What looked to be the longest Finance Bill in history has been whittled down to a shadow of its former self with the Government deciding to remove a staggering 72 of the planned 135 clauses which equates to over half of the Finance Bill being postponed until after the UK General Election in June.

One of the measures dropped, was the proposal to slash the annual tax free dividend allowance from £5,000 down to £2,000 in the next tax year (2018/19). The £5,000 annual tax free allowance has only just come into effect as from the last tax year (2016/17).

Cutting the allowance to £2,000 was expected to generate almost £1 billion in extra tax revenue by the year 2020.

The reversal on this proposal will be welcomed by many investors not only because there will be a tax saving on their personal investments, but it will also mean for many that they will be released from the burden of completing annual Self-Assessment Tax Returns. 

For example, an investor with £5,000 or less of dividend income would have no additional liability to income tax, whereas reducing the tax free allowance to £2,000 would mean those investors with dividend income falling within the £2,001 to £5,000 bracket could potentially have faced a tax liability of up to £225.

Astonishingly, the annual tax free dividend allowance does not apply to Trustees or Executors, who would no doubt have welcomed a U-turn on this decision announced in the Finance Act 2016.

The measure to reduce the annual tax free dividend allowance was, needless to say, an unpopular one so it does seem rather co-incidental that a U-turn has been made ahead of the June General Election.

Contact our Personal Tax Solicitors Edinburgh

If you are unsure whether any of the changes above may affect your tax affairs, please contact our Head of Tax, Laura Brown. (This email address is being protected from spambots. You need JavaScript enabled to view it.)

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