Budget 2017: Unwelcomed surprise for investors as Chancellor slashes dividend tax allowance

Budget 2017: Unwelcomed surprise for investors as Chancellor slashes dividend tax allowance

The tax dividend allowance was introduced in 2016 but is now already facing a cut. Phillip Hammond in his first and last spring budget has announced that the tax dividend allowance will be cut from £5,000 to £2,000 from April 2018.

 

This is an unwelcomed surprise from both industry experts and savers alike. Commenting on the tax dividend allowance announcements, Adrian Lowcock, investment director at Architas, said:

“The chancellor’s decision to reduce the dividend allowance is a stark reminder of why using tax wrappers such as ISAs and pensions, whenever possible, is so important because you do not know when tax breaks might disappear”

In addition, Tracyann Kneen, product technical manager at Nucleaus, said:

“The cut will impact shareholder directors and investors with significant portfolios of typically more than £50,000. Using their ISA and pension allowances will become even more important”.

This announcement is an extra sting to already struggling savers who have looked to dividends in response to low interest rates and low inflation. Savers will now need to re-think again about which tax wrapper and income will be the most tax-efficient.

 

However, there is still time to act.

There are still two ISA allowances to take advantage of before the cut comes into effect.

You still have time to shelter up to £15,240 from the tax man this year before the end of the tax year on 5th April. The only upside from this announcement is that from the 6th April, savers can open a new ISA and save up to £20,000 tax free.

If you’re disappointed with low returns, you may find a better alternative with investing. Many people are opting out of Cash ISAs in search of higher returns and are continually using stocks and shares ISAs Instead.

The JES Stocks and Shares ISA aims pay an income of 3.5% * with the added advantage of potential capital growth on top.

 

If you would like to maximise your ISA allowance or if you have a cash ISA and are considering moving into alternative investments, then please call your investment manager on 01934 875 919.

 

 

*The 3.5% is an estimate annual yield from a model cautious income portfolio, which is not guaranteed and may be revised in the future. The value of the investment can rise as well as fall and you may get back less than initially invested. The level of risk and the objective of the portfolio that the JES Stocks & Share ISA is exposed to may affect the growth of your investment. For example, a model medium growth portfolio has an estimate annual yield of 2.9% and a model moderate balanced portfolio has an estimate annual yield of 3.1%