The dividend tax allowance cut was predicted by experts last week, and it will fall again to £500 in 2024, the Chancellor of the Exchequer Jeremy Hunt, said in today’s Autumn Statement.
The dividend allowance was set at £2,000 for the 2022 to 2023 tax year. It has been at £2,000 for the last five years. Before this it was at £5,000.
The allowance is an extra tax-break on top of the personal allowance of £12,500 which everyone gets. It applies to funds or shares that are held outside of a pension or an ISA.
The announcement comes as inflation hit 11.1% in October, a 41-month high, and the UK is in the middle of a cost-of-living crisis.
Hitting the self-employed, retirees and non-ISA investors
Experts noted that cut in allowance was likely to hurt the self-employed and those who hold assets outside of ISAs.
Richard Campo, founder of broker firm, Rose Capital Partners said: “Cutting the dividend rate is another insult to self-employed people who take additional risks to employees, but one of the few benefits of lower taxes is being eroded.
“Self-employed people disproportionately create more wealth and jobs than any other sector, so hitting them with more tax simply erodes their ability to do so in the future.”
Chris Springett, tax partner at wealth managers Evelyn Partners, noted that the cut would hurt business owners and investors alike.
He said: ‘This is a blow to investors who hold assets outside of ISAs and to retirees who rely on dividend income to supplement their pensions. It’s yet another reminder to make use of ISAs allowances as a tax-free umbrella for owning investments.
‘Business owners, many of whom pay themselves partially or primarily through dividends rather than salaries, will also be hit.’
Susannah Streeter, senior investment and markets analyst for Hargreaves Lansdown, agreed with this assessment.
She said: “Investors who hold money in funds or shares outside a pension or an ISA will face paying more on any income, and people who have diligently invested over the long term to build their financial resilience will no doubt feel unfairly swiped by this grab from the rewards of their efforts.
“[And] for business owners who pay themselves in dividends, this is yet another blow at a time when they’re wrestling with existential threats to their businesses – from runaway energy bills to rising prices and wage bills.”
