Taking dividends from a property company

Where a property business is operated through a company, the profits need to be extracted if they are to be used personally. One of the ways of extracting profits in a tax-efficient manner is to pay dividends, particularly if the shareholder’s personal allowance has been used elsewhere.

All taxpayers regardless of the level at which they pay tax are entitled to a dividend allowance. For 2025/26 this is set at £500 and will remain at this level for 2026/27. There is no personal tax to pay on dividends covered by the allowance. However, as the allowance acts as a zero-rate band, it uses up part of the tax band in which in falls.

If shareholders in the property company have yet to use their 2025/26 dividend allowance in full, it is worthwhile paying a dividend to mop up the unused allowance.

However, before paying a dividend, it is important to check that the company has sufficient retained profits from which to pay the dividend. Where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings. However, if each shareholder has their own class of share (known as an alphabet share structure), dividends can be tailored to the shareholder’s circumstances.

Once the dividend allowance (and any remaining personal allowance) have been used up, dividends, which are treated as the top slice of income, are taxed at the dividend tax rate appropriate to the tax band in which they fall. For 2025/26, the dividend ordinary rate (applying to dividends falling in the basic rate band) is set at 8.75%, the dividend upper rate (applying to dividends falling in the higher rate band) is set at 33.75% and the dividend additional rate (applying to dividends falling in the additional rate band) is set at 39.35%. However, from 6 April 2026, the dividend ordinary rate and the dividend upper rate both increase by two percentage points to, respectively, 10.75% and 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

Where the property company has sufficient retained profits, consideration could be given to paying a dividend prior to 6 April 2026 to beat the tax rises. This will only be worthwhile if less tax is paid if the dividend is paid in 2025/26 rather than in 2026/27. If the policy is to take dividends to use up the basic rate band and dividends of this level have already been paid in 2025/26, there is no point paying a further dividend in 2025/26 which will be taxed at the dividend upper rate if that dividend would be taxed at the dividend ordinary rate if paid in 2026/27.

Partner note: ITA 2007, ss. 13, 13A.

Disclaimer

This article is not intended to be tax advice. Each person's tax circumstances are different; therefore, we recommend that you contact us for personalized tax advice. Sam Niranjan & Co., or Sivasambu Candesamy Niranjan, will not accept any responsibility whatsoever if you make any loss as a result of relying on this article.