Taking Money Out of Your Company: 2026 Rule Changes Explained

On 14 September 2026, HMRC closed its consultation on modernising the taxation of distributions and repayments of capital from companies. For owner-managed businesses, the consultation is directly relevant to taking money out of your company. In simple terms, the review examines the rules used to determine how payments and other value extracted by individual or trust shareholders are taxed, including dividends, certain reductions or repayments of share capital, share buybacks and the interaction between distributions and loans to participators. Some of these rules have remained largely unchanged since 1965. 

Nothing has changed yet. These are proposals, not law, and any reform would require future legislation, potentially through a Finance Act. However, the direction of travel is clear: HMRC wants economically similar payments to receive more consistent tax treatment, which could reduce the distinction between income and capital treatment that some owner-managed companies currently consider when planning shareholder extractions.

Key Takeaways

• HMRC consulted from 23 June to 14 September 2026 on modernising the distributions framework, parts of which date back to 1965. The consultation is now closed, and responses are being considered. Nothing has been confirmed.
• The consultation covers dividends, certain repayments or reductions of share capital, share buybacks, demergers and the interaction between distributions and loans to participators. These areas are central to company distribution rules UK guidance for individual and trust shareholders. Its main focus is payments and value transfers involving individual or trust shareholders; corporate shareholders are not the primary focus. 
• The central aim is to give economically similar payments more consistent tax treatment. At present, qualifying capital gains are generally taxed at 18% or 24%, while dividend income above the dividend allowance is taxed at 10.75%, 35.75% or 39.35%, depending on the taxpayer’s band.
• No new rule currently forces shareholders or companies to take action. However, extraction planning that relies on the difference between income and capital treatment should be reviewed, particularly where a transaction is planned but has not yet been implemented.
• A sensible practical step is to discuss the intended salary and dividend mix with your accountant and retain evidence of the commercial rationale and relevant documentation for any proposed capital extraction. This is prudent planning advice, not a new HMRC requirement.

Rules for Taking Money Out of Your Company in 2026 

Most owner-managed directors use four routes: a salary through PAYE, dividends from accumulated profits, a director’s loan, or a capital distribution, such as a reduction of share capital or a final distribution when a company closes. If you are considering how to pay yourself from a limited company, these are the main routes under the current rules. The standard combination for a UK owner-director is a modest salary plus dividends. Our guide to balancing the best salary and dividend split for directors explains the usual mix in detail.

Current Tax Rates for Company Extractions

For anyone reviewing capital distribution tax UK guidance alongside salary and dividends, the headline rates for the 2026/27 tax year are: 

Tax on extraction, 2026/27	Rate	Notes
Salary within the Personal Allowance	0% Income Tax	The standard Personal Allowance is £12,570, subject to restrictions such as tapering above £100,000. Salary is generally deductible for the company, although employer National Insurance and other employment-related costs may apply.
Dividends: basic rate	10.75%	Rises to this rate from April 2026, first £500 allowance covers the start of dividend income
Dividends: higher rate	35.75%	Applies above the basic rate band
Dividends: additional rate	39.35%	Top rate of dividend tax
Capital distribution (CGT)	18% or 24%	18% within the basic rate band, 24% above it
Business Asset Disposal Relief	18%	Applies to qualifying business disposals made on or after 6 April 2026. The lifetime limit is £1 million per individual. It is not an automatic rate for every capital distribution, share buyback or company extraction.

Note: These are headline individual tax rates for the 2026/27 tax year. The actual outcome depends on the shareholder’s total income, available allowances, the company’s circumstances, the legal form of the extraction and any applicable reliefs or anti-avoidance rules. The rates do not mean that every salary, dividend or capital payment will be taxed at the figure shown.

Read our guide on how dividends are taxed for the full breakdown of allowances and bands.

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What Is HMRC’s Distributions Consultation?

The consultation, titled “Modernising the taxation of distributions and repayments of capital from companies”, was published on 23 June 2026 and ran for 12 weeks until 14 September 2026. It was announced as part of Tax Update 2026. The review could eventually affect parts of company distribution rules UK guidance. HMRC says the current rules generally operate well, but the commercial and legal environment has changed significantly. As a result, economically similar payments can sometimes receive different tax treatment depending on the route used. 

What the Consultation Covers

The consultation covers seven areas:

• Capital on the shares: Whether the rules should be changed where restructuring arrangements allow value that is economically similar to a profit distribution to receive capital treatment and potentially fall within CGT rather than Income Tax.
• Demergers: Whether the existing relief rules should be modernised and better targeted, particularly if changes restrict some non-statutory capital demerger routes.
• Non-UK resident companies: Whether the income tax treatment of dividends and other distributions from non-UK resident companies should be aligned more closely with the treatment of distributions from UK-resident companies.
• Debt and loans: Whether a priority rule should determine when an extraction is taxed under the distributions regime and when it is dealt with under the loans to participators regime.
• Loans from non-UK companies: Whether a loans regime should apply to loans or advances from non-UK resident companies that would meet the close-company conditions if they were UK residents.
• Purchase of Own Shares: Whether the existing relief should be clarified and kept focused on the situations in which capital treatment is intended.
• Transactions in Securities: Whether these anti-avoidance rules should be modernised to address arrangements that produce an unintended tax advantage.

The document contains two important reassurances. The proposals are not intended to affect legitimate commercial restructurings, and they are not intended to affect corporate shareholders directly. The consultation is primarily focused on situations where the shareholder is an individual or trust within the charge to income tax, although some provisions could have wider technical effects.

This remains a proposal stage, not a change in the law. The government will analyse the responses and publish a summary, and it may consult further on particular reforms. Any resulting changes would require legislation.

