17 November 2022
If you are covering the reduction in the dividend allowance, please find comments from Shaun Moore, financial planning expert at Quilter.
“Jeremy Hunt has slashed the dividend allowance from £2,000 to £1,000 from next year and to £500 from April 2024. The dividend allowance was introduced to help savers in 2017. Having initially been at £5,000, it has been frozen at £2,000 for the past five years, however, the £2,000 allowance covered the majority of savers’ dividend income. The Chancellor’s move will mean more people end up paying tax on their dividends.
“For a basic rate taxpayer, the reduction in the dividend allowance to £1,000 will mean they will end up paying £87.50 more in tax. Similarly, if you are a higher rate taxpayer this rises to £337.50 more in tax and £393.50 if you are an additional rate taxpayer. From April 2024, a basic rate taxpayer will pay £123.75 more, increasing to £506.25 and £590.25 for a higher rate and additional rate taxpayer respectively.
|
Dividend allowance |
|||
|
Cost for basic rate taxpayer |
Cost for higher rate taxpayer |
Cost for additional rate taxpayer |
|
|
£1,000 |
£82.50 |
£337.50 |
£393.50 |
|
£500 |
£123.75 |
£506.25 |
£590.25 |
“Dividends are a popular way of creating a regular income from investments and therefore reducing the allowance will mean those who rely on dividends for the bulk, or all of their regular income will see this taxed at a much higher level when held outside of a ‘tax wrapper’ such as an Isa or pension.
“To avoid paying more tax than is necessary on dividends, you should ensure you are making use of all available tax shelters, such as the generous £20,000 Isa allowance. Furthermore, if you are a higher rate taxpayer, it may make sense to plan as a family and transfer shares to another family member who is in a lower tax bracket. You can also make use of children’s Jisa allowance which is set at £9,000 annually.”
