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Tax-free Dividend Allowance To Be Reduced

Tax-free dividend allowance to be reduced
The government is looking to reintroduce its plan to reduce the tax-free dividend allowance from £5,000 to £2,000.

Tax-free Dividend Update

The measure was originally announced in Spring Budget 2017 but was one of 72 clauses removed from Finance Bill 2017 after prime minister Theresa May called a snap election.

However, the Treasury has now confirmed it will be included in new legislation being tabled “as soon as possible” after the House of Commons resumes on 5 September 2017.

The reduction in tax-free dividend allowance will be effective from April 2018.

In addition, investment stockbroker The Share Centre polled 1,000 of its customers and found that 53% wanted the government to protect the dividend tax allowance.

Darren Cornish, director of customer experience at The Share Centre, said:

“This measure was intended to level the playing field between the employed and the self-employed. However, an unintended consequence is that it hits those who are using dividends to fund their retirement.

“This lack of certainty can be very unhelpful for investors looking to plan appropriately.”

Spring Budget 2017

You may remember there were some radical plans announced in the Spring Budget 2017 with Mr Hammond raising the 9% rate of National Insurance on profits by the self-employed firstly to 10% and eventually to 11% by 2019 in a bid to raise an extra £2bn of tax revenue for the current term of Parliament. Philip Hammond said this is in response to more and more people choosing to work for themselves then become employed. He cited that a preliminary review had found lower rates of tax compared to employment were driving this trend of self-employment.

Phillip Hammond also targeted self-employed people who work through a personal service company and pay themselves in dividends. The tax-free allowance on such payments originally announced in the Spring Budget 2017 was that they would be cut from £5,000 to £2,000 from next year – raising over £2.5bn in tax revenue by the next election. The planned changes to the tax-free dividend was one of the clauses removed from Finance Bill 2017 after the snap election but looks like it is going to be re-introduced by April 2018.

Tax-free Dividend Allowance Advice – Assured Wealth & Estate Planning

Talk to our Liverpool Financial Adviser, Manchester Financial AdvisorWilmslow Financial Advisor, Warrington Financial AdvisorWest Kirby Financial Advisor or Altrincham Financial Advisor team today about how the re-introduction of the planned tax-free dividend allowance reduction will affect your business and self-employment choices.

Get in touch to form your dividends strategy.

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