From 6 April 2026, dividend tax rates in the UK increased by 2 percentage points across the board. The basic rate of dividend tax rose from 8.75% to 10.75%. The higher rate rose from 33.75% to 35.75%. The additional rate rose from 39.35% to 41.35%. For incorporated healthcare practice owners — dental practice directors, private clinic owners, pharmacy limited companies, and doctors running personal service companies — this is a direct and immediate increase in the personal tax cost of extracting profit from their companies.

The change was announced in the Autumn Budget 2024 and has been known for over a year. But knowing it was coming and having a clear plan for responding to it are two different things. Many incorporated healthcare professionals are now entering 2026/27 with the same profit extraction strategy they used in 2024/25 — without recalculating whether that strategy still makes sense at the new rates.

This guide sets out exactly what the new rates mean in cash terms, how the optimal balance between salary, dividends, and pension contributions has shifted, what the interaction with the £500 dividend allowance looks like, and the specific planning steps that incorporated healthcare practice owners should take right now for 2026/27.

The New Dividend Tax Rates: What You Are Now Paying

The dividend tax rate increase applies to all dividend income received on or after 6 April 2026. It does not matter when the underlying profits were generated — if the dividend is paid or credited to you from April 2026 onwards, the new rates apply.

The full rate table for 2026/27 is as follows:

Dividend Allowance: £500 — the first £500 of dividend income remains tax-free for all taxpayers (unchanged from 2025/26).

Basic rate band (income up to £50,270):

Old rate: 8.75% | New rate: 10.75% | Increase: 2 percentage points

Higher rate band (income £50,271 to £125,140):

Old rate: 33.75% | New rate: 35.75% | Increase: 2 percentage points

Additional rate band (income above £125,140):

Old rate: 39.35% | New rate: 41.35% | Increase: 2 percentage points

Why the dividend allowance matters less than it used to:

The dividend allowance has been cut dramatically over recent years — from £5,000 in 2017/18 to £2,000, then to £1,000, and now to £500 where it has sat since April 2024. At £500, the allowance shelters only a trivial amount of dividend income for any incorporated healthcare professional drawing meaningful profit from their company. A dental practice director paying themselves £60,000 in dividends saves only £215 in tax from the allowance at the higher rate — a rounding error in the context of their overall tax position.

Key Point: With the dividend allowance at just £500 and rates now 2 percentage points higher across all bands, the financial case for dividend-heavy profit extraction from healthcare companies has weakened materially. The 2026/27 tax year requires a fresh look at your profit extraction strategy — not a rollover of last year’s approach.

What the Rate Rise Costs You in Cash: Worked Examples

Before addressing how to respond, it is important to quantify precisely what the 2 percentage point increase costs in cash terms for different income profiles. These are the numbers that should inform your planning decisions for 2026/27.

Example 1 — Dental Practice Director: Higher Rate Taxpayer

A dental practice director takes a salary of £12,570 (at the personal allowance) and £60,000 in dividends. After the £500 dividend allowance, £59,500 of dividends are taxable.

The income profile places the director partly in the basic rate band and partly in the higher rate band. Approximately £37,700 of dividends fall in the basic rate band and approximately £21,800 fall in the higher rate band.

2025/26 dividend tax:

Basic rate: £37,700 × 8.75% = £3,299

Higher rate: £21,800 × 33.75% = £7,358

Total: £10,657

2026/27 dividend tax:

Basic rate: £37,700 × 10.75% = £4,053

Higher rate: £21,800 × 35.75% = £7,794

Total: £11,847

Additional tax in 2026/27: £1,190 per year — simply from the rate change, with no other change in income.

Example 2 — Private Clinic Owner: Additional Rate Taxpayer

A private clinic owner takes a salary of £12,570 and £130,000 in dividends from their company. After the £500 allowance, £129,500 is taxable. This level of dividend income means the personal allowance is tapered away entirely (income above £100,000 tapers the allowance at £1 for every £2 of income), leaving the effective tax position as follows:

At the new 2026/27 rates the additional tax cost versus 2025/26 on £129,500 of taxable dividends at 2 percentage points higher:

Additional tax in 2026/27: approximately £2,590 per year.

