January 28, 2026
Article
In her November Budget Rachel Reeves, Chancellor of the Exchequer, announced a variety of tax increases which will impact owners of limited companies.
Reeves revealed the rate of tax on dividends will increase by 2% for both basic and higher rate taxpayers from 6 April 2026. This follows on from the Chancellor’s previous announcement in the autumn 2024 Budget that, from April 2026, there will be an increase from 14% to 18% for the rate of Capital Gains Tax (CGT) which applies on gains where Business Asset Disposal Relief (BADR) is available.
April 2027 will see a 2% increase in the rate of tax applicable to both property income and savings income. This increase will impact basic, higher and additional rate taxpayers.
Business owners may well feel as though they are being targeted by the Chancellor. The increases announced in November come on the back of other tax increases that were announced by Reeves in her 2024 Budget, most notably rises in the level of Employers’ National Insurance and the National Minimum Wage.
These increases, coupled with the freezing of tax allowances, means it is increasingly important for the proprietors of owner managed business to review their remuneration plans.
Business owners should consider whether the current method being used for profit extraction is the most appropriate. The recent changes to tax rates make it important to consider questions such as:
- Are dividends more tax efficient than salary?
- Should I be charging interest on my directors current account?
- Should I be charging the company rent for use of the premises which I own?
Individual circumstances will vary, and various factors need to be considered on an individual basis. Considerations such as your age, marital status, the profitability of the company, and the role of the company all have a bearing on the best approach to adopt.
Whilst rates of tax on rent, savings income and employers’ national insurance have all increased, the rules relating to pensions are largely unaltered. The only change announced in the Budget related to salary sacrifice pensions, and these changes will not be implemented until April 2029. As such, for the majority of business owners, the advantages offered by pensions have only increased, as other means of profit extraction become less attractive. Therefore, for business owners who are either generating cash or simply providing for retirement, it remains the case that pension contributions should be maximised.
With the cost of living increasing for so many, any saving that can be achieved is even more important. The message for business owners is clear – review the approach for extracting money from your company!