New data shows 2,300 UK individuals received more than £1 million in dividend income last year*, up from 2,100 the year before, highlighting the continued success of many UK entrepreneurs and business owners, says Bowmore Wealth Group.
Dividends can only be paid to shareholders if a company has made a profit after tax.
Mark Incledon, CEO of Bowmore Wealth Group says: “It’s great news that enough British companies are doing well enough that they can make so many people millionaires by distributing dividends.”
Mark Incledon warns, however, that the UK Government needs to ensure that its tax policies don’t encourage business owners to take too much of their profits out in dividends, leaving too little in the business to reinvest and grow.
Has IHT and CGT increases forced business owners to withdraw more cash from their businesses?
Unfortunately, recent tax policy has been doing just that – from April 2026, full relief from IHT on qualifying business assets will be capped at £2.5 million, with assets above this threshold typically receiving partial relief. This may encourage some business owners to extract cash from their businesses to gift to their children to avoid having to pay too much IHT.
The Government has also increased the tax that it takes on the sale of a business. The tax rate under Business Asset Disposal Relief has increased from 10% to 14% in April 2025 and to 18% . In her November 2024 Budget Rachel Reeves also increased the higher rate of CGT from 20% to 24%.
By increasing the tax on the sale of businesses (eg via CGT) may lead to a business owner to stop taking risks to grow the business and instead just extract income from it.
Explains Mark Incledon: “When business owners feel they are being penalised for building long-term value in their company, they become more focused on extracting wealth rather than reinvesting it.”
“More entrepreneurs taking money out of their businesses through dividends means less investment in growing the business and creating jobs.”
Dividends are typically paid from company profits that might otherwise be used to invest in new equipment, recruit staff, expand operations or develop new products and services. Mark Incledon says a shift towards greater dividend extraction on a large scale could significantly reduce investment across the wider economy.
“I think it is a warning not to increase CGT – rates are high enough already. There is a risk that continually increasing tax burdens on business owners could reduce incentives to invest.”
“Many business owners are concluding that it may be more efficient to pass wealth to their families while they are still alive rather than leave assets exposed to a potentially significant inheritance tax charge later.”
“The danger is that tax policy starts to discourage exactly the kind of long-term investment and business building that drives economic growth. The more attractive it becomes to take money out of a company, the less capital remains available to create jobs and expand businesses.”
Mark Incledon, CEO of Bowmore Wealth Group
*HMRC data, year-end March 31 2025
