One of the most significant announcements made by the Chancellor Philip Hammond in the recent Spring Budget was the change to the amount of tax-free dividends that can be received by both company directors and shareholders.
From April next year, the current amount of £5,000 will decrease to just £2,000. This is set to raise an extra £930 million of revenue for the Treasury in 2021/22 making it the biggest tax earner announced in the Budget.
The current rules were introduced in April 2016 and mean that an individual receives a tax break on the first £5,000 of annual income from dividends. Anything above that is taxed at 7.5% for basic-rate taxpayers, rising to 32.5% for those on the higher rate and 38.1% for those paying additional rates of tax.
The reduced tax-free dividend rate is also set to impact those who have reasonably sized stocks and shares investments outside ISAs. The Treasury estimates this to be around 1.1 million investors.
However, there is a positive note for investors thanks to the increase in the ISA allowance:
– From April this year, the amount that can be invested in an ISA is set to rise from £15,240 to £20,000, and all dividends generated within ISAs will have no further tax implications.
– By making use of the new allowance, most investors will be able to avoid feeling the effect of the changes to dividend tax.
The key advice is to take stock of your tax-efficient ISA holdings. Review your situation. And remember that reviews are part of our added-value services for our clients.
Barry Fleming & Partners has grown from a tax advisory background into a broader business that encompasses investment management. Both things matter for wealth management, retention and creation. That expertise makes the company strikingly different from others.
This capability allows Barry Fleming and Partners to use its strength in tax advice to take a 360-degree-view of a financial situation to give much broader, more comprehensive advice.
We bring together up to the minute tax, estate, investment and retirement planning advice to create individual, ‘joined up’ financial strategies. This allows our clients to understand and have confidence in how they can best control, retain, and build their assets and income to achieve their objectives with least risk.
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Barry Fleming & Partners are an independent financial advisor specialising in ISA’s, Pensions, Tax, Trusts, Estate Planning, Inheritance Tax Planning (IHT) and other Financial Planning areas. Please don’t hesitate to call on 01488 608 686 and ask to talk to one of our financial advisors. Alternatively use the contact form on our home page.