A one-page guide for UK owner-managers and higher-rate taxpayers

The Chancellor has just delivered a tax-raising Budget, adding roughly £26bn a year to the tax take and pushing the UK’s overall tax burden towards 38% of GDP – the highest on record and above countries like the US and Canada, though still below the eurozone average.

The direction of travel is clear: Assume a high-tax decade and plan on that basis, rather than hoping for tax cuts.

The 5 Changes That Matter Most

1) Dividend tax rises from April 2026

From 6 April 2026, tax on dividends goes up by 2 percentage points for basic and higher-rate taxpayers:

• Basic rate: 10.75% (was 8.75%)
• Higher rate: 35.75% (was 33.75%)
• Additional rate: unchanged at 39.35%

Implication:
The classic “low salary + big dividend” strategy is less attractive at higher income levels. You’ll need to revisit your mix of salary, dividends and pension contributions.

2) New higher tax rates on savings & property income (from 2027)

From April 2027, savings and rental income get their own higher tax bands, all 2 percentage points above the standard income tax rates:

• Savings & property basic rate: 22%
• Savings & property higher rate: 42%
• Savings & property additional rate: 47%

Implication:

• Landlords and those with meaningful taxable interest will feel a real hit.
• Asset location becomes critical: interest-bearing and property income should be sheltered in ISAs/pensions wherever possible.

3) Salary-sacrifice pension NI relief capped at £2,000 (from 2029/30)

From the 2029/30 tax year, the NI saving on salary-sacrifice pension contributions will be capped at the first £2,000 per person per year. Contributions above that still get income tax relief, but no extra NI advantage.

Implication:

• High earners and owner-managers using large salary sacrifice arrangements will see reduced benefit.
• You’ll want to design remuneration so that the first £2,000 per person goes through sacrifice, and anything above that is reviewed case by case.

4) Cash ISA allowance cut to £12,000 (from April 2027)

From 6 April 2027, if you’re under 65, the cash ISA limit falls from £20,000 to £12,000, but the overall ISA allowance stays at £20,000. Over-65s keep the £20,000 cash limit.

Implication:

• Cash ISAs become a smaller part of your tax shelter – you’ll need to use more of your allowance for Stocks & Shares ISAs.
• You still have two full tax years (2025/26 and 2026/27) with the current £20k cash limit – worth using if you run large cash buffers tax-free.

5) Pay-per-mile tax on EVs (from April 2028)

From April 2028, most electric and plug-in hybrid cars will face a per-mile road levy on top of standard VED. Current OBR assumptions:

• Battery EVs: 3p per mile
• Plug-in hybrids: 1.5p per mile

Implication:

• If you or your business run EVs, you’ll need to factor this into total cost of ownership and mileage policies from 2028 onwards.

Year-End & Medium-Term Planning Checklist

Use this as a quick checklist between now and 5 April – and in your 3–5 year planning.

Before 5 April 2026

1. Review 2026/27 dividend plans
   • If you’re likely to pay large dividends after April 2026, consider whether it makes sense to bring some forward into 2025/26 while rates are lower. (Take care not to trigger higher-rate bands this year.)
2. Max out ISAs at current rules
   • Use your £20,000 2025/26 ISA allowance (cash or stocks).
   • Plan ahead to also use 2026/27 while the full £20k cash option is still available.
3. Rebalance where income sits
   • Move interest-bearing assets into ISAs/pensions where possible.
   • Keep more volatile growth assets (global equity) in wrappers first, then outside if needed.
4. Landlords: stress-test your numbers
   • Re-run your BTL yields with 22%/42%/47% property rates from 2027. Anything marginal now could become uneconomic.
5. Directors: sense-check your extraction mix
   • Model your 2026/27 income under at least two scenarios:
     • Scenario A: low salary + high dividends
     • Scenario B: moderate salary + dividends + company pension contribution
   • Compare net cash in your pocket vs risk (e.g. future changes to dividend tax or pension rules).

A Simple Extraction “Modeller” for Owner-Managers

This isn’t a full spreadsheet, but a decision sequence you can apply now and refine with detailed numbers.

Step 1 – Set your target personal income

• Decide what you actually need to live on (after tax). Don’t let the company’s profit drive your drawings.

Step 2 – Choose a baseline salary

• Aim for a salary at or around the personal allowance / NIC primary threshold (subject to annual changes).
• This protects state pension and benefits record and keeps PAYE admin simple.

Step 3 – Use employer pension contributions intelligently

• Between now and 2029, employer contributions (whether labelled “salary sacrifice” or not) still provide full NIC arbitrage.
• From 2029/30, design packages so that.
  • The first £2,000 per year per person is structured as salary sacrifice (full NI saving).
  • Extra pension funding is reviewed on its merits (you still get corporation tax and income tax relief, just not the extra NI saving).

Step 4 – Layer dividends on top

From 2026/27 onwards, use dividends with the new rates in mind:

• Take dividends to use up the basic rate band at 10.75%.
• Above that, compare:
  • Higher-rate dividends at 35.75%, vs
  • Extra salary at 42%/47% plus NICs, vs
  • Additional employer pension (with or without NI benefit).

For many owner-managers, the sweet spot will be: (1) modest salary, (2) pensions up to a sensible level, then (3) dividends to the higher-rate threshold – not “dividends at all costs” as in past years.

Step 5 – Revisit annually

• Re-run the numbers each year as thresholds, allowances and company profits move. The shape of the strategy is stable; the exact figures will change.