Example 3 — GP Running a Personal Service Company

A GP running a personal service company takes a salary of £12,570 and £45,000 in dividends — keeping total income below the higher rate threshold.

2025/26 dividend tax on £44,500 taxable dividends:

£44,500 × 8.75% = £3,894

2026/27 dividend tax on £44,500 taxable dividends:

£44,500 × 10.75% = £4,784

Additional tax in 2026/27: £890 per year.

These examples demonstrate that the impact ranges from approximately £900 to over £2,500 per year depending on dividend levels — real money that does not require any change in underlying business performance to arise. It is a pure policy-driven cost increase that demands a strategic response.

The Optimal Profit Extraction Mix Has Shifted: Salary vs Dividends vs Pension

The 2 percentage point rise in dividend tax rates changes the mathematical relationship between the three main routes for incorporated healthcare professionals to extract value from their companies. Recalculating this relationship for 2026/27 is the most important practical planning task for incorporated practice owners right now.

The standard salary strategy remains unchanged:

The optimal salary level for most incorporated healthcare professionals continues to be set at or just above the secondary National Insurance threshold — typically £12,570 (at the personal allowance) or £9,100 (at the NI secondary threshold if minimising employer NIC is the priority). This basic framework has not changed. What has changed is the cost of taking income above that salary level as dividends rather than via alternative routes.

Dividends are more expensive but still often preferable to higher salary:

Taking additional income as salary above the personal allowance incurs income tax at 20% (basic) or 40% (higher), plus employee NIC at 8% and employer NIC at 13.8% — an effective marginal rate of around 47% for a basic rate taxpayer or 54% for a higher rate taxpayer when both employer and employee costs are included.

Taking the same income as a dividend in the higher rate band now costs 35.75% — still significantly less than the salary equivalent. However, the gap between salary and dividend taxation has narrowed. Two years ago, a higher rate taxpayer saved over 20 percentage points by taking dividends rather than salary. That saving has now reduced.

The pension contribution route has become relatively more attractive:

Pension contributions made by your company on your behalf are deductible against corporation tax and do not attract income tax or NIC at the point of contribution. They do not attract the new dividend tax rate at all. The only tax point is when you draw income from the pension in retirement — typically at a lower rate, with 25% available as tax-free cash.

At the new dividend tax rates, the effective benefit of pension contributions over dividends has increased. For a higher rate taxpayer previously choosing between a dividend (taxed at 33.75%) and a pension contribution (effectively reducing the corporation tax bill at 25%), the pension was already compelling. At 35.75% dividend tax, it is more so.

The planning calculation for 2026/27:

For each incorporated healthcare professional, the optimal profit extraction strategy in 2026/27 depends on four variables: total profit available for extraction, personal income from all sources (including any NHS salary or other PAYE income), personal pension annual allowance remaining, and anticipated income in retirement.

A healthcare professional with significant annual allowance remaining — particularly one who has not maximised pension contributions in recent years and may be able to carry forward unused allowance from the previous three years — should almost certainly be increasing pension contributions in 2026/27 rather than taking the equivalent amount as a dividend at the new higher rate.

Our personal tax team works through this calculation with incorporated healthcare clients at the start of every new tax year. If you have not had this conversation for 2026/27, book a review now — the decisions you make in April and May about profit extraction will determine your tax position for the entire year.

The £100,000 Trap: Dividend Income and Personal Allowance Tapering

For incorporated healthcare professionals with total income approaching or above £100,000, the dividend tax rate increase interacts with the personal allowance taper in a way that creates an even sharper effective marginal rate than the headline numbers suggest.

The personal allowance of £12,570 is reduced by £1 for every £2 of income above £100,000, and is eliminated entirely at £125,140. In the £100,000 to £125,140 income band, the effective marginal income tax rate is therefore 60% on additional income — because each additional £2 of income costs £1 of personal allowance, generating an extra £1 of income taxable at 40%.

For an incorporated healthcare professional whose total income — including dividends — falls in this band, each additional £1 of dividend income now costs:

Dividend tax at the higher rate: 35.75% (up from 33.75%)

Plus the effective 60% marginal rate on income in the taper zone

This creates a combined effective marginal rate that can approach 60% on dividends received within the taper zone — making pension contributions, which reduce adjusted income and can restore the personal allowance, exceptionally valuable.

