The Share Centre has estimated around 90,000 investors in the UK will be caught by recent changes in the dividend tax allowance.
In the Spring Budget this year, Philip Hammond announced he will reduce the dividend allowance from £5,000 to £2,000 from April 2018 in a move that experts have said being “a slap in the face” for firms and investors.
Investors with a portfolio of over £50,000 that are not already in a tax efficient account will be affected by the cut, the firm says.
The platform suggests moving investments to an Isa, which from April 2018 will increase its tax free allowance to £20,000. By moving their assets, however, the platform will charge a dealing commission charge on the sale and, if applicable, a stamp duty.
Darren Cornish, director of customer experience at The Share Centre says: “The Tax Free Dividend Allowance was originally set at £5,000 to support the self-employed operating through their own companies.The new threshold of £2,000, coming into effect in April 2018, is therefore part of the measures to level the playing field between the employed and the self-employed – alongside the proposed increase in Class 4 National Insurance which has now been scrapped.
“However, an unintended consequence of the change to the Tax Free Dividend Allowance could be that it penalises those who are using dividends to fund their retirement.”
Cornish says “a significant number” of the platform’s customers have portfolios over £50,000 that are not being held within a tax efficient wrapper such as an ISA.
These are mainly pensioners who invest on the basis of low interest rates.
Cornish says those clients could see their tax liability increase “by hundreds or possibly thousands” when the allowance is reduced next year.