April 2018 will see a £3,000 reduction in the tax-free dividend allowance.
The allowance, for shareholders and directors of small private firms, will decrease from £5,000 to £2,000 from April 5, 2018.
According to HM Revenue and Customs (HMRC) the change will affect individuals and households who receive dividend income in excess of £2,000; It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.*
The reduction was announced by The Chancellor Phillip Hammond during his Spring Budget Speech last year (2017).
It was a move designed to provide ‘fairness’ and ‘reduces a tax perk that had been enjoyed by those trading through limited companies and by private investors’.
“This measure will ensure that support for investors is more effectively targeted and that the total amount of income they can receive tax-free is fairer and more affordable, in light of increases to the tax-free personal allowance and the Individual Savings Accounts (ISA) allowance,” said HMRC.
“It will also partially reduce the tax difference between the self-employed and those working through a company.”
The Chancellor said that HMRC estimated the cost of people working through companies at £6bn a year: “It’s not fair and it’s not affordable,” said the Chancellor.
The move is expected to raise £2.63bn by 2021/22.
*Figures from www.gov.uk