Banner

Chancellor mulls abolishing dividend allowance

The Treasury is reportedly considering abolishing the dividend allowance in Autumn Budget 2018, according to a report.

The Telegraph claims Chancellor Philip Hammond has business owners, directors and shareholders in his sights once again to help fund a government pledge to increase spending on the NHS.

Hammond cut the dividend allowance from £5,000 to £2,000 in Autumn Budget 2017, with the move taking effect from 6 April 2018.

The first £2,000 taken in dividends in 2018/19 is tax-free, with anything above this threshold being taxed according to the individual's rate of income tax.

Business owners, directors and shareholders use the dividend allowance to extract profits from their business, but recent changes have reduced this strategy's tax-efficiency.

The speculation prompted a backlash from the Federation of Small Businesses (FSB), which estimates the Treasury would raise £1.3 billion by 2022 from removing the dividend allowance.

Mike Cherry, chairman of the FSB, said:

"We need to back small businesses and their shareholders - no clobber them with a secret tax grab."

Talk to us about the dividend allowance.