Dividend Tax Grab Could Hit 90,000 Retired Investors

experts are warning that as many as 90,000 wealthy retired investors could lose significant amounts of money because they are not holding their investments in tax-efficient wrappers.

The warning follows Chancellor Phillip Hammond’s grab for revenue from investors by slicing 60% off the £5,000 tax-free dividend allowance.

The measure was announced in Budget 2017, reducing the dividend allowance to £2,000 from April 6, 2018.

The aim was to remove a tax perk for the self-employed who incorporated into a one-man company, but the unintended consequence impacts thousands of other investors.

“A significant number of our customers have portfolios over £50,000 that are not being held within a tax efficient wrapper such as an ISA. These are not company directors paying themselves through dividends. Many are pensioners who turned to investing because interest rates were so low,” said Darren Cornish of The Share Centre.

What the dividend tax change means

“They could see their tax liability increase by hundreds or possibly thousands when the allowance is reduced next year. Taken across the industry as a whole we estimate there are around 90,000 investors in this position.”

Cornish explained that a £50,000 portfolio generating a 4% a year dividend income would account for the £2,000 tax-free allowance.

Before April 2018, investors can set off dividends of £5,000 produced from a £125,000 portfolio with a 4% yield.

If they want to move their shares into a tax-efficient wrapper, such as an ISA, the annual allowance is £15,240 for 2016-17, rising to £20,000 next year, leaving £39,760 producing a taxable income of £1,590 a year.

Bed and ISA

Switching shares from a personal holding by ‘bed and ISA’, but this may mean selling cheaper than the buy price, trigger stamp duty and sale commission.

The tax-free dividend allowance was only introduced in April 2016 by former Tory Chancellor George Osborne.

Basic rate income tax is paid on dividends of more than £2,000 at 7.5%. Higher rate taxpayers pay at 32.5% and additional rate taxpayers at 38.1%.

“Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive over the £2,000 allowance,” said a government spokesman.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article

Struggling Forex Broker Bought Flats With Company Funds

A forex broker whose company was approaching financial meltdown switched £1.05 million from a business account to buy two apartments in Dubai in a...

Stock Markets Slump To Worst Quarter In 37 Years

Stock markets slumped to record losses in the first three mnths of the year due to fears over how coronavirus impacts the world economy...

Operation Airlift Underway For Brits Stranded Abroad

The British government is working with partner airlines to bring thousands of stranded travellers back to the UK. Foreign Secretary Dominic Raab has set aside...

Expat Landlords Get Buy To Let Mortgage Aid

The financial pain of coronavirus uncertainty for buy to let landlords has been eased by the housing minister. Secretary for Housing Robert Jenrick is extending...

Financial Package On The Way For Self-Employed

Financial support is coming for freelance and self-employed expats who pay their taxes in the UK, Prime Minister Boris Johnson has promised. In his last...