before buying them again inside an ISA, which essentially moves them into a more tax-efficient environment. However, selling your investments could incur Capital Gains Tax (CGT), so it’s important to speak to us before using this strategy.

If you and your partner have used your full ISA allowances, you could also explore investing in a Stocks and Shares Junior ISA (JISA) on behalf of your children or grandchildren. Every year, you can invest up to £9,000 per child in JISAs, making them a great way to support your family’s future while mitigating the impact of rising Dividend Tax.

2. Increase your pension contributions

Pensions are highly tax-efficient, and any returns generated within them are exempt from Dividend Tax. Your contributions also typically receive Income Tax relief, which can further increase the efficiency of your investment. And, when you come to draw your pension, the first 25% is tax-free for most people.

One thing to be aware of is that you typically can’t withdraw funds until you reach the normal minimum pension age (55, rising to 57 in 2028).

So, while pensions can help you mitigate Dividend Tax, you won’t have direct access to the funds, and it’s important to consider your more immediate and shorter-term needs alongside your overall efficiency.

3. Coordinate your planning with your partner

For married couples and civil partners, coordinating your planning and investments between you can be an effective way to improve your overall tax efficiency, including reducing Dividend Tax liabilities.

One partner may have:           

• Unused dividend allowance

• Unused ISA allowance

• A lower salary, meaning they pay Income Tax at a lower rate

In such cases, transferring investments into their name may help reduce the amount of Dividend Tax you pay collectively as a couple.

Moreover, when you transfer assets between spouses and civil partners, it typically doesn’t trigger CGT. So, by making full use of both partners’ available allowances and tax rates, you might be able to reduce your collective tax liability.

Any plans you put in place with MLP can, where appropriate, be transferred into your spouse’s name.

4. Explore Venture Capital Trusts

If you’ve used all your other allowances effectively and still want to explore ways to mitigate Dividend Tax, Venture Capital Trusts (VCTs) could be another option.

VCTs are designed to support smaller UK businesses in the early stages of growth and development. You can read more about how they work in our previous article on the topic.

In return for investing in these higher-risk companies, you receive a range of tax benefits, including exemption from Dividend Tax on any returns. You can also receive 20% Income Tax relief on the amount you invest, provided you hold the shares for a minimum of five years.

However, VCTs are generally higher risk than other investments, as they focus on smaller and less established companies, so it’s important to speak with us before choosing to invest in them.

A financial planner can help you keep your dividends tax-efficient

While each of these strategies can be effective on its own, we can help you to bring them together in a way that suits your wider financial plan and aligns with your long-term goals.

We can work with you to structure your investments to make full use of available allowances, while also ensuring your immediate and future needs are best served.

To speak to a financial planner, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.        

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.