Budget 2026 – changes ahead for the extraction of profits from companies

A consultation launched by the Government earlier this year, which closed in September 2026, set out proposals to reform the tax rules dealing with distributions made by companies to shareholders who are individuals or trusts

A consultation launched by the Government earlier this year, which closed in September 2026, set out proposals to reform the tax rules dealing with distributions made by companies to shareholders who are individuals or trusts. The consultation was launched as a modernization of the rules which have remained largely unchanged since the introduction of Corporation Tax in 1965.

The government has confirmed that they intend to proceed with all 7 proposals as a cohesive package, reflecting the interlinked nature of the reforms, with the intention of bringing the rules up to date and ensuring that similar transactions are taxed consistently, regardless of legal form, company residence or transaction structure.

Changes are intended to apply from April 2028 and there are no immediate changes announced. However, business owners planning retirement, family succession or restructuring will need to understand what future arrangements need consideration and obtain professional advice to fully understand the tax consequences.

The intention is to reduce any arrangements that allow accumulated company profits being taken as capital rather than income. There are also plans to update purchase of own shares relief and expand demerger relief that could potentially help businesses to qualify where there are genuine commercial exits and reorganisations. At this stage we do not have clarity on the changes planned.

We do know that the following will not be changing:-

• Dividend income tax and capital gains tax rates
• Normal dividends will continue to be taxed as dividend income
• Disposal of shares to another person or business will remain within the CGT regime

The decisions that could be affected are:-

• Taking accumulated profits out of the company
• Retirement, succession and shareholder exits
• Separating businesses or investments
• Payments and loans from overseas companies
• Unlawful distributions and shareholder loans

What action is required now?

We have no legislation or draft legislation at the moment so it is difficult to plan for the future at this stage but as a business owner you can be prepared to act when those announcements are made by acting now in preparation. We would recommend a detailed review, with your tax adviser, identifying any planned or likely transactions, detailing commercial objectives, potential timelines, funding needs and other key details and then revisit that plan in 2027 once the draft legislation is available.

Our tax experts are on hand to assist you with your plans.

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