Action Point: If your total income from salary, dividends, and any other sources is likely to fall between £100,000 and £125,140 in 2026/27, you are in the highest priority group for pension contribution planning. Making additional employer pension contributions can pull your adjusted income below £100,000 and restore your full personal allowance — saving 60p of tax for every £1 contributed, before the corporation tax deduction is even factored in. Our personal tax specialists for healthcare professionals and the business tax team work together on this analysis for clients in the taper zone. See also our existing guide on the £100,000 tax trap for high-earning healthcare professionals.

Business Asset Disposal Relief: The CGT Rise Also Hits Practice Sellers

The April 2026 tax changes extend beyond dividend rates. From 6 April 2026, the Capital Gains Tax rate applicable to gains qualifying for Business Asset Disposal Relief (BADR) increased from 14% to 18%. This affects incorporated healthcare professionals who are planning to sell their practice or wind up their company.

BADR allows qualifying business owners to pay CGT at a reduced rate on the first £1 million of lifetime qualifying gains. Previously at 10% (up to April 2025), then 14% (2025/26), it is now 18% from April 2026.

What this means for healthcare practice sellers:

An incorporated dental practice owner selling their company for a gain of £500,000 that qualifies for BADR now faces a CGT bill of £90,000 (£500,000 × 18%) compared to £70,000 at the 14% rate that applied in 2025/26 — an increase of £20,000 from a single rate change.

For healthcare professionals who were considering selling their practice in the next one to three years, the progressive increase in the BADR rate — from 10% to 14% to 18% — is a strong signal that delay may be costly if further increases follow. The current rate is still materially lower than the standard CGT rates (24% for higher rate taxpayers on business assets), but the direction of travel is clear.

If you are considering selling your incorporated practice in the medium term, the interaction of dividend tax rates (affecting annual profit extraction), BADR rates (affecting the eventual exit value), and corporation tax (affecting retained profits) needs to be modelled comprehensively. Our business tax team regularly advises healthcare practice owners on exit planning that takes all three into account.

Specific Situations for Different Healthcare Practice Types

Dental Practice Directors

Most incorporated dental practices — particularly those that converted from NHS UDA contracts to mixed or fully private — are already running through limited company structures. The 2 percentage point dividend tax rise directly increases the personal tax cost of the standard salary-plus-dividend extraction model. For dental directors in the higher rate band, the increase in dividend tax cost is approximately £1,000–£2,500 per year depending on dividend levels.

The additional consideration for dental practices in 2026/27 is the NHS dental contract reform — the new unscheduled care requirements and complex care packages change the revenue profile of NHS dental companies. Reviewing profit extraction strategy alongside the contract income changes is particularly important this year. Our dental practice accounting team is working through both issues with incorporated dental clients simultaneously.

Private Clinic and Hospital Owners

Private healthcare operators typically have higher profit levels and are more likely to be additional rate dividend taxpayers. At 41.35%, the dividend rate for additional rate taxpayers has now crossed the 40% threshold — a psychologically and practically significant level. At this rate, taking dividends is still more tax-efficient than salary for most additional rate taxpayers, but the margin has narrowed enough that a detailed comparison is essential rather than assumed.

For private clinic owners with significant retained profits in their company, there is also a question about whether to accelerate distributions before further rate increases — accepting the 41.35% rate now rather than risk higher rates in future years. This is a speculative planning decision that should be taken with professional advice rather than on assumption, but it is a legitimate consideration in the current legislative environment.

Pharmacists Running Limited Company Pharmacies

Many community pharmacy owners operate through limited companies — either by choice or as a result of historic incorporation decisions made when the tax differential was more pronounced. The 2 percentage point rise, combined with the ongoing pressure on pharmacy finances from the NHS funding crisis, makes profit extraction planning more critical than ever for pharmacy company directors. Every pound of unnecessary dividend tax is a pound of capital that cannot be reinvested in the business.

