Change in Dividend Tax Rates

Last Updated on 30 March 2026

Share Incentive Plan shareholders and dividends

If you operate a Share Incentive Plan (SIP) and are lucky enough to be able to pay a dividend to your shareholders out of your post tax profits, perhaps have a thought to reminding your SIP shareholders that tax will be due on any dividends received over the £500 threshold (2025/26 & 2026/27).

As most payments or deductions for a SIP are made/taken from a participant’s salary with PAYE/NIC’s operating, if & where appropriate, it’s easy for your participants to assume that all taxes associated with your SIP have been taken care of through the company’s normal payroll mechanisms.

However, dividend payments aren’t processed through a payroll, so if the taxation threshold on dividend payments has been exceeded this would need to be reported by the individual on a Self-Assessment tax return. So, keep your SIP dividend tax vouchers handy for this purpose.

From 6 April 2026, although the threshold limit of £500 before you need to pay tax remains, the tax rates due on dividends received are increasing.  From 6 April the rate for those in the basic rate tax band rises from 8.75% to 10.75% and for the higher rate taxpayers from 33.75 to 35.75% (the rate for additional rate taxpayers remains unchanged at 39.35%).

One option you may wish to consider for your SIP shareholders, if you don’t already, is allowing shareholders to re-invest the dividends they receive from the SIP shares into SIP Dividend shares.  There is no limit on the value of dividends which can be reinvested, and as long as the dividend shares remain held in your SIP trust for over 3 years, they will be free of income tax when they are finally sold/removed from the SIP.  If they are removed before 3 years, then income tax is simply due on the value of cash dividend used to originally purchase those dividend shares.

RM2 are employee ownership specialists who assist clients with the design, implementation and ongoing compliance of all types of employee share plan including the SIP, the Company Share Option Plan (CSOP) and the Enterprise Management Incentive Plan (EMI).  We would be happy to arrange a free call with you to see how we can help you.

Contact us at enquiries@rm2.co.uk to arrange a call with one of our employee ownership specialists.