If you're a limited company director — and many property investors are — the way you pay yourself in the 2026/27 tax year could cost you significantly more than it should. A key shift in dividend taxation means that strategies which worked perfectly well last year may now leave money on the table.
What's Changed for Directors in 2026?
From the 6th of April 2026, dividend tax rates increased by two percentage points for both basic rate and higher rate taxpayers. The ordinary dividend rate now sits at 10.75%, whilst the upper dividend tax rate rises to 35.75%. In real terms, that represents a 22.85% increase in dividend tax overall.
For property investors who hold assets through a limited company — which is an increasingly common structure given the mortgage interest relief restrictions on personal ownership — this change is material. Dividends remain a useful and relatively efficient way to extract profit, but they are simply no longer as cheap as they once were. The risk now isn't overpaying on salary; it's leaning too heavily on dividends without accounting for the new cost.
The Salary Question: £6,708 vs £12,570
Most directors have heard the advice to set their salary at £12,570 — the personal allowance threshold — to avoid income tax and employee National Insurance. That guidance hasn't disappeared entirely, but the reasoning behind it has become more nuanced.
Here's the catch for 2026/27: employer National Insurance now kicks in above £5,000 at a rate of 15%. If you pay yourself £12,570, your company is liable for employer NIC on the £7,570 above that threshold — working out at approximately £1,135.50. That's a real cost leaving your company each year.
Many directors respond by dropping their salary to £5,000 to avoid the charge altogether. That logic is understandable, but it carries a hidden danger: fall below the lower earnings limit and that tax year won't count towards your state pension. Miss enough qualifying years and the cumulative cost far outweighs the short-term NIC saving.
The smarter middle ground for sole directors is £6,708. This figure sits above the lower earnings limit, preserving your state pension entitlement, whilst keeping employer NIC exposure to roughly £256 per year. It's a lean, tidy option — particularly for those whose company profits are modest or who are still building their portfolio.
However, for directors whose companies generate healthy profits — especially those in the marginal or main corporation tax rate band of 25% — a salary of £12,570 may still make more sense. At that level, the full personal allowance is used, and the corporation tax deduction on the higher salary can offset the employer NIC cost. Whether you're sourcing your next deal through a platform like PropertyAlert.uk or reviewing your existing portfolio's performance, understanding which band your company profits fall into is essential before settling on a salary figure.
Employment Allowance Changes Everything
Here's where the strategy diverges significantly depending on your company's structure. Sole directors with no other employees on payroll generally cannot claim Employment Allowance. But if your company has at least one genuine employee — including a spouse in a legitimate employment arrangement — you may be eligible for up to £10,500 in employer NIC relief.
When Employment Allowance is available, the employer NIC cost of paying £12,570 effectively disappears. That removes the main objection to the fuller salary option and makes £12,570 the most consistent and straightforward choice. You benefit from no income tax, no employee NIC, a qualifying state pension year, a full corporation tax deduction, and no employer NIC liability. It's difficult to argue against in that scenario.
Higher salary options — £50,270 or £100,000 — become somewhat more viable once Employment Allowance is in play, but the personal tax burden increases sharply. At £50,270 salary, income tax and employee NIC alone come to over £10,000. Higher salary options also push dividend top-ups into heavier tax bands. Employment Allowance solves the employer NIC problem but doesn't resolve the personal tax exposure at those levels.
Building a Joined-Up Extraction Strategy
The most important lesson for 2026 is this: salary and dividends cannot be considered in isolation any longer. With dividends now more expensive, your entire income extraction approach needs to be coherent — salary, dividends, pension contributions, spousal involvement, and timing all need to work in concert.
For property investors running portfolios through limited companies, this complexity is even greater given rental income cycles, refinancing events, and varied profit levels across the year. We'd strongly recommend speaking to a specialist property accountant who understands this landscape in full. Provestor is a specialist property accountant that works exclusively with property investors and landlords, and they're well placed to help you model the right extraction strategy for your specific setup.
Get the combination right and you can still extract profits from your company in a genuinely tax-efficient manner. Get it wrong and you'll overpay — quietly, incrementally, and without ever quite knowing why.
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