Taking Money Out Of Your Company: The 2028 Distributions Shake-Up Explained
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Taking Money Out of Your Company: The 2028 Distributions Shake-Up Explained (UK Budget 2026)
From April 2028, the government will change how value you take out of your company is taxed when it is not an ordinary dividend. Dividend and Capital Gains Tax rates are not changing. The targets are holding company capital reductions, share buybacks and similar routes that turn profit into a capital gain. Draft legislation follows in 2027.
For the 2026/27 tax year, every extraction route works exactly as before. If you are planning a genuine exit, the date that matters more is 6 April 2027, when the Business Asset Disposal Relief (BADR) lifetime limit halves from £1 million to £500,000. If you are planning to take a capital sum out while staying in the business, the 2028 reform is aimed squarely at you.
What exactly changes from April 2028?
The reform rewrites the rules that decide whether value paid by a company to an individual shareholder is taxed as income (at dividend rates) or as a capital gain, so that similar transactions are taxed the same way whatever their legal form.
HM Treasury's factsheet on modernising the distributions framework, published with the Budget on 28 October 2026, describes rules that have been largely unchanged since 1965. It groups the reform into four measures: taxing profit extraction consistently, aligning overseas company payments and loans with UK ones, modernising buyback and demerger relief for genuine exits, and replacing anti-avoidance rules that create uncertainty.
The factsheet is just as clear on what does not change. Ordinary dividends stay dividend income, a sale of your shares to a third party stays within Capital Gains Tax (CGT), and no tax rate moves. Shareholders in listed companies are outside the capital reduction change.
The Budget 2026 report expects the reform to raise £55 million in 2028/29 and £800 million in 2029/30, rising to £785 million by 2031/32. That is a large sum from a group the factsheet describes as mainly shareholders who control how profits are paid out, which tells you the reform is aimed at owner-managed companies rather than at investors.
2028 Distributions Shake-Up: Profit Extraction Tax Explainer
This interactive dashboard breaks down the complex changes introduced in the UK Budget 2026 regarding how company distributions will be taxed from April 2028. By exploring the visual charts and comparative data, you can clearly see the financial differences between taking ordinary dividends versus extracting capital through liquidations or share buybacks. Simply hover over the graphs to compare the stark tax contrasts between the current rules and the upcoming reduction in Business Asset Disposal Relief (BADR) in April 2027. Use this tool to quickly grasp how these sweeping reforms might impact your hard-earned profits before consulting with a professional.
Will an ordinary dividend be taxed differently?
No. A normal dividend from a UK company will be taxed in exactly the same way after April 2028 as before. For 2026/27, GOV.UK's guidance on tax on dividends sets a £500 dividend allowance, then rates of 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band.
Those dividend rates apply across the UK. If you are a Scottish taxpayer, the Scottish rates apply to your salary but not to your dividends, and the reform does nothing to change that. The usual salary and dividend mix for a director is a separate matter, and the 2028 rules leave it alone.
Which extraction routes are being changed?
The government is going ahead with all seven proposals from its consultation, which ran from 23 June to 14 September 2026 and drew 67 written responses. The details are in HMRC's consultation on modernising the distributions framework and its summary of responses. Four of the seven matter to most owner-managers.
Holding company reorganisations followed by a capital reduction
This is the route the reform targets most directly. The pattern is that you swap your shares for shares in a new holding company, which creates a large amount of share capital or share premium in the new company, and the holding company then reduces that capital and pays it to you as a return of capital rather than a dividend.
From April 2028, the amount that can be treated as a repayment of capital after a reorganisation will be limited to the capital you originally subscribed. HMRC's consultation gives an example of a £2 million payment that carries Income Tax on £1 million under the current rules and on about £2 million under the new ones. The summary of responses confirms the change will apply only to reorganisations after the legislation takes effect, and that listed companies are out of scope.
A company buying back your shares
A purchase of own shares (a buyback, where the company itself buys your shares) is taxed as a dividend unless it meets the conditions for capital treatment in Part 23, Chapter 3 of the Corporation Tax Act 2010. Those conditions include five years' ownership, a reduction of at least 25% in your interest, not remaining connected with the company, and a subjective test that the buyback benefits the company's trade.
