Retained Profits vs Dividends: How Directors Could Borrow Up to £100k More in 2026

For company directors, one of the most common questions when planning a property purchase is:

Should I take more dividends, or will lenders recognise retained profits?

In today’s lending environment, the answer can influence borrowing capacity significantly – sometimes by six figures – depending on lender criteria and individual circumstances.

For many years, lenders focused almost entirely on salary plus dividends, using tax returns as the primary measure of affordability. While that approach still exists, the landscape has evolved as directors increasingly retain earnings for growth, resilience, or tax efficiency.

Understanding how different lenders interpret your income – and planning ahead – can make a meaningful difference.

This article is provided for general information and educational purposes only and does not constitute personalised mortgage or tax advice. Examples are illustrative only and do not guarantee outcomes.

TL;DR – Quick Summery

• Salary plus dividends remains the traditional benchmark
• Many lenders now consider retained profits or net profits
• Lenders using Profit Before Tax may in some cases allow higher borrowing assessments
• Income multiples vary widely between lenders
• Dividend tax rises from April 2026 strengthen planning considerations
• Early preparation can improve flexibility

Why Salary and Dividends Became the Benchmark

Historically, lenders assessed affordability based on income directors physically withdrew from their companies. Salary and dividends provided a clear and consistent measure supported by tax documentation.

However, this approach does not always reflect the financial strength of businesses where profits are retained deliberately.

As director income strategies have evolved, many lenders have adapted accordingly.

The Shift Toward Profit Recognition

An increasing number of lenders will now consider:

• Salary plus net profit
• Salary plus retained earnings
• Overall business performance

This can be particularly relevant where directors reinvest profits or maintain conservative drawings.

That said, lender methodologies differ – especially in how profits are measured.

Profit Before Tax vs Profit After Tax – The 2026 Reality

With the Small Profits Rate at 19% and the Main Corporation Tax rate at 25% now well established, lenders have had time to refine affordability assessments.

However, approaches still vary.

Lenders who use Profit Before Tax effectively assess affordability before Corporation Tax is deducted, which may in some cases result in higher borrowing capacity compared to lenders using Profit After Tax.

Some lenders may not fully reflect marginal relief calculations within their systems, meaning outcomes can differ between providers.

2026 Lender Multiples for UK Directors

2026 Lender Multiples for UK Directors – Understanding how PBT vs PAT may affect borrowing

In some cases, identifying a lender that uses Profit Before Tax rather than Profit After Tax can influence borrowing assessments without changing underlying income.

Planning Timeline for Directors

Mortgage outcomes are often influenced well before an application is submitted.

12 to 24 months ahead

• Review drawings strategy with advisers
• Maintain consistent financial records
• Avoid unusual fluctuations

6 to 12 months ahead

• Discuss lender positioning
• Review dividend approach if appropriate
• Check credit profile

3 to 6 months ahead

• Finalise accounts
• Prepare documentation
• Obtain accountant input

At application

• Present a clear explanation of income structure
• Provide context around retained profits

Planning early can provide more options.

Real Case Study: Complex Director Scenario

A director approached us with involvement across multiple businesses including professional services and property activities. Personal drawings were modest, while profits were retained and pension contributions prioritised.

Challenges included:

• Multiple entities
• Minority shareholdings
• Overseas income
• Conservative extraction strategy

By presenting a clear picture of overall financial strength and approaching lenders comfortable with profit-based assessments, a suitable lending solution was identified.

Case study based on a real scenario with details anonymised for confidentiality.

Ifthi Insight

It is common for directors to assume that increasing dividends is necessary before applying for a mortgage.

In practice, that may not always be required. Understanding lender criteria early can help ensure tax strategy and borrowing considerations are aligned rather than reactive.

Tax Efficiency vs Borrowing Power in 2026

From April 2026, dividend tax rates increase to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers.

This means retaining profits within the business – where appropriate – and working with lenders who understand retained earnings may be worth considering as part of broader planning.

Balancing tax efficiency and borrowing objectives is key.

Why Joined-Up Advice Matters

Considering mortgage planning alongside broader financial strategy can help directors understand:

• Income timing
• Profit sustainability
• Lending options
• Long-term implications

Questions Directors May Wish to Consider

• How will lenders assess my income?
• Should profits be retained or distributed?
• Which lenders consider retained earnings?
• How do income multiples differ?
• Should I plan ahead of applying?

FAQ

Do lenders accept retained profits?

Some lenders will consider retained profits where appropriate, subject to criteria.

Is salary plus dividends still important?

Yes, it remains the primary route for many high street banks such as Barclays or NatWest, as they typically assess affordability using salary and dividends. However, specialist lenders may offer more flexibility for directors who retain profits within their businesses.

Can complex income still be assessed?

Yes, depending on lender approach and documentation.

Does Corporation Tax treatment matter?

Yes, as lenders may assess income differently.

Should I change drawings before applying?

This depends on individual circumstances and professional advice.

Final Thoughts

Whether retained profits or dividends result in higher borrowing will depend on lender interpretation, affordability criteria, and personal circumstances.

Directors who plan ahead and seek appropriate guidance may be better positioned to understand their options.

Mortgage lending criteria, affordability assessments, and tax rules can change, and individual circumstances will affect outcomes.

FCA Disclaimer:

Your home may be repossessed if you do not keep up repayments on your mortgage.

Important Regulatory Note:

Some commentary within this article draws on themes discussed in previous publications and reflects general insights around tax efficiency and financial planning for company directors.

Tax advice is not regulated by the Financial Conduct Authority. Where tax considerations are discussed, they are provided separately from regulated mortgage advice, even if both areas are covered within the same conversation.

Tax and accountancy services are provided by WIS Accountancy Ltd, which operates independently from mortgage advisory services. Further information can be found at: www.wisaccountancy.co.uk

Any advice provided by WIS Accountancy Ltd is covered under its own professional indemnity insurance.

The author is a director of both businesses, however each operates within its respective regulatory framework. Mortgage advice is regulated by the Financial Conduct Authority, while accountancy services fall under the professional standards of the Chartered Institute of Management Accountants.

This article is not a financial promotion and should not be relied upon as a recommendation to take any specific action. Readers should seek advice tailored to their individual circumstances.

Author Bio

Ifthikar Mohamed is a mortgage adviser and fintech entrepreneur working with company directors, professionals, and investors to help navigate complex borrowing decisions while considering broader financial planning. He is authorised for mortgage advice and professionally affiliated with the Chartered Institute of Management Accountants.