Article last updated 4 February 2026.
If you run a business, the end of the tax year isn’t just another deadline. It’s a genuine moment of change – a point at which several big tax shifts begin to reshape how much of your hard‑earned profit you actually keep. And while many people will leave their planning until the final week before 5 April, the entrepreneurs who plan early are the ones who stay ahead.
This information is based on our understanding of HMRC tax rules in the UK. Tax treatment depends on your personal circumstances which could change. We do not provide tax advice; you should speak to a tax adviser if you're unsure.
Dividend tax rates are rising – and it could hit your take-home pay
From April 2026, dividend tax rates increase by 2 percentage points:
- Basic rate: from 8.75% to 10.75%
- Higher rate: from 33.75% to 35.75%
- Additional rate: unchanged at 39.35%
Now, 2% doesn’t sound life-changing on its own – but don’t let that fool you. Context is everything:
- The dividend allowance is only £500 – the lowest it’s ever been.
- Dividends are taxed after salary and other income, so they often push you into higher-rate tax brackets.
If you’re using the classic director strategy – taking a small salary and using dividends for the rest – your take-home pay could fall. And unless you’re planning for this rise, your 2026/27 personal tax bill could be bigger than your 2025/26 tax bill, for the exact same level of income.
Selling a business? Business Asset Disposal Relief (BADR) is about to get less generous
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) has always been one of the most advantageous tax breaks available to business owners. But the amount of relief is being scaled back over time.
- Long-standing rate: 10%
- April 2025: increase to 14%
- April 2026: increases again to 18%
Here’s what that means in pounds and pence. If you were selling your business or a qualifying shareholding with a £1 million gain:
- At 14% tax you'd pay £140,000
- At 18% tax you'd pay £180,000
That’s a £40,000 tax increase just for completing a business sale after April 2026.
If you’re contemplating an exit, a management buyout (MBO), a share buyback, or even a partial disposal in the next three months, you could still take advantage of the lower BADR rate.
If selling is on your horizon, it could be a good opportunity to review valuations, structure the deal, and get your advisers lined up.
Salary sacrifice is being tightened – a quiet but important change
Salary sacrifice has long been a favourite strategy for reducing NICs and boosting pension funding. But HMRC is closing the door, gradually.
From April 2029, only the first £2,000 of salary sacrificed into a pension each year will retain its NICs exemption.
Anything above that will:
- attract employee NICs
- attract employer NICs
- reduce the overall tax advantage significantly
Even though this rule begins in 2029, many employers and payroll systems will start preparing earlier. Policy direction is clear: HMRC wants to limit NIC-advantaged pension funding.
If salary sacrifice is a significant part of your pension funding, you may want to monitor how this policy develops.
Share transfers – a simple yet powerful tax planning move
This is one of the most underappreciated strategies in the UK tax system.
Transferring shares to a spouse, children, or a trust can:
- reduce capital gains tax (CGT) today, because minority shareholdings often receive discounted valuations
- reduce inheritance tax (IHT) later, because you shift value out of your estate
- split income across family members to use lower tax bands
- allow you to freeze the value of your estate at the lower value, while future growth sits with the next generation
For example:
- If you gift shares and lose control, the valuation typically drops.
- A lower valuation means lower CGT on the transfer.
- A lower valuation means lower IHT exposure if you pass away while you still own the shares.
With BADR rates rising and dividend taxes increasing, share restructuring before April 2026 can form part of a highly effective long-term wealth strategy. This type of planning is complex and involves considerations such as control, marketability and future growth of the business. Professional advice is essential to understand the risks and implications.
Three common ways to take profit out of a limited company
There are several methods that company owners use to extract profits. Each has different implications, and the right approach will depend on your circumstances. These are three common ways to take profit out of a limited company.
Salary
- Counts as a deductible business expense.
- Subject to employer national insurance contributions (NICs) (15%) and employee national insurance contributions (NICs) (8% or 2%).
- Important for mortgage affordability checks and accruing qualifying years for the State Pension.
Dividends
- Paid from post-corporation tax profits
- No NICs at all
- But overall, more expensive from April 2026
Dividends have been the backbone of director remuneration for years, but with allowances falling and tax rates rising, the gap is narrowing.
Pension Contributions (Employer)
This is the big one – and still one of the most underutilised tools by business owners.
Employer pension contributions are:
- Fully deductible against corporation tax
- Not subject to any NICs
- Not hit with personal income tax on the way in
For many business owners, pensions can be an efficient way to extract profits, especially as dividend tax continues climbing. But the suitability and available allowances will vary.
Putting it all together: Your 2026 tax year end action plan
Here’s what entrepreneurs should seriously consider before April 2026:
Review pension contributions
Especially employer contributions – they can be a tax-efficient extraction method.
Revisit your dividend strategy
Because those 2026 rate rises could impact your take-home pay.
Explore the timing of any planned business sale or share disposal
Capturing the 14% BADR rate while you still can, potentially saving tens of thousands.
Review current share structures and potential transfers
Minority discounts can help with both CGT and IHT.
Rebalance how you pay yourself
The old formula (tiny salary plus dividends) isn’t as attractive anymore. Pensions now play a bigger role in optimising your personal tax outcome.
Other important tax year end checks
Don’t forget the supporting cast – these matter too:
Annual allowance and pension carry forward
You may wish to review whether any unused pension allowances from the previous three years are available under the carry forward rules.
Income tax threshold freeze
Frozen until 2031 – so fiscal drag may push you into higher tax bands.
Capital gains allowance (CGT)
Currently CGT annual exempt amount is at a historic low. Make use of it annually.
Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) relief
VCT and EIS tax relief falls from 30% to 20% from April 2026. These investments are high risk and may not be suitable for all investors.
Preparing for your next steps
The run-up to April 2026 is a rare moment – a window where multiple tax rules are tightening at once. For entrepreneurs and business owners, this isn’t a reason to panic. It’s an opportunity to:
- review your strategy for extracting profits from your business
- support your long-term wealth
- reduce future tax liabilities
- structure your business and family assets intelligently
- prepare exits or disposals on your terms – not HMRC’s
With the prospect of higher taxes and potential national insurance charges on pension contributions, some business owners prefer to understand their options early so they can make well-informed decisions based on their situation.
Reviewing your planning early can help you understand the options available and make informed decisions.
If you need support or advice with planning for your business, we’re here to help. Reach out to your usual Rathbones contact or fill out our form below.