OpinionMar 8 2017

Brewin Dolphin's Clark decries Budget's dividend allowance cut

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We awaited Philip Hammond's first and last Spring Budget with eager anticipation.

Would we see “Spreadsheet Phil” or “Happy Hammond” delivering a budget to appeal to Middle England? There was scarce mention of the “B” (Brexit) word during the 55 minutes during which the Chancellor stood at the dispatch box.

The most significant change announced today was the slashing of the dividend allowance from £5,000 to £2,000. 

This formed part of the Chancellor's drive to reduce the cost of incorporation, a policy he announced at the last Autumn Statement. This will cost private investors who rely on the dividend income from their portfolio income.  

This announcement is a further body blow for the private client in their hunt for net returns in a low return environment.

Investors who have not incorporated to take advantage of potentially lower tax rates but hold direct equities as part of their investment portfolio. 

Seemingly the Chancellor is not able to differentiate from those who are controlling directors in an incorporated business and those who have opted to invest into listed equities in which they have no inference. 

For a basic rate taxpayer the changes could potentially cost a further £225 per year, a higher rate taxpayer £975 and for an additional rate tax payer a further £1,143 per year. 

With dividends forming a significant part of private client investment returns, this announcement is a further body blow for the private client in their hunt for net returns in a low return environment. 

The reduction in the dividend allowance reinforces the need for the disciplined use of tax efficient wrappers such as Individual Savings Accounts, investment bonds and pensions.

With ISA allowances being increased to £20,000 pa from April 17, this will assist in the ability for investors to shelter returns in a tax efficient environment. 

For those entrepreneurs and direct investors in businesses this Budget will feel like it is just as another kick in the teeth, especially at a time when the Chancellor is advocating that Britain is open for business. 

Business owners may potentially need to reconsider their remuneration strategies in light of the Chancellors drive to reduce the cost of incorporation.

Lee Clark is a chartered financial planner for Brewin Dolphin