The consultation proposed replacing the trade benefit test with mechanical conditions: at least 5% of the company held for two years while working for it, a full exit from both shares and directorships, tranches allowed if you leave fully within two years, longer periods of five years where family members remain, and relief clawed back if you come back within five years.
The government has not adopted all of that as drafted. Its response says 5% is right for most transactions but will be consulted on again, the two-year employment requirement will be relaxed, and genuine family succession and employees who leave before selling are still under consideration. Until the draft legislation is published in 2027, you should treat the proposed conditions as a direction of travel, not a set of rules.
The Profit Extraction Planner: Navigating the 2027 & 2028 Tax Deadlines
This interactive planner is designed to help owner-managers navigate the shrinking tax reliefs and upcoming regulatory changes for extracting company funds. To get started, simply answer a few quick questions about your intended timeline and whether you plan to fully exit the business or continue trading. The wizard will then generate a tailored, step-by-step action plan highlighting critical deadlines, such as the April 2027 BADR reduction, alongside guidance on securing necessary HMRC clearances. Use this personalised roadmap to make informed, tax-efficient decisions that align perfectly with the government's shifting tax landscape.
Loans and dividends paid without enough profits
A dividend paid when the company did not have enough distributable profits is unlawful, and it can be recharacterised years later, sometimes as a loan. That creates a mismatch between your Income Tax and the company's section 455 charge on overdrawn director's loans, which is 35.75% for loans made on or after 6 April 2026. The government will introduce priority rules to stop the same value being taxed twice, with the mechanism to be chosen in the technical consultation.
The transactions in securities rules
The transactions in securities (TiS) rules let HMRC counter an Income Tax advantage from share transactions, and they apply alongside everything above. The government will reform them for more clarity and is considering moving them into Self Assessment, which could mean judging the position yourself on your return rather than relying on an HMRC clearance.
The other changes affect fewer people: distributions from non-UK companies will be brought into the Income Tax charge, loans from non-UK companies to UK shareholders will face a temporary, repayable charge, and demerger relief will be widened.
Is the real deadline April 2027, not April 2028?
For a genuine exit, yes. Liquidation distributions are not among the seven proposals, and the government says the reform protects capital treatment for genuine changes of ownership. What does change sooner is BADR, which taxes qualifying gains at 18%: for disposals on or after 6 April 2027 its lifetime limit falls from £1 million to £500,000.
In a members' voluntary liquidation (a solvent winding up), each distribution you receive is a disposal for CGT at the date you receive it. A retirement plan that pays out in 2027/28 rather than 2026/27 can therefore lose £500,000 of BADR, which on its own costs up to £30,000 (the 6-point gap between 24% and 18% on £500,000).
Example: a retiring director takes £1 million out of the company. A director owns 100% of a trading company with £1 million of retained profits, on which the company has already paid Corporation Tax. The shares cost a nominal amount, the director has no other income and has never claimed BADR, and they will not carry on a similar business after the company closes.
Route | Calculation | Personal tax |
Dividend in 2026/27 | £37,200 at 10.75% = £3,999.00; £87,440 at 35.75% = £31,259.80; £874,860 at 39.35% = £344,257.41 (first £500 covered by the dividend allowance, Personal Allowance fully withdrawn) | £379,516.21 |
Liquidation distribution by 5 April 2027, BADR on £1 million | £997,000 at 18% after the £3,000 annual exempt amount | £179,460 |
Liquidation distribution on or after 6 April 2027, BADR on £500,000 | £500,000 at 18% = £90,000; £497,000 at 24% = £119,280 | £209,280 |
The gap between the dividend and the capital route is £200,056.21, which is exactly why HMRC polices the boundary. The gap between paying out before and after 6 April 2027 is £29,820. Liquidation costs are left out because they apply in both capital cases.
The answer flips if the director goes on to run a similar business. The targeted anti-avoidance rule for winding-up distributions can then treat the liquidation payment as income, which takes the director back to the first line of the table.
