While there has been plenty of discussion following Rachel Reeves’ Autumn Budget announcement at the end of November, there is one aspect that has largely passed under the radar.
A close company incurs what is known as a ‘section 455’ tax charge if it makes a ‘loan to a participator’ (or their associate) and the amount remains unpaid nine months and one day after the end of its accounting period. This s.455 tax is charged at the dividend upper rate (regardless of the participators actual tax band), which since April 2022 has been 33.75%.
With the announced 2% increase in dividend tax chargeable on basic rate and higher rate taxpayers (now 10.75% and 35.75%, respectively), close companies can expect an additional 2% charge in s.455 tax on certain new loans to participators (e.g. shareholders).
Any new loans to participators issued by close companies from 6 April 2026 will therefore attract a higher s.455 tax charge of 35.75% on any unpaid balances in excess of £15,000 outstanding at the year end.
While s.455 tax is only a temporary tax charge for a company (as the tax so deposited is repaid following the loan repayment), the rate increase does present a greater cashflow strain for businesses, with a further 2% charge being levied on any outstanding loans made in the new tax year.
Those companies that habitually make such loans and where repayments are made from dividends, as company profits allow, may need to strengthen their record keeping. It could become important to document exactly which loans are being repaid, as different rates of s.455 tax will be applied to historic and new loans.
Reach out to us if you would like to discuss how this change may affect you and your business.
A close company incurs what is known as a ‘section 455’ tax charge if it makes a ‘loan to a participator’ (or their associate) and the amount remains unpaid nine months and one day after the end of its accounting period. This s.455 tax is charged at the dividend upper rate (regardless of the participators actual tax band), which since April 2022 has been 33.75%.
With the announced 2% increase in dividend tax chargeable on basic rate and higher rate taxpayers (now 10.75% and 35.75%, respectively), close companies can expect an additional 2% charge in s.455 tax on certain new loans to participators (e.g. shareholders).
Any new loans to participators issued by close companies from 6 April 2026 will therefore attract a higher s.455 tax charge of 35.75% on any unpaid balances in excess of £15,000 outstanding at the year end.
While s.455 tax is only a temporary tax charge for a company (as the tax so deposited is repaid following the loan repayment), the rate increase does present a greater cashflow strain for businesses, with a further 2% charge being levied on any outstanding loans made in the new tax year.
Those companies that habitually make such loans and where repayments are made from dividends, as company profits allow, may need to strengthen their record keeping. It could become important to document exactly which loans are being repaid, as different rates of s.455 tax will be applied to historic and new loans.
Reach out to us if you would like to discuss how this change may affect you and your business.
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