Advisers call dividend allowance cut a ‘slap in the face’

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Advisers have hit out at the Government’s move to cut the dividend allowance from £5,000 to £2,000 from April 2018.

The tax-free allowance, first introduced by George Osborne less than a year ago, means the first £5,000 of dividend income is tax-free, regardless of other levels of non-dividend income.

This level will be reduced to £2,000 next April.

In the Budget yesterday, Hammond said: “The dividend allowance has increased the tax advantage of incorporation. It allows each director/shareholder to take £5,000 of dividends out of their company tax-free, over and above the personal allowance. It is also an extremely generous tax break for investors with substantial share portfolios.

“I have decided, therefore, to address the unfairness around director/shareholders’ tax advantage, and at the same time raise some much needed-revenue to fund the measures I shall announce today, by reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.”

Thameside Financial Planning director Tom Kean calls the cut “a real slap in the face” to small business owners.

He says: “I am fundamentally against the cut in the dividend allowance. It’s headline grabbing, bad for business owners who are already taking a lot of risks and now all the benefits have been slashed. On a human level, this is a pernicious move.”

Informed Choice managing director Martin Bamford agrees the move is disappointing.

He says: “We knew the tax-free dividend allowance was short-lived when first announced anyway. It was a step too far when Osborne introduced it. This is bad news for investors.

“The message since day one when it came out was not to be too complacent because tax allowances like these will change in the future.”

When the coalition government announced the tax overhaul on dividend payments in the 2015 Budget, experts warned it would risk discouraging investors from ploughing funds into large UK companies.

Page Russell director Tim Page says the Chancellor is looking into areas to raise “extra money” that will not affect him politically.

He adds: “Both Hammond and the former government, but also Labour, have made so many promises not to put out big taxes and also protect spending on NHS etc, but there are so few areas to change left for Hammond now. He’ll carry on looking at small obscure rules like this and keep tweaking them.”