The Chancellor, Philip Hammond delivered his first and last Spring Budget last week, which proved to be very unexciting and did not provide good news for investors’ or the self-employed.
The two main areas which stood out were:
• The increase in the self-employed National Insurance Contributions to 10% in 2018 and then 11% in 2019
• The reduction in the annual dividend allowance from £5,000 to £2,000 from 2018.
Although the Government are now talking about delaying the increase in the self-employed National Insurance hike, the reduction in the dividend allowance will still go ahead. This will affect investors’ who receive dividends from their equity investments and those with limited companies, who draw dividends from their businesses. Currently, you can receive dividends up to £5,000 per annum without being subject to tax and any excess is taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. The reduction in the allowance will increase the income tax liability for many investors on their portfolios from April 2018, when this reduction takes effect.
Equities still represent better growth opportunities compared to fixed interest and deposit accounts and investors should still continue to invest in these types of investments. However, if for instance, you are a higher rate taxpayer and you are concerned by the reduction in the dividend allowance, you can look to target your tax-free allowances firstly, such as ISAs (which will increase to £20,000 from April), which can hold stocks and shares and will be unaffected by the dividend allowance. For any non ISA equity investments, you can make the most of the dividend allowance over the next year and then review your portfolio and consider targeting more growth funds, which pay lower dividends.
If you are concerned by any of the matters announced in the Budget and wish to take action now with your investments to reduce any future tax liability, please speak to one of our highly qualified Advisers who will be happy to discuss your requirements with you