The dividend allowance was introduced in the 2016/17 tax year to encourage people to invest by making the first £5,000 of dividend income earned by shareholders each year tax-free from 6/4/18 the tax-free dividend allowance to will reduce £2,000.
Dividends above the £2,000 threshold will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for top earners.
The most likely to be affected are business owners who pay themselves dividends as a more tax-efficient alternative to salary. But, it will also leave some private investors worse off. That includes, perhaps unintentionally, those who are using dividends to help fund their retirement. Many could be pensioners who turned to investing in equities because interest rates were so low.
If you are concerned about the change and would like us to look at your remuneration strategy or what options are available to you for the next tax year please do get in touch with Sue Stephens.
