Advisers have revealed the dividend tax cut was the Spring Budget announcement that will have the biggest impact on their clients.
Among those who took part in the latest poll for FTAdviser Advantage, 86 per cent said chancellor Philip Hammond’s decision to slash the tax-free dividend allowance from £5,000 to £2,000 from April 2018 would be more significant for clients than the changes to taxation for the self-employed and the NS&I Investment Bond savings rate announcement.
"Cutting the dividend tax allowance so drastically, especially as it was only introduced recently, will be a blow to savers," said Darius McDermott, managing director at Chelsea Financial Services.
He added: "However, most people will be able to shelter their dividends still by using their Isa - particularly given the Isa allowance is increasing in the 2017 to 2018 tax year.
"Only those who are lucky enough to have more to invest than the Isa allowance will really be hit."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Ordinary investors are now vulnerable to paying much more tax on their dividends unless they use tax shelters to protect their income-producing funds and shares.
“This will be particularly galling for those investors who have turned to the stock market for income because the Bank of England’s monetary policy has obliterated the interest they were earning on cash.”
Many in the savings industry believed the chancellor’s swipe at the dividend allowance would push more savers and investors into Isas, and in particular into stocks and shares Isas.
Only 14 per cent of those polled said the changes to the way self-employed people are taxed would affect their clients, after Mr Hammond’s U-turn on the tax hike.
Just one week after the Budget the chancellor dropped his plans to increase National Insurance for self-employed people following pressure from within his own party.
The government also confirmed the rate on the NS&I Investment Bond, which was announced at the Autumn Statement.
It revealed the product will offer a “market leading” rate of 2.2 per cent over a term of three years.
But this rate has already been outpaced by inflation, which came in at 2.3 per cent in February, up from 1.8 per cent a month earlier – it’s biggest monthly rise since 2012.
It remains to be seen whether the lower than inflation rate of the investment bond will hamper take up.
Steven Dicker, chief actuary at PWC, said: "The £3,000 NS&I bond paying 2.2 per cent interest will be welcomed by pensioners just about managing on their savings, but amounts to just £66 a year in practice."
Mr McDermott added: "Overall, I think it was quite a boring Budget for savers - [Mr] Hammond left most things alone, which is a nice change from the past few Budgets."
eleanor.duncan@ft.com