Which Extraction Routes Could the Reform Affect?

If you are an owner-director planning around the income versus capital gap, three chapters matter most. First, any capital reduction strategy that relies on “capital on the shares” planning is squarely in scope. 

Second, share buybacks under the Purchase of Own Shares rules. 

Third, if your structure includes non-UK resident companies, the alignment proposals could change how dividends from those companies are taxed for UK shareholders.

The director’s loans also feature:

The consultation proposes a priority rule for when the loans to participators regime takes precedence over the distributions rules and considers extending the regime to loans from non-UK resident close companies.

If you use a director’s loan as a temporary extraction, our page on tax-efficient cash extraction strategies covers the current repayment rules and tax traps.

Could You Pay More Tax? A Worked Example

The honest answer is that nobody knows yet because HMRC has announced no replacement rates or final policy. However, the consultation identifies a possible risk for arrangements that rely on the difference between income and capital treatment. This is why capital distribution tax UK guidance remains important when comparing possible extraction routes. 

Here is a simplified illustration, assuming no other income, reliefs, allowable costs or available losses, and assuming the shareholder has sufficient higher-rate band:

A shareholder extracts £50,000 from the company under the current rules.

• As a dividend: the £500 dividend allowance leaves £49,500 taxable. At 35.75%, the dividend tax is approximately £17,700.
• As a qualifying capital gain eligible for BADR: at 18%, the tax would be approximately £9,000, assuming the full £50,000 represents a qualifying taxable gain and the relevant BADR conditions are met.
• As a capital gain taxed at the main CGT rate: at 24%, the tax would be approximately £12,000, on the same simplified assumption.

The difference between the dividend calculation and the BADR calculation illustrates the type of inconsistency the consultation is examining. If future legislation resulted in economically similar extractions being taxed as income, a hypothetical £9,000 liability could move closer to the illustrative £17,700 dividend figure. But that is not a forecast: no such legislation has been enacted, and the final policy could be different.

The example is therefore a reason to review proposed extraction plans—not a reason to assume that the current rules have changed. You can use our dividend tax calculator to model dividend income under the current rates.

What Should Directors and Shareholders Do Now?

Nothing in the consultation imposes a deadline on you today. The sensible moves are preparatory, not reactive:

1. Review your salary and dividend mix for 2026/27. A salary within the available Personal Allowance followed by dividends remains a commonly considered structure under the current rules, but the consultation does not guarantee that future reforms will leave every extraction strategy unchanged.
2. If you are considering a capital extraction, company closure or share buyback, take advice on timing. Keep a clear record of the commercial rationale, the proposed transaction and the relevant company-law steps. HMRC has signalled it wants to distinguish genuine commercial transactions from planning that exists only for the tax outcome.
3. If your group includes non-UK resident companies, look closely at the alignment chapters. The proposed alignment of the treatment of distributions from non-UK resident companies could be particularly relevant for UK-resident individual or trust shareholders with offshore company interests.
4. Monitor the government’s response to the consultation. HMRC and the government are expected to consider the responses and announce next steps, but no publication date has been confirmed. Any reform would require legislation, potentially through a future Finance Bill. The timing, content and commencement date of any legislation remain unconfirmed.
5. Do not rush a sale or extraction solely because the consultation has closed. The rules have not changed, and the closing date does not create a statutory deadline. Decisions should be based on the commercial purpose, tax position, legal requirements and the possibility—but not certainty—of future reform. 

BADR already increased from 14% to 18% for qualifying disposals made on or after 6 April 2026. That is an enacted change, separate from the proposals in this consultation.

Key Dates for the HMRC Consultation

Date	Event
23 June 2026	Consultation published
14 September 2026	Consultation closed; responses under review
To be confirmed	Government response or summary of consultation responses.
To be confirmed	Any draft legislation or further consultation
To be confirmed	Any enacted changes and their commencement date

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Frequently Asked Questions

How do I pay myself from my limited company?
For directors asking how to pay yourself from a limited company, the standard route is a salary through PAYE topped up with dividends from accumulated profits. A salary around the £12,570 personal allowance is tax-efficient for most directors, with dividends above it. Our salary and dividend split guide shows how the mix works in practice.

Can I take money out as a director’s loan?
Yes, as a temporary measure, but the loan must be repaid within nine months and one day after the company’s year-end to avoid the section 455 charge, and it should be documented properly. The consultation proposes a priority rule for when the loans regime applies instead of the distributions rules, so loan-based planning deserves a fresh review once the government responds.

Will dividends be taxed differently after the consultation?
No change has been announced. Dividend tax rates already rose by two percentage points in April 2026, to 10.75% and 35.75%, with the additional rate at 39.35%. The consultation is about the framework that decides whether a payment is income or capital, not about announced rate changes.

Do the proposals affect sole traders?
No. The distributions rules apply to payments from companies to their shareholders. Sole traders draw profits differently, without the company law layer, so this reform does not touch them.

What happens if I already took a capital distribution in 2026?
Existing completed transactions are assessed under the rules in force at the time. The consultation is forward-looking, and the government has said reform would only proceed after responses and impact analysis. If a past extraction was aggressive on the income versus capital boundary, a professional review of the file is sensible while the response is awaited.

How Apex Accountants Can Help

Our team advises owner-managed companies on exactly the areas this consultation touches. We review annual salary and dividend mixes and plan capital reductions and company closures with documented commercial rationale. We also guide share buybacks and demerger structures while monitoring HMRC consultations for changes that could affect your plans. If you are extracting money from your company and want your route stress-tested against the direction of this reform, book a call with us and we will review your structure with you.