Hammond cuts dividend allowance

Hammond cuts dividend allowance

The tax-free dividend allowance will be slashed by less than half its current limit, as chancellor Philip Hammond looks to address the unfairness in the tax system.

From April next year, the tax-free dividend allowance will drop to £2,000 from £5,000.

In today’s (8 March) Spring Budget, Mr Hammond said he wanted to address what he described as the “unfairness” around the director/shareholder tax advantage.

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As the rule currently stands, each director is allowed to take £5,000 of dividends out of their company tax free, over and above the personal allowance.

Mr Hammond said this is an “extremely generous” tax break for investors with substantial share portfolios.

About half of the people affected by this measure are directors of private companies.

The rest are investors who have shares with holdings worth more than £50,000 on average outside of Isas.

Mr Hammond added: “Everyone will benefit from the generous £4,760 increase in the annual Isa allowance, to £20,000, and the further increase in the personal allowance to £11,500 from April.”

The chancellor said he wanted to ensure the tax regime does not encourage people across the economy to form companies simply to reduce tax liabilities, which he said pushed the burden of financing our public services onto others.