Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Investment news

The dividend allowance is staying at £5,000 – for now

Good news for dividend investors – the Government has made a U-turn on its plan to cut the dividend allowance from £5,000 to £2,000. The change was announced in the Spring Budget by Chancellor Philip Hammond, but has been dropped from the Finance Bill in the lead up to the snap general election on 8 June.

What is the dividend tax allowance?

The tax-free dividend allowance lets you take up to £5,000 of income from dividends without paying any Income Tax. Above this amount, dividend payments are usually taxed at between 7.5% and 38.1% depending on which tax band you are in. If your dividend-paying shares are held in an ISA you won’t pay any tax at all.

The power of dividends

Dividends are small portions of a company’s profits paid to shareholders, usually every three months. This makes them a popular choice for investors looking for a regular income, especially as interest rates on savings accounts are currently at all-time lows.

Dividends aren’t just great for income-seeking investors though – reinvesting them can significantly boost your total returns. Historically, much of the total return from UK equities has come from reinvesting dividends. Over the last 25 years the FTSE All-Share index has grown 214%, but this figure jumps to 644% if reinvested dividends are included*.

Speak to an expert about your tax allowances

This change to the dividend allowance can make a big difference for people looking to make the most of their allowances and take an income tax-efficiently. To find out how the change could affect your financial plans, or to check that your savings and investments are as tax-efficient as possible, get in touch with your usual Tilney contact or book an appointment with a Tilney financial planner.

*Source: Lipper for Investment Management, data to 31/01/2017.

 

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