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FSB: Leave Dividend Allowance alone

The FSB has voiced its fears that the Treasury could drastically cut the tax-free Dividend Allowance for directors and investors in the upcoming Autumn Budget 2018.

The Federation of Small Businesses (FSB) has voiced its fears that the Treasury could drastically cut the tax-free Dividend Allowance for directors and investors in the forthcoming Autumn Budget 2018.

The FSB is concerned that Chancellor Philip Hammond – who has yet to announce a date for the Budget – is being tasked with another tax grab to fill the funding gap for the NHS.

In the Chancellor’s 2017 Budget, the Dividend Allowance was slashed by 60% from £5,000 to £2,000, a move which has been in effect since April 2018.

Mike Cherry, Chairman of FSB, believes the Treasury could hit the Dividend Allowance again to generate £1.3bn in additional revenue for the NHS by 2022. That’s on top of the initial £2.6bn earned from the initial 60% cut in the 2017 Budget.

“We need to back small businesses and their shareholders – not clobber them with a secret tax grab”, said Cherry.

What is the Dividend Allowance?

The Dividend Allowance is a tax-free lump sum that dividends investors can receive. It also relates to director shareholders of private companies that may pay themselves in the form of dividends as opposed to a salary.

Dividends can either be accepted as a cash lump sum or reinvested into a savings or investment account.

Prior to the 2017 Budget, the £5,000 allowance meant that any dividend income above the £5,000 threshold was taxed at 7.5% for basic rate taxpayers. Higher-rate taxpayers’ dividends would then be taxed at 32.5% and additional rate taxpayers’ dividends taxed at 38.1%.

Post-2017 Budget, director shareholders have experienced increased tax exposure, with the tax-free Dividend Allowance lowered to £2,000.

The Government itself estimates that this tax cut will affect more than two million people in the 2018-19 financial year, resulting in average losses of £315 per person.

When quizzed about the prospect of another cut to Dividend Allowance, a spokesman for the Treasury said: “We keep all taxes under review.”

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