The new dividend allowance

Investors and the self-employed are facing a reduction in dividend income that can be received tax free.

The limit will be cut from £5,000 to £2,000 next month 9 April 2018.  Currently only those with about £140,000 invested outside an Isa are affected by dividend taxes, assuming a reasonable investment return.

If you earn dividends exceeding the allowance, the tax due is based on your marginal rate of income tax, with basic-rate payers charged 7.5pc, higher rate payers 32.5pc and additional rate payers 38.1pc.

Someone who earns £5,000 in dividends will have to pay £225 tax if they are a dividend taxpayer, or £975 if they a higher-rate payer from April 2018.

John BaxterComment