The Chancellor announced in yesterday’s budget that the tax-free dividend allowance will fall from £5,000 to £2,000 a year from April 2018. This means investors should look to act now to make the most of their tax allowances.

Investors have the opportunity to shelter £15,240 in an Isa in this current tax year to 5th April 2017, so need to move quickly if they have not used their full allowance. They then have the opportunity to shelter a further £20,000 in the 2017/18 tax year, as the Isa allowance is increasing from 6th April. Potentially they could also shelter £20,000 on the first day of the 2018/19 tax year (6th April 2018).

Mr Hammond explained that the greatest beneficiaries of the tax-free dividend allowance are currently either director-shareholders or wealthy savers with share portfolios worth more than £50,000. At the moment, investors can hold around £150,000 in share-based portfolios tax-free. The cut in the allowance to £2,000 will reduce that figure to around £60,000. 

This emphasises the need to make the most of the generous Isa allowances to maximise your tax-free income.

For help or advice on the tax-free dividend allowance cut, and how it impacts on your portfolio, contact Kellands.

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