For pharmacy companies with significant retained profits, it is worth considering whether distributable reserves should be retained in the company — where they attract corporation tax at 25% on further profits but not dividend tax — or extracted now at the new higher rates. The correct answer depends on the director’s anticipated future income, retirement timeline, and whether the company is likely to be sold or wound up. Our pharmacy accounting specialists can model this for your specific circumstances.

Doctors Running Personal Service Companies

GPs and hospital doctors who run personal service companies — separate from any NHS employer relationship — need to be particularly careful about the IR35 position in the context of dividend planning. If a doctor’s personal service company is caught by IR35 for some or all of its income, the deemed employment rules mean that income is taxed as employment income rather than as dividends. The dividend tax rate is therefore irrelevant for that portion of income — the company cannot pay a dividend that escapes employment-level taxation on deemed employment income.

For doctors with mixed IR35 status — some contracts inside IR35 and some outside — the profit extraction strategy becomes more complex. The dividend tax rate applies only to income from contracts that sit outside IR35. Our specialist healthcare accountant team works with doctors in these mixed situations to ensure the correct tax treatment is applied and dividend planning is based on the accurate net distributable profit position.

The Retained Profit Alternative: Keeping Money in the Company

One response to higher dividend tax rates that is worth considering for some incorporated healthcare professionals is leaving more profit retained in the company rather than extracting it as dividends. Retained profit is taxed at the corporation tax rate — 25% for companies with profits above £250,000, or on a tapered basis between £50,000 and £250,000 — rather than at dividend tax rates on top of corporation tax.

When retained profit makes sense:

Retaining profit in the company makes financial sense if you do not need the cash personally in the short term and if the company can deploy the retained profit productively — for example, in equipment investment (where capital allowances provide immediate relief), in building a cash reserve for practice development, or in company pension contributions.

When retained profit creates risk:

HMRC’s close company rules mean that excessive accumulation of profits in a company without commercial justification can attract scrutiny. For healthcare professionals who simply leave profits in the company to defer dividend tax indefinitely, there is a risk that HMRC argues the accumulation is artificial. Retained profit also becomes relevant on exit — if a company is wound up, retained profits are distributed as a capital gain (potentially qualifying for BADR at 18%) rather than as a dividend (taxed at up to 41.35%). This capital treatment on wind-up is a significant planning opportunity for practice owners approaching retirement.

What to Do Right Now: A Practical Action Plan for 2026/27

Step 1 — Recalculate your 2026/27 profit extraction plan

Do not assume last year’s salary and dividend levels are optimal for 2026/27. Recalculate the tax cost of your current extraction strategy at the new rates. Quantify the additional cost compared to 2025/26. Then model the alternatives — higher salary, higher pension contributions, lower dividends, or a different combination — to find the optimal mix for your income level and circumstances.

Step 2 — Review your pension annual allowance

Before paying a dividend, check how much annual allowance you have remaining for 2026/27 — and whether you have unused allowance from 2023/24, 2024/25, or 2025/26 that can be carried forward. Making employer pension contributions from your company before paying dividends could save tax at 35.75% or 41.35% on the amount contributed — far exceeding the equivalent corporation tax saving.

Step 3 — Check your income relative to the £100,000 taper threshold

If your total income — including dividends — is likely to exceed £100,000, model the personal allowance taper impact carefully. Additional pension contributions that bring adjusted income below £100,000 save tax at an effective 60% marginal rate in the taper zone. This is the single highest-return tax planning action available to healthcare company owners in this income range.

Step 4 — Review retained profit and exit planning if relevant

If you are within five years of selling or winding up your practice, model the tax cost of extracting retained profits as dividends now versus retaining them for a capital distribution on exit at the BADR rate of 18%. With dividend rates now at 35.75% or 41.35% versus 18% BADR, the case for retention and capital extraction on exit is stronger than it has been for many years.

Step 5 — Review the incorporation decision itself

For healthcare professionals who incorporated when the tax differential between salary (via PAYE) and dividend was very wide, it is worth periodically reassessing whether the limited company structure still makes sense. With dividend rates rising and the administrative cost of maintaining a company (corporation tax returns, annual accounts, director filings) remaining constant, the crossover point at which incorporation saves meaningful tax has shifted upward. Our business tax team can model your specific position and advise whether your company structure remains optimal.