Reduction In Dividend Allowance Likely To Affect Retirees

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Many retirees use dividend income from their investment portfolios as a vital supplement to their income in retirement. Currently there is no tax to pay on dividend income up to £5,000 per year. However, it was announced in the 2017 Spring Budget that the dividend allowance will reduce from £5,000 to £2,000 per year from 6 April 2018. The chancellor, Philip Hammond, presented this change as a way of reducing the attraction of owner/managers of small companies paying themselves dividends instead of salaries. However, another consequence is that the proposed reduction will hit retirees too, as it applies to all dividend income - including those retirees with significant investment portfolios.


From 6th April 2018 the reduced dividend allowance will reduce the size of portfolios that can deliver tax-free income. For instance, a £100,000 portfolio with a dividend yield of 2% will hit the £2,000 dividend allowance limit. A portfolio of £57,142 with a dividend yield of 3.5% will also reach the £2,000 tax-free limit. It is important therefore that investment portfolios are reviewed from a tax point of view.


The change has highlighted the value of sheltering as much of a portfolio as possible within a tax-free ISA every tax year. In the 2017/18 tax year, £20,000 per adult can be moved into an ISA. In addition, it is well worth considering the suitability of other tax wrappers such as investment bonds. Also do not forget the annual capital gains exemption - £11,300 for the 2017/18 tax year - an under-utilised way of gaining tax free 'income'.


Please note that tax rules can change and the value of any benefits depends on individual circumstances.  For personalised advice, Richard Higgs at Wealth West provides important Chartered Financial Planning for the retired and elderly in BS9, delivered in a friendly way and on a face to face basis in the comfort of clients' own homes. He specialises in particular in planning for inheritance tax and long-term care as well as investment and retirement planning advice. He can be reached on (0117) 363621 or or alternatively can be contacted through the website at

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