The video with this article compares these three routes and the dates that drive them. Its conclusion is that for a genuine exit the 2028 reform changes little, while the April 2027 BADR change has a clear price.
Should you act before April 2028?
It depends on whether you are leaving the company or staying in it.
If you are leaving, the reform is designed to keep capital treatment available, and the factsheet says gifts and sales of shares to your children remain open, with Gift Hold-Over Relief able to defer CGT until they sell. A staged buyback, paid in instalments so the company's cash is not drained at once, also remains possible. The timing pressure comes from the April 2027 BADR change, not from 2028.
If you are staying, a holding company reorganisation before April 2028 is not the safe harbour it may look like. The summary of responses says the capital reduction limit applies to reorganisations after the legislation takes effect, but the TiS rules already apply to a capital reduction whose main purpose is an Income Tax advantage, and the draft legislation in 2027 has not yet shown whether it will contain rules aimed at arrangements entered into before April 2028.
The analysis stops being something you can safely do alone at the point where a transaction relies on capital treatment: a buyback, a reorganisation, or a liquidation where you may continue in business. Each turns on facts HMRC will test, and each benefits from a clearance application before you sign. Pro Tax Accountant's profit extraction and exit planning service would model the tax on each route and date, test a buyback or reorganisation against the current conditions and the published 2028 proposals, prepare the HMRC clearance applications, and report the outcome on your Self Assessment return.
What to do before April 2027 and April 2028
By 5 April 2027: if a genuine exit through a liquidation or buyback is planned with BADR, decide whether the distribution or buyback can be made by this date, while the £1 million limit applies.
Before any buyback or reorganisation is signed: apply to HMRC for advance clearance on the capital treatment and on the TiS rules, allowing time for HMRC's response.
By 31 January 2028: report any 2026/27 dividends and gains on your Self Assessment return and pay the tax.
During 2027: read the draft legislation when it is published for technical consultation, and check your plans against the final buyback conditions and any rules on pre-April 2028 arrangements.
Before April 2028: complete any transaction you are relying on the current rules for, once the draft legislation has confirmed that doing so is effective.
Executive Briefing: Autumn Budget 2026 Analysis and Tax Reform Summary (By PTA)
FAQs
Does the 2028 distributions reform affect selling my company to a trade buyer?
No. HM Treasury's factsheet confirms that gains on ordinary share sales, including sales to another person or business, stay within Capital Gains Tax. The reform is about payments the company itself makes to you, not about what a buyer pays you for your shares.
Will EMI or EIS shares be caught by the new rules?
The government's summary of responses says it does not intend to undermine the tax-advantaged share schemes, naming Enterprise Management Incentives (EMI), the Company Share Option Plan (CSOP), the Share Incentive Plan (SIP), Save As You Earn (SAYE), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). The draft legislation in 2027 will show how that protection is built in.
My company is registered overseas. Does any of this apply to me?
Yes, if you are a UK resident individual shareholder. Distributions from non-UK companies will be brought into the Income Tax charge to match UK companies, and loans from non-UK companies to UK shareholders will face a temporary charge that is repaid when the loan is repaid, released or written off. The government may limit the loan charge to shareholders with a material interest.
I hold shares in a listed company. Will a capital return be taxed as a dividend?
Not under the capital reduction change. The government has taken listed companies out of scope of the new limit on repayments of capital after a reorganisation, because individual shareholders in listed companies generally cannot control how profits are returned.
About the Author:
Adil Akhtar, ACMA, CGMA, FCMA (membership ID is 990250923) serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than eighteen years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants (registered with Companies House), combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
Disclaimer: This article sets out the general position under UK tax law for the 2026/27 tax year. The information has been checked against HMRC guidance and other official sources at the date shown above, and is reviewed when the rules change. Tax legislation is complex and outcomes depend on your individual circumstances, so this article is provided for general information and does not constitute advice on which you should act. Any figures or worked examples are illustrative. Before making any decision, obtain advice specific to your situation from a qualified professional. Pro Tax Accountant accepts no liability for loss arising from reliance on this article